[co-author: Adam Keay]

EU’s 12th Sanctions Package

On 19 December 2023, the Council of the European Union (EU) together with the Commission published its 12th round of sanctions.

Key Takeaways

• A total of 140 new designations (56 individuals and 87 entities).
• Stricter obligations in respect of the re-export of critical and sensitive goods to Russia.
• Enhanced reporting requirements under the G7+ oil price cap.
• Stronger anti-circumvention measures that seek to enhance transparency and information sharing.
• Several products are now the subject of import and export controls (including new trade restrictions in respect of diamonds and diamond-jewellery).
• Exemptions relating to personal items, such as personal hygiene, cars, as well as providing extended wind-down periods for the import of specific steel products.

UK’s 7th Sanctions Package

On 14 December 2023, the UK Foreign Commonwealth & Development Office together with the Department for Business and Trade formally announced the implementation of the UK’s 7th trade sanctions package.

Key Takeaways

• A ban on the import of diamonds and diamond jewellery.
• A prohibition on the import or acquisition of metals from Russia, and the supply or delivery of metals from Russia to third countries.
• A prohibition on providing technical assistance, financial services and funds in relation to luxury goods.
• Amendments to the restrictions on “correspondent banking relationships”, and an expansion of the list of restricted banks with an additional 26 entities.
• Introduction of new reporting obligations for relevant firms in respect of designated persons.

A full analysis of both the new EU and UK packages continues below.

EU’s 12th Sanctions Package – Analysis

Import Restrictions

Russian Diamonds and Diamond Products

• From 1 January 2024, the EU has banned: (1) the purchase, import or transfer of “diamonds” and products incorporating diamonds (Diamond Products), if they originate in Russia or have been exported from Russia into the Union or to any third country; and (2) the direct or indirect provision of related services (technical assistance, brokering services or other services; manufacture, maintenance and use; and/or financing or financial assistance).
• The new prohibitions will be phased-in as follows:
  • As of 1 January 2024 – All Diamond Products which (i) originate in Russia; (ii) have been exported from Russia to the EU or any third country; or (iii) transited via Russia.
  • As of 1 March 2024 – Unsorted and non-industrial diamonds processed in a third-country, consisting of diamonds originating in Russia or exported from Russia with a weight equal to or above 1.0 carats per diamond.
  • As of 1 September 2024 – All Diamond Products that have been processed in a third country, consisting of or incorporating diamonds originating in Russia or exported from Russia with a weight equal to or above 0.5 carats or 0.1 grams per diamond.
• New evidentiary obligation imposed for Diamond Products processed in third countries. From the moment of importation:
  • Unsorted and non-industrial worked or simply sawn, cleaved or bruted diamonds falling under CN codes 7102 31 00 and 7102 10 00 must be submitted for verification to the Federal Public Service Economy at the Diamond Office, Belgium, with verifications to be carried out in accordance with the Kimberley Process certification scheme.
  • EU importers must provide evidence of the country of origin of Diamond Products used as inputs for the processing of the product in a third country.

Liquefied Propane Gas and Russian Metals

• New restrictions introduced prohibiting EU persons from importing goods which generate significant revenues for Russia, namely (i) pig iron and spiegeleisen, (ii) copper wire, (iii) aluminium wire, (iv) foil, (v) tubes, (vi) pipes and (vii) liquefied propane (LPG).

Export Restrictions

Dual-use and advanced technology items

• Twenty-nine entities added to the list of entities subject to enhanced restrictions on dual-use and advanced technology items. The new designated entities are located in Russia, Uzbekistan and Singapore.
• The list of advanced technology items subject to EU export controls has been extended and now includes chemicals, lithium batteries, thermostats, DC motors and servomotors for UAV, machine tools and machinery parts.

Software for the management of enterprises and software for industrial design and manufacture

• New prohibitions in respect of the sale, supply, transfer, export or provision of enterprises management and design-related software to the Government of Russia or entities in Russia. In addition, it is prohibited to provide technical assistance, brokering services or other services, as well as financing or financial assistance in respect of these activities.
• New prohibitions in respect of the sale, supply, transfer, export or provision of Design and Manufacturing Software used in the areas of architecture, engineering, construction, manufacturing, media, education and entertainment.
• The new restrictions may also potentially capture Software as a Service (SaaS) as it explicitly restricts EU persons who seek to “provide”, as well as “sell, supply, transfer and export” phrasing used previously.

