New EU sanctions in relation to Ukraine

by Allen & Overy LLP
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There have been significant developments in relation to Ukraine this week, with both the EU and US announcing significant new measures. This E-alert summarises the new EU measures. For background on these issues click here.

EU sanctions
On July 18, 2014, the European Council adopted Regulation (EU) No 783/20141 which expanded the scope of individuals, entities and bodies who could be added to the list of sanctions targets. Those materially or financially supporting actions undermining or threatening Ukraine's sovereignty, territorial integrity and independence are now within scope and can be listed.

On July 25, 2014, the European Council adopted further restrictive measures. Regulation (EU) No 811/20142 expanded again the scope of individuals, entities and bodies who could be added to the list of sanctions targets. Those providing material or financial support to, or benefiting from, Russian decision makers responsible for the annexation of Crimea and Sevastopol or the destabilisation of Eastern Ukraine were now able to be targeted. Regulation (EU) No 810/20143 added 15 individuals and 18 entities to the list of sanctions targets.

In response to the ongoing situation in Eastern Ukraine, and after much discussion amongst European leaders, on July 30 and 31, 2014, the EU adopted significant new restrictive measures designed to target Russia more directly. These measures include restrictions directly concerning: (i) Russia, which are in force today; and (ii) Crimea and Sevastopol, which came into force yesterday.

There is an obligation on the EU to review the measures targeting Russia no later than October 31, 2014, and the measures targeting Crimea and Sevastopol no later than December 31, 2014.

Restrictions TO TARGET Russia
Regulation (EU) No 833/2014 (Regulation 833) introduces the most significant sanctions to date by imposing economic and financial constraints on Russia. This represents a major change to Europe's approach. These restrictions are set out in more detail below.

Restriction on access to EU capital markets
EU persons4 are prohibited from directly or indirectly purchasing, selling, providing brokering or assistance in the issuance of, as well as otherwise dealing with (i) transferable securities5, and (ii) money-market instruments6 with a maturity exceeding 90 days, where either are issued after August 1, 2014, by:

(i) the Russian, majority publicly owned, entities specified in Annex III to Regulation 833 (Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB), Rosselkhozbank);

(ii) legal persons, entities or bodies established outside the EU that are over 50% owned by an Annex III entity; or

(iii) legal persons, entities or bodies acting on behalf of or at the direction of any of the above.

Restriction on exports of dual-use goods and technology
The direct or indirect sale, supply, transfer or export of dual-use goods and technology, wherever they originate from, to any person, entity or body in Russia, or for use in Russia, is prohibited where the goods or technology is (or may be) intended for military use or a military end-user. Any items procured by the Russian military are deemed to be for military use.

An authorisation to export dual-use goods and technology for non-military use may be applied for under Regulation (EC) No 428/2009, but the competent authorities in each Member State shall not grant an authorisation if they have reasonable grounds to believe that the end-user might be a military end-user or that the goods might have a military end-use.

However, the competent authorities may grant an authorisation to export these items where such export is required under a contract entered into before August 1, 2014.

Restriction on exports of energy-related equipment and technology
This measure is intended to target deep water oil exploration and production, Arctic oil exploration and production, and shale oil projects in Russia.

A prior authorisation is required for the direct or indirect sale, supply, transfer or export of specified energy-related equipment or technologies, as listed in Annex II to Regulation 833, to any person, entity or body in Russia or for use in Russia. This prohibition applies irrespective of where the item originates from. There is also a restriction, subject to obtaining a prior authorisation, on the provision of related services (including technical assistance, brokering services, financing or financial assistance). Importantly, the relevant authorities should not grant an authorisation if they have reasonable grounds to determine that the sale, supply, transfer or export of the equipment or technologies relates to deep water oil exploration and production, Arctic oil exploration and production or shale oil projects in Russia.

Similarly to the authorisation provisions relating to the export of dual-use goods and technology, the competent authorities may, however, grant an authorisation for the sale, supply, transfer or export of the relevant equipment or technology where the activity is required under a contract entered into before August 1, 2014.

