The United Kingdom (“UK”) introduced new sanctions against Russia on December 14, 2023 with the European Union (“EU”) also adopting its 12^th package of sanctions against Russia on December 18, 2023.

The latest UK restrictions include:

• Import and related restrictions on further categories of iron and steel goods, as well a wide range of additional metals such as aluminium.
• New import and related restrictions on Russian diamonds or diamond jewellery.
• Clarification and expansion of payment processing restrictions for parties targeted by correspondent banking services restrictions.
• Extended restrictions on certain services/financing relating to export or supply of luxury goods to Russia.
• Additions to the lists of critical-industry goods and technology and defence and security goods and technology subject to export and related restrictions.
• A new licensing ground, allowing individuals and entities to apply to the Office of Financial Sanctions Implementation (“OFSI”) for a licence to make payments that would otherwise breach UK sanctions where such payments are necessary for divestment from Russia.

The new EU restrictions include:

• A list of partner countries that apply import measures on iron and steel that align with the EU – imports of processed products from these countries do not need to be accompanied by country of origin evidence.
• A comprehensive ban on the import, purchase, or transfer of diamonds from Russia.
• Additional reporting requirements relating to EU companies owned 40% or more by Russian individuals or entities that transfer €100,000 or more out of the EU. The reporting obligations lie on the company itself, as well as financial institutions that initiate the transfers.
• Additional information obligations to ensure compliance with the oil price cap, as well as restrictions on the sale of oil tankers.
• Further export restrictions, targeting items used on the battlefield, and further import restrictions on goods that generate significant revenues for Russia.
• Obligations to include “No Russia” clauses in contracts, banning the re-export of goods to Russia.
• A prohibition on the provision of enterprise management or industrial design and manufacture software to Russia.
• A phasing out of the current exemption on the provision of banned professional services to Russian subsidiaries of EU and partner country entities.
• Targeted measures to prevent circumvention.
• An extension of the divestment licensing ground.
• Additional asset freeze designations, and amendments to the EU’s powers to designate individuals and entities for the purposes of an asset freeze. The latest designations included individuals and entities operating in the military, IT, aviation, and TMT sectors and also included Alfastrakhovanie, a major Russian insurance company, and Rosfinmonitoring, Russia’s financial intelligence agency.

These measures are summarized in further detail below.

New UK measures

Import restrictions on iron, steel and additional metals

• Existing restrictions on iron and steel have been extended to cover additional products. In addition, a number of new restrictions have been introduced against the import of certain further metals from Russia, including copper, nickel, aluminium, lead, zinc, and tungsten.
• The new restrictions cover the import of metals originating in Russia, the acquisition of metals originating or located in Russia, and the supply and delivery of metals from Russia to a third country.
• A defence to some of the restrictions can be relied upon where the individual or entity did not know and had no reasonable cause to suspect that the metals originated in Russia, were located in Russia, or were being delivered from a place in Russia. Robust due diligence measures will, therefore, be particularly important.
• Certain exemptions may apply, including in relation to:
  • Products that were consigned from Russia before December 15, 2023 and imported into the UK before January 14, 2023.
  • Products exported from Russia before restrictions came into force, subject to certain requirements depending on the prohibition to which the exemption is being applied.

Diamonds and diamond jewellery

• The import of diamonds and diamond jewellery which are consigned from, or originate in, Russia is now prohibited as is the acquisition of diamonds or diamond jewellery originating or located in Russia.
• Various ancillary restrictions have been placed on the import of diamonds and diamond jewellery originating or located in, or consigned from, Russia. These include restrictions on the provision of technical assistance, financial services and funds, and brokering services.
• Existing exemptions to Russian sanctions have been extended to cover diamonds and diamond jewellery, such as where the diamonds/jewellery are located in the UK or Isle of Man and have been lawfully imported there (i.e., before sanctions were imposed).

Payment processing issues

• The existing restrictions on processing payments for parties targeted by correspondent banking services restrictions have been extended to cover non-sterling payments.
• The definition of “processing” a payment has been clarified to expressly exclude the act of crediting a payment for the first time to a UK credit or financial institution where the account is in the institution’s name and not held on behalf of, or for the benefit of, one of its customers.
• A new exemption has been included to enable the transfer of funds by a financial institution between internal accounts for compliance purposes.
• The existing exemption for sterling payments processed for fees relating to aircraft taking off, landing, or overflying Russia has also been extended to cover non-sterling payments.

Reporting requirements

• In addition to existing reporting obligations on relevant firms (i.e., to report breaches of sanctions) such firms must now also report when they have reasonable cause to suspect that they are holding funds or economic resources on behalf of a person to whom financial services must not be provided under the UK’s Russia sanctions (where such suspicion arises from the course of carrying on their business).
• Relevant firms must report by no later than October 31 each year the nature and amount of such funds or economic resources held as of September 30 that year.
• New reporting obligations also apply to designated persons, which/who must report the following information within ten weeks of being designated (or ten weeks from December 26, 2023 if already designated prior to the new restriction coming into force):
  • for UK nationals or entities incorporated in the UK: the nature and value of any funds or economic resources they own, hold, or control (in any jurisdiction) and the location of such funds and economic resources; and
  • for any other individual or entity: the nature and value of any funds or economic resources they own, hold, or control in the UK, and the location of such funds and economic resources, and in either case, the designated person must update HM Treasury as soon as practicable following any change to the nature, value or location of the funds or economic resources. Failure to comply may lead to the imposition of a monetary penalty of the greater of £1m or 50% of the value of the funds or economic resources which were not reported.