Phasing out the exemption for insurance/reinsurance in respect of items suitable for energy exploration and/or production purposes

• The EU exemption relating to the provision of insurance or reinsurance for items suitable for energy exploration and/or production purposes will be phased by 20 June 2024.

Restrictions on services

Replacement of the exemption for Russian subsidiaries with a licencing requirement

• As of 20 June 2024, the EU exemption which enables EU persons to provide prohibited services to Russian entities that are owned or controlled by entities in the EU, The European Economic Area (EEA), Switzerland or a partner country, will cease to apply.
• As of 20 June 2024, a new licencing ground will permitting the competent authority to grant a licence to provide services to Russian subsidiaries that are owned or controlled by entities the EU, EEA, Switzerland or a partner country.

Removal of exception on providing software update services to Russian persons

• The exemption which enables EU persons to provide, directly or indirectly, architectural and engineering services, legal advisory services and IT consultancy services to the Government of Russia, or legal persons, entities or bodies established in Russia, with respect to services necessary for software updates for non-military use and for a non-military end user.

Introduction of assistance prohibitions with respect to restricted services to Russia

• In addition to the existing provision of services restrictions to Russia, the new measures also prohibit the provision of technical assistance, brokering services or other services, as well as financing or financial assistance in respect of such services.

Energy

New Attestation Requirements under Oil Price Cap

• As of 20 February 2024, service providers with no access to the purchase price per barrel of products subject to the EU oil price cap shall be required to “collect itemised price information for ancillary costs as provided by operators further up the supply chain of Russian crude oil or petroleum product trade”. Such itemised price information must be provided to counterparties and competent authorities, upon their request, for the purpose of verifying compliance with the EU oil price cap.

Information Sharing between Commission and Member States for Oil Price Cap Enforcement

• A new information sharing requirement between authorities has been introduced, in which “the Commission and Member States shall periodically share information with each other with a view to further identify vessels and entities of concern carrying out one or more deceptive practices while transporting Russian crude oil and petroleum products”. Deceptive practices can include “ship-to-ship transfers used to conceal the origin or destination of cargo and manipulations of the automatic identification system, while transporting Russian crude oil or petroleum products”.

Restrictions on tankers

• Prohibition against the sale/transfer of tankers to Russian persons or for use in Russia – It shall be prohibited to sell or transfer ownership, directly or indirectly, of tankers for the transport of crude oil or petroleum products falling under HS Code 8901 20, whether or not originating in the Union, to Russia or for use in Russia, unless authorised by the relevant national competent authority “under conditions they deem appropriate”. Authorisation will not be granted where a competent authority “has reasonable grounds to believe that the tanker would be used to transport, or be re-exported to transport, crude oil or petroleum products listed in Annex XXV, originating in Russia or exported from Russia for import into the Union in breach of Article 3m or for transport to third countries at a purchase price per barrel exceeding the price laid down in Annex XXVIII”.
• Reporting requirements for sale/transfer of tankers to non-Russian third countries – EU persons must report to their national competent authority any sale or transfer of ownership of tankers to third countries other than Russia which are used for the transport of crude oil or petroleum products falling under HS Code 8901 20. The notification to the competent authority shall contain, at least, the following information: the identities of the seller and the purchaser, and where applicable the incorporation documents of the seller and the purchaser including the shareholding and management; the IMO ship identification number of the tanker; and the Call Sign of the tanker.
• Reporting prior tanker sale/transfers transactions – The sale or transfer of ownership of tankers after 5 December 2022 and prior to 19 December 2023, must be notified to the national competent authority by 20 February 2024.

Time extension of vacuum gas import derogations to Croatia

• Until 31 December 2024 (previously 31 December 2023), Competent authorities of Croatia are permitted to authorise the purchase, import or transfer of vacuum gas oil falling under CN code 2710 19 71 originating in Russia or exported from Russia, subject to the conditions set out in the regulations.