Arms embargo and restriction on the provision of services relating to goods and technology on the Common Military List
Decision 2014/512/CFSP prohibits the direct or indirect sale, supply, transfer or export to, or import, purchase or transfer from, Russia of arms and related material. It also prohibits the direct or indirect provision of specified services related to military activities and related to the provision, manufacture, maintenance and use of arms and related material of all types.

Regulation 833 imposes additional restrictions on the provision, directly or indirectly, of certain services related to goods and technology listed in the Common Military List, and dual-use goods and technology which are, or may be, intended for the military or military use. This includes technical assistance, brokering services, financing and financial assistance.

These restrictions do not apply to the execution of obligations arising under contracts entered into before August 1, 2014, or to the provision of goods or services necessary to the maintenance and safety of existing capabilities within the EU.

Additional prohibitions
It is prohibited to knowingly and intentionally participate in activities the object or effect of which is to circumvent the restrictions, including by acting as a substitute for entities that are the subject of the capital market restrictions set out above.

Restrictions relating to Crimea and Sevastopol
The EU has adopted Regulation (EU) No 825/20147 (Regulation 825) which introduces further restrictive measures relating to Crimea and Sevastopol, and specifically targets the transport, telecommunications, energy and natural resources sectors.

A prohibition on new investments in the transport, telecommunications and energy sectors
EU Persons4 are prohibited from:

•granting any financial loan or credit specifically relating to;
•acquiring or extending a participation in enterprises established in Crimea or Sevastopol that are engaged in; or
•creating any joint venture relating to,
the creation, acquisition, or development of transport, telecommunications or energy infrastructure, or the exploitation of oil, gas or mineral resources, in all cases in Crimea or Sevastopol.

There is also a prohibition on the direct or indirect provision of related services, including technical assistance and brokering services.

Until October 28, 2014, these prohibitions do not apply to the execution of obligations arising under contracts entered into before July 30, 2014, where the competent authority has been informed at least 10 working days in advance.

A prohibition on trade in key equipment and technology
The direct or indirect sale, supply, transfer or export of key equipment and technology listed in Annex III to Regulation 825, and the provision of related services (such as technical assistance, brokering services, financing or financial assistance), to any person, entity or body in Crimea or Sevastopol, or for use there, is prohibited. This includes key equipment and technology related to the creation, acquisition or development of infrastructure in the targeted sectors (transport, telecoms, energy, and oil, gas and mineral reserves).

Until October 28, 2014, these prohibitions do not apply to the execution of obligations arising under contracts entered into before July 30, 2014, where the competent authority has been informed at least 10 working days in advance.

Additional prohibitions
It is prohibited to knowingly and intentionally participate in activities the object or effect of which is to circumvent the restrictions.

Target list expansion
Regulation (EU) No 826/20148 added 8 individuals and 3 entities to the list of sanctions targets. This results in asset freezes and prohibitions on EU Persons providing funds or economic resources to sanctions targets.

The entities caught are Almaz-Antei, a Russian state-owned anti-aircraft weaponry manufacturer, Dobrolet, a subsidiary of a Russian state-owned airline, and Russian National Commercial Bank.


1 Amending Regulation (EU) No 269/2014 of 17 March 2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (Regulation 269).

2 Amending Regulation 269.

3 Amending Regulation 269.

4 EU persons includes: (i) all nationals of an EU Member State and all legal entities incorporated under the laws of a Member State, with respect to their activities anywhere in the world; and (ii) all persons and legal entities, irrespective of their nationality or place of incorporation, with respect to any activity or business they carry on in the EU, whether in whole or in part, and on board a vessel or an aircraft under the jurisdiction of a Member State (EU Persons).

5 Transferable securities are those classes of securities which are negotiable on the capital market, excluding instruments of payment, such as shares, bonds and other securities.

6 Money-market instruments are those classes of instruments normally dealt in on the money-market, excluding instruments of payment, such as treasury bills, certificates of deposit and commercial papers.

7 Amending Regulation (EU) No 692/2014 which, on June 23, 2014, introduced an import ban for goods originating from the annexed area of Crimea and Sevastopol.

8 Amending Regulation 269.

Further information
Allen & Overy is closely monitoring developments.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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