Extension of prohibited services/financing relating to exports of luxury goods

• The existing restrictions on the export or supply of luxury goods to, or for use in, Russia or to a person connected with Russia have been extended to cover ancillary actions such as providing: (i) technical assistance; (ii) financial services or funds; and (iii) brokering services in connection with such an export/supply.
• Defences are included for individuals or organizations that can show they did not know, and had no reasonable cause to suspect, that the relevant person was connected with Russia or the luxury goods were for use in Russia. Again, robust due diligence measures will, therefore, be key.

Additions to the list of critical-industry goods and technology and defence and security goods and technology subject to export and related restrictions

• New items have been designated as “critical industry” or “defence and security” goods and technology, meaning that their export to or for use in Russia is now prohibited.
• The newly-designated items focus on those found on the battlefield, including machine parts and electronics. According to the government press release accompanying the new sanctions: “in essence, only low-risk, humanitarian, food, and health exports will remain unsanctioned after this”.

Divestment licensing ground

In addition to the above new restrictions, the UK has introduced new licensing grounds for financial sanctions.  Individuals and organizations can now apply for a licence to make a payment that would otherwise be in breach of UK financial sanctions where such payment is necessary:

• to enable a UK entity to transfer funds or economic resources that it owns, holds, or controls, and that are located in Russia, to a sanctioned party or the Government of Russia in order to enable that UK entity to divest itself (wholly or partially) of those funds or economic resources;
• to enable a UK entity to acquire from a designated person or the Government of Russia an interest it itself held by the designated person or Government of Russia (e.g., to buyback shares in itself from a designated person or the Government of Russia) provided that: (i) the sole consideration is a transfer of funds from the UK entity or other person to the designated person or Government of Russia; and (ii) the funds are credited to: (a) a frozen account; or (b) a non-UK account in a non-UK country that has imposed comparable sanctions; or
• to enable a UK entity to enable another person to take the steps referred to above.

These new financial sanctions licensing grounds corresponds with updates made recently to UK Government Guidance on trade sanctions relating to Russia which also now refer to licenses being granted to enable divestment from Russia.

Additional asset freeze designation

On December 15, 2023, the UK Government also designated Joint-Stock Commercial Bank Novikombank, which will now be subject to an asset freeze in the UK.  Further, it updated the listing for a number of currently sanctioned Russian banks to refer to the new restriction on processing payments, in conjunction with the new measures (as discussed above).

New EU measures

Exceptions to existing iron and steel restrictions

• A list has been introduced of partner countries that implement restrictive measures on the import of iron and steel from Russia which align closely with the import control measures of the EU (currently including Switzerland and Norway). Imports from these countries are exempt from the requirement to provide country of origin evidence.
• The EU package also prolongs the wind-down periods for specific steel product imports.

Diamonds and diamond jewellery

• The EU has implemented a comprehensive ban on the import, purchase, or transfer of diamonds from Russia, including those originating in Russia, exported from Russia, transiting through Russia, and Russian diamonds processed in third countries. The ban covers non-industrial natural and synthetic diamonds, as well as diamond jewellery, starting from January 1, 2024.
• Additionally, an import ban on Russian diamonds (including diamond jewellery) processed in third countries will be phased in gradually, to be completed by September 1, 2024. This phased approach is aimed at establishing a traceability mechanism for effective enforcement and minimizing disruptions to the EU market.

Reporting requirements for companies owned partially by Russian individuals and entities

• Entities established in the EU that are directly or indirectly owned 40% or more by an entity established in Russia, a Russian national, or a natural person residing in Russia will be required from May 1, 2024 to report any transfers of funds exceeding €100,000 out of the EU.
• Further, credit and financial institutions will be required from July 1, 2024 to report on all transfers of funds out of the EU that cumulatively exceed €100,000 that they have initiated (directly or indirectly) for such an entity.
• Member States will be required to assess the information received in these reports and identify transactions, entities, and business sectors that indicate a serious risk of sanctions breaches or circumvention.

Oil price cap enforcement

• The EU has enhanced information sharing to identify deceptive practices during the transport of Russian crude oil and prevent circumvention of the price cap. In particular, businesses will now be required to collect itemised price information for costs associated with oil transactions, such as insurance and freight, and share these with competent authorities on request.
• A prohibition has been introduced on the sale of tankers for the transport of oil to any individual or entity in Russia or for use in Russia. Further, notification rules have been introduced for the sale of tankers to third countries to increase transparency, particularly in relation to second-hand carriers potentially used to evade the import ban and price cap.