Time extension of import and transfer of Russian pipeline oil exemption to Czechia

• Czechia was previously exempted from the restriction on CN2710 00 product being exported from a Member State if that product was derived from CN 2709 00 crude delivered from Russia via pipeline. The existing exemption permitted Czechia to import and transfer such oil from EU persons until 5 December 2023. This exemption has now been extended to 5 December 2024.

Extension of the Sakhalin-2 Project Exemption

• The exemption in relation to the Sakhalin-2 project in Japan has been extended, meaning that the transport by vessel to Japan of, and services related to, crude oil falling under CN 2709 00 commingled with condensate originating in Sakhalin-2 is exempt until 28 June 2024 (previously 31 March 2024).

New general exemption for the provision of certain pilot services

• New general exemption introduced for the provision of pilot services which are necessary for reasons of maritime safety.

Anti-Circumvention Measures

Contractual prohibition against re-export of goods

• As of 20 March 2024, EU exporters are required contractually prohibit re-exportation to Russia, and re-exportation for use in Russia, of sensitive goods, technology, common high priority items or firearms and ammunition (the No Russia Clause). The clause must contain adequate remedies in the event of the breach of the above-mentioned contractual obligation. In the event of breach, exporters will be required to notify the National Competent Authority as soon as they become aware of the breach.
• Re-exportation of the above goods shall not be prohibited in respect of contracts concluded on or before 19 December 2023 until 20 December 2024 or until their expiry date, whichever is earlier.

Reporting of funds transfers

• As of May 1, 2024, EU persons established in the Union who are, directly or indirectly, more than 40% owned by (a) A legal person, entity or body established in Russia, (b) A Russian national or (c) A natural person residing in Russia, will be required to report any transfer of funds exceeding EUR 100,000 out of the Union that they made during that quarter, directly or indirectly in one or several reports to the competent authority of the Member State where they are established within two weeks of the end of each quarter operations.
• As of 1 July 2023, EU credit and financial institutions who initiate the above transfers will also be required to report to the competent authority of the Member State where they are established within two weeks of the end of each quarter.

Crypto-service Providers

• New prohibition against Russian nationals or residents owning, controlling or holding post in the governing bodies of EU entities providing crypto-asset wallet, account or custody services.

Asset Freeze Measures

New designations

• 140 persons (61 individuals and 86 entities) added to the EU sanctions list. The designations target actors in the military, defence, private military, IT, media, aviation, industrial and economic sectors for the purposes of EU asset freezing sanctions. The new designations include:
  • Several telecommunications companies - LLC MirTelecom, LLC Miranda Media, LLC Shipping Company Lyukstrans and JSC Krymtelecom.
  • AlfaStrakhovanie Group - one of Russia’s largest insurance groups.
  • Rosfinmonitoring – federal executive body responsible for countering money laundering and terrorist financing, which is under the direct supervision of the President of the Russian Federation, Vladimir Putin.
  • Two Russian entities (LLC Mayak and AK Microtech) and the French director of two Finnish companies (Gabriel Temin) who are alleged to have enabled Russia to circumvent sanctions and unlawfully import controlled goods.

New grounds for designation

• New grounds introduced for listing individuals and entities for the purposes of an asset freeze who are linked to the forced transfer of ownership of Russian subsidiaries of EU entities. The following individuals and entities can now be made subject to asset freeze measures:
  • Russian entities previously owned/controlled by EU entities, where their ownership or control has been compulsorily transferred by the Russian government.
  • Individuals and entities that benefitted from such transfer.
  • Individuals appointed to the governing bodies of these entities without the consent of the EU entity that previously owned or controlled it.

