New EU restrictions and prohibitions
As the crisis over Ukrainian sovereignty has deepened, notably following the crash of Malaysia Airlines Flight 17, the EU has sought to increase punitive measures on rebel groups within Ukraine and targets within Russia. The recent key measures increase the severity of sanctions in the following ways:
· Firstly, by restricting access of key Russian state-owned financial and credit institutions to the EU capital markets and related financial services.
· Secondly, by restricting the sale, supply, transfer or export of certain technologies for use in the oil industry (including oil exploration) in Russia.
· Thirdly, by restricting exports of “dual-use” goods and technologies and supplies of arms or military equipment.
· Fourthly, by prohibiting the importation of goods originating in Crimea or Sevastopol.
· Fifthly, by prohibiting the sale, supply or transfer of key equipment and technologies needed for the creation, acquisition or development of infrastructure projects in Crimea and Sevastopol.
· Lastly, by significantly expanding the list of “designated persons” subject to EU-wide travel bans and asset freezing legislation established in March 2014 following the annexation of Crimea by Russia.
We focus on the first and last of these below.
Restrictions on access to EU capital markets and financial services
Under Council Regulation (EU) 833/2014 the EU has prohibited the purchase, sale, provision of brokerage or assistance in the issuance of, or otherwise dealing with “transferable securities” and “money market instruments” with a maturity exceeding 90 days issued by any of Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB) and Rosselkhozbank (“Annex III listed entities”). The restrictions extend to the issue of non-EU based related parties. The new prohibitions apply to new issues made on or following 1 August 2014.
It is important to distinguish the Annex III listed entities mentioned above from “designated persons” named under the wider EU sanctions programme affecting Ukraine and Russia: In essence, only dealings in the issue of the Annex III listed entities and related (i.e. Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB) and Rosselkhozbank) with a maturity in excess of 90 days will be potentially affected by this new prohibition. Other assets of these institutions located in or held by persons based in the EU will not necessarily be subject to the wider asset freeze under the “designated person” regime (see further below). In practice however the new measures are designed to curtail the ability of these Russian state-owned financial institutions from raising capital within the EU and work in tandem with similar new restrictions in the United States and other Western nations, including Japan. Furthermore, under this new EU regime the Council of the EU does not entitle member states to issue licences or authorisations as a way of ameliorating the effect of the new offences, in contrast to the asset freezing regime.
Persons in the EU and member state dependencies (such as the BVI and Cayman Islands) including, for example, wholly unaffiliated service providers such as brokers, underwriters and investors, dealing or potentially affected by the new prohibitions should seek immediate legal advice on their rights and obligations under the new regime.
Revised list of designated persons subject to asset freezes and travel bans
Separate to the restrictions on the capital markets above, the EU has additionally included a significant number of extra Ukrainian and Russian individuals and companies, on the sanctions regime imposing asset freezes and travel bans on “designated persons”. In May 2014 the following persons were added to the list (Council Regulation (EU) 476/2014): Vyacheslav Viktorovich VOLODIN, Vladimir SHAMANOV, Vladimir Nikolaevich PLIGIN, Petr Grigorievich JAROSH, Oleg Grigorievich KOZYURA, Viacheslav PONOMARIOV, Igor Mykolaiovych BEZLER, Igor KAKIDZYANOV, Oleg TSARIOV, Roman LYAGIN, Aleksandr MALYKHIN, Natalia Vladimirovna POKLONSKAYA, Igor Sergeievich SHEVCHENKO, PJSC CHERNOMORNEFTEGAZ and FEODOSIA.
In late July 2014 further important and controversial additions were made under Council Regulation (EU) 826/2014. For the first time high profile Russian businessmen, not directly involved in the crisis in Eastern Ukraine / Crimea but seen to be close to the Russian President Vladimir Putin, were included on the list (in bold below). Such a move occurred months ago in the United States and was widely anticipated within the EU for some time. For completeness, the entire list of persons added in July 2014 comprises the following: Alexey Alexeyevich GROMOV, Oksana TCHIGRINA, Boris LITVINOV, Sergey ABISOV, Arkady Romanovich ROTENBERG, Konstantin Valerevich MALOFEEV, Yuriy Valentinovich KOVALCHUK, Nikolay Terentievich SHAMALOV, JOINT-STOCK COMPANY CONCERN ALMAZ-ANTEY (a.k.a. ALMAZ-ANTEY CORP; a.k.a. ALMAZ-ANTEY DEFENSE CORPORATION; a.k.a. ALMAZ-ANTEY JSC;), DOBROLET aka DOBROLYOT and RUSSIAN NATIONAL COMMERCIAL BANK.
All EU based assets held directly or indirectly by designated persons or otherwise through EU based entities (including BVI and Cayman entities) based anywhere in the world are effectively frozen by this part of the Russia-Ukraine sanctions regime.
EU sanctions in Cyprus
Cyprus has been a member state of the EU since 2004. The EU’s Common Foreign and Security Policy generally, and the sanctions listed above specifically, have full effect in Cyprus and apply to Cypriot companies and citizens where-ever they may be based. Constitutional arrangements in Cyprus provide for the automatic criminality of activities prohibited under the EU economic sanctions regime. Although sanctions impacting individuals and businesses from Russia and the Ukraine may be burdensome on the local financial services industry in the island state, the Cypriot government, competent authorities and regulatory agencies have all expressed their intention to fully enforce and abide by the EU measures. Breaches of the prohibition on access to capital markets or the asset freezing regime constitute a criminal offence in Cyprus.
EU sanctions in the British Virgin Islands and Cayman Islands
The BVI and the Cayman Islands are Overseas Territories of the United Kingdom. Though the UK is an EU member state UK Overseas Territories, excluding Gibraltar, are not. Despite this they are nevertheless subject to the UK’s foreign policy which implements the EU’s Common Foreign and Security Policy. As such the EU sanctions regime affecting Ukraine and Russia has been substantially implemented and is observed in both jurisdictions. Breach of the asset freezing measures applicable to designated persons described above, including on the newly listed persons, constitutes a criminal offence in the BVI and the Cayman Islands under the revised framework of the Ukraine (Sanctions) (Overseas Territories) (No.3) Order 2014. We understand that breach of the new prohibition on access to capital markets is due to be criminalised in October 2014.