Additional export restrictions

• The latest package of sanctions expands the list of restricted items that contribute to Russia’s military and technological enhancement. The additional items include chemicals, lithium batteries, thermostats, DC motors for UAVs, machine tools and machinery parts.
• Further, 29 entities supporting Russia’s military-industrial complex have been added to the list of entities subject to stricter export restrictions for dual-use goods and technologies, as well as items enhancing Russia’s defence sector. The affected parties include third country entities involved in trade restriction circumvention and Russian entities found to be supplying electronic components to Russia’s military.

Additional import restrictions

• The list of prohibited goods that generate significant revenues for Russia has been expanded to include additional items, such as pig iron, spiegeleisen, copper wires, aluminium wires, foil, tubes, and pipes.
• An additional import ban has also been introduced on liquefied petroleum gas (“LPG”). This does not apply to the execution until December 20, 2024 of contracts concluded before December 19, 2023.
• Exemptions have been included to existing restrictions for the imports of goods intended for the personal use of natural persons (such as personal effects not intended for sale, and vehicles that are driven from Russia into the EU solely for personal use).

“No Russia” clause in supply contracts

• The latest package requires EU exporters to include, from March 20, 2024, contractual provisions prohibiting the re-export of listed sensitive goods and technology to, or for use in, Russia. This restriction applies when selling to a third country, excluding partner countries.
• The listed goods target items integral to Russian military systems observed in the Ukrainian conflict, along with those critical to the development, production, or use of such systems, including aviation goods and weapons.

Ban on enterprise management and industrial design and manufacture software and a phase out of the exemption for providing professional services to Russian subsidiaries

• The existing professional service ban (which covers services such as IT consultancy and architectural engineering services, along with many others) has been expanded to prohibit the sale, supply, transfer, export, or provision of software for enterprise management and industrial design and manufacture.
• This may impact group companies with entities in Russia that rely on such software, which is made available to the entire group.
• The EU is also phasing out the current exemption for the provision of professional services to Russian subsidiaries of EU or partner country entities. Such exemption will now end on June 20, 2024 and companies previously relying on the exemption will need to obtain an appropriate licence in order to continue to provide services.

Measures to target circumvention

• Under the new measures, Russian nationals and individuals residing in Russia are prohibited from owning, controlling, or holding positions on governing bodies of entities offering crypto-asset wallet, account, or custody services to Russian individuals.
• The existing ban on dual use items exported from the EU to third countries transiting Russia has been extended to cover industrial items set out in a new Annex XXXVII (targeting those found on the battlefields).

Extension of the divestment licensing ground

• The deadline for relying on the licensing ground for the divestment from Russia or wind-down of business activities in Russia (which was due to end on December 31, 2023 in relation to certain activities) has been extended.
• New deadlines apply depending on the specific activities for which the licence is being sought.

Additional asset freeze designations

• In addition, the EU has listed 61 individuals and 86 entities in important economic sectors such as the military, defence, and IT sector as subject to an asset freeze (and travel bans for individuals), including, inter alia:
  • AlfaStrakhovanie Group, one of the largest insurance companies in Russia.
  • Rosfinmonitoring, Russia’s state agency responsible for AML and terrorist financing.
  • Telecommunications companies operating in Crimea.
  • TV channels Spas and Tsargrad.
  • Companies contributing to Russia’s military efforts, including:
    • A number of subsidiaries of Rostec, a state-owned defence conglomerate.
    • Large manufacturing plants such as Chelyabinsk Tractor Plant, Tochmash, and Ulyanovsk Mechanical Plant.
    • Companies operating in the Russian aviation sector, including Ilyushin, Tupolev, and the Kazan Helicopter Plant.
    • UAV manufacturers and designers.
  • IT companies.
  • Private military companies.
  • The Alabuga special economic zones and companies within it.
• Military and government officials from Belarus, Russia, and the occupied areas of Ukraine, including the Heads of Russian regions Altai and Bashkortostan.The EU has also updated the legal act that gives it the power to designate individuals and entities for the purposes of an asset freeze.
  • Asset freezes can now be imposed on previous Russian subsidiaries of EU entities that have been compulsory seized by the Government of Russia and natural persons appointed to the bodies of such entities (with licences available for the payment of compensation to former owners).
  • Sanctioned individuals who die can remain on the sanctions list if delisting them would pose a risk of undermining the objectives of EU sanctions because of a likelihood that the assets concerned would otherwise be used to finance Russia’s war.
  • Licences can now be issued where an EU authority has adopted a decision to deprive a sanctioned individual of funds or economic resources in the public interest (provided any compensation is frozen).
  • A specific licensing ground has been added in relation to newly sanctioned AlfaStrakhovanie Group for entities established in the EEA, Switzerland, or a partner country in relation to indemnities or benefits provided following the materialization of an insured risk.
  • A new obligation has been included for Member States to designate national authorities to identify and trace frozen funds in their jurisdiction for the purposes of detecting attempted circumvention.

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