Derogations From Asset Freeze Measures

Five new derogations introduced

• Compensation for deprivation by Member States of designated party funds/economic resources in the public interest.
• Member States may obtain authorisation for funds/economic resources necessary: (i) for the sale or use of shares in, or assets of, Russian entities designated under the new forced ownership transfer criterion; (ii) to enable the payment of the consideration agreed by the parties or for the compensation decided in the context of the compulsory transfer of ownership or control.
• Damage compensation payment by AlfaStrakhovanie Group (Alfa Insurance).
• Authorizations can be obtained in relation to Arkady Rotenberg, Peter Aven, Mikhail Fridman, Gennady Timchenko, German Khan, Alexey Kuzmichev, Igor Kesaev, Boris Rotenberg, OAO 'VO Technopromexport' and OOO 'VO Technopromexport' for the sale and transfer by June 30, 2024 of their proprietary rights in EU entities, provided the proceeds of such sale and transfer is frozen.
• Wind-down of contracts with JSC "Alabuga" Special Economic Zone of Industrial and Production Type.

New derogations to the new asset freeze measures

• A Member State may authorise the release of frozen funds after a judicial or administrative determination that deprives a person of funds belonging to them, provided that compensation paid for such deprivation of funds is frozen.
• A Member State may also authorise the release of frozen funds after a judicial or administrative determination if they determine those funds are necessary for the sale of entities established in Russia, in order to enable the payment of the consideration agreed by the parties, or for compensation, in the context of the compulsory transfer of ownership or control by the Russian Government.

Derogations to Alleviate EU Border Controls

• EU Member States may allow the import of goods intended for the strict “personal use” of persons travelling to the Union, including their immediate family, provided those goods are limited to personal effects owned by those individuals and are not intended for sale in the Union.
• EU Member States may allow vehicles falling under CN Code 8703 entry into the Union, provided that those vehicles are not intended for sale, and are owned by a citizen of Member State or immediate family member resident in Russia who is driving the vehicle for personal use.
• EU Member States may permit entry into the Union vehicles falling under CN Code 8703 with a diplomatic vehicle registration plate that are necessary for the functioning of diplomatic and consular representations, including delegations, embassies, missions or of international organisations benefitting from immunities under international law, or for personal use of their staff and immediate family members.

Licencing

The EU has extended the deadline until which licences for divestment or wind-down may be granted in relation to the export of goods and the provision of services:

• For Articles 2, 2a, 3, 3b, 3c, 3f, 3h and 3k covering goods and technologies listed in Annexes II, VII, X, XI, XVI, XVIII, XX and XXIII – The deadline has been extended until June 30, 2024.
• For Article 3 covering goods and technologies in Annex II in relation to JVs incorporated prior to 24 February 2022 – the deadline has been extended until September 30, 2024.
• For Articles 3g and 3i covering goods in Annex XVII and XXI – the deadline has been extended until 30 June 2024.For Article 5n covering the provision of services – the deadline has been extended until 31 July 2024.

The new restrictions are set out in Council Regulation (EU) 2023/2873 of 18 December 2023, Council Implementing Regulation (EU) 2023/2875 of 18 December 2023, Council Regulation (EU) 2023/2878 of 18 December 2023, Council Decision (CFSP) 2023/2871 of 18 December 2023 and Council Decision (CFSP) 2023/2874 of 18 December 2023.

UK’s 7th Sanctions Package – Analysis

Trade Restrictions

• A new import ban in respect of Russian “diamonds” and “diamond jewellery” from January 1, 2024, which includes:
  • Imports of diamonds and diamond jewellery which originate in Russia.
  • Direct or indirect acquisition of diamonds and diamond jewellery which originate or are located in Russia.
  • Direct or indirect supply or delivery of diamonds or diamond jewellery from a place in Russia to a third country.
  • Associated technical assistance, financial services and funds and brokering services in respect of the above.
• Prohibitions against (i) the import or acquisition or “metals” which originate in Russia or are located in Russia; and (ii) the supply/delivery of "metals" from a place in Russia to a third country.
• Prohibitions on providing technical assistance, financial services and funds and brokering services in respect of luxury goods.

Miscellaneous Trade Amendments & Exceptions

• Existing exceptions to UK trade restrictions have been amended in relation to personal effects, consumer communication devices and software updates, certain goods consigned from Russia and the acquisition of iron and steel products.
• New exceptions have been introduced for:
  • Iron and steel products, relevant processed iron or steel products and metals exported from Russia before the relevant day, as well as technical assistance, financial services and funds and brokering services in respect of such products, where these are not to be released for free circulation in the United Kingdom or the Isle of Man;
  • Ancillary services relating to acquisition when Russian-origin iron and steel products in third countries, where such products were exported from Russia before the relevant day.

Correspondent Banking Relationships

• Amendment of the existing prohibition on "processing" payments to/from designated entities.
  • The prohibition now applies to all payments, not only to sterling payments.
  • The prohibition does not include the act of crediting a payment, for the first time, to a UK credit or financial institution (C) (the correspondent) where that payment is credited to an account which is (i) in the name of C; and (ii) not held on behalf of, or for the benefit of, a customer of C.

Reporting Requirements

• New reporting obligation for “relevant firms” to report to HM Treasury, where the firm in question:
  • Knows, or has reasonable cause to suspect, that it holds funds or economic resources for a prohibited person; and that information or other matter on which the knowledge or cause for suspicion is based came to it in the course of carrying on its business.
  • Must report by no later than 31 October in each calendar year, as to the nature and amount or quantity of funds or economic resources held by that firm for a prohibited person as of 30 September in that calendar year.
  • A "prohibited person" means a person to whom financial services must not be provided. Such persons are: (a) the Central Bank of the Russian Federation; (b) the National Wealth Fund of the Russian Federation; (c) the Ministry of Finance of the Russian Federation; (d) a person owned or controlled directly or indirectly by a person mentioned in sub-paragraphs (a) to (c); or (e) a person acting on behalf of or at the direction of a person mentioned in sub-paragraphs (a) to (c).
• New reporting obligation for designated persons from 26 December 2023:
  • A DP who is a UK person must inform HM Treasury of the nature and value of any funds or economic resources which that person owns, holds or controls in any jurisdiction and the location of those funds or economic resources.
  • A DP who is not a UK person must inform HM Treasury of the nature and value of any funds or economic resources which that person owns, holds or controls in the UK and the location of those funds or economic resources.
  • Such reports must be made within 10 weeks from when this provision comes into force (i.e. 26 December 2023) in respect of DPs designated prior to this date. Where a person becomes a DP after the provision enters into force, then such a report should be made by the end of the period of 10 weeks starting on the day of their designation.
  • A DP who has reported the above information to HM Treasury must also inform the Treasury as soon as practicable of any change to the nature, value or location of the funds or economic resources.
• HM Treasury may impose monetary penalties for breach of the reporting obligations.

New Licensing Grounds

• HM Treasury may issue divestment related licenses based on several new grounds, subject to certain specific requirements:
  • Divestment – To enable anything to be done by a UK entity to enable that entity to undertake a relevant transfer.
  • Enabling others to divest themselves of funds or economic resources – to enable anything to be done by a UK entity in order to enable another person to undertake a relevant transfer.
  • To enable anything to be done in connection with a licence which the Treasury has decided to issue for another purpose in the Russia Regulations.

General Trade Licence

• New licence has been granted in respect of iron and steel products and relevant processed iron or steel products which authorises certain activities in respect of certain iron and steel products, namely reusable packaging, relevant products manufactured or produced before 21 April 2023 and relevant processed iron or steel products previously in the UK, which would otherwise be prohibited.

New Designations

• Additional sanctions measures have been imposed against 26 entities which prohibit UK credit or financial institutions from establishing or continuing a correspondent banking relationship. Please note, these entities were already designated for the purposes of the UK’s asset freeze measures and trust services restrictions.

These updates are set out in the Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2023 and the Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations 2023. In connection with these new measures, the Office of Financial Sanctions Implementation updated the following General Licences, namely INT/2022/2349952, INT/2022/2300292, INT/2023/3626884, INT/2022/2009156, INT/2022/1834876, INT/2022/1839676, INT/2022/1322576, INT/2023/3024200, INT/2022/1552576, INT/2023/3179120 and INT/2023/3744968.

Special thank you to Adam Keay for his contributions on this alert.