EU’s 11th package of sanctions on Russia targets third-country evasion, expands existing restrictions and extends derogations
16 min read
The EU adopted its eleventh sanctions package against Russia on 23 June, 2023. A new anti-circumvention framework enables the EU to tackle sanctions evasion through third countries. The EU extends the scope of existing sanctions, for example extending export bans to cover the transfer of IP rights and trade secrets, extending the transit ban to high-tech and aviation items, extending the import bans to third-country iron and steel with Russian-origin input and extending the EU asset freeze to another 71 individuals and 33 entities. The EU also adjusts the exemptions to existing sanctions, with extended wind-down provisions and derogations enabling certain divestments, and a new derogation for the conversion of certain depository receipts involving the NSD.
New anti-circumvention framework
A new anti-circumvention framework enables the EU to prohibit exports of specified sensitive dual-use and high-tech goods and technology2 to third countries that may in future be identified by the Council as having "systematically and persistently failed to prevent" supplies of such goods from the EU to Russia "despite the EU's prior outreach and assistance to the country in question".3 The relevant annex listing the goods and the countries is empty and would have to be agreed by Member States in the Council.
Once goods and third countries are listed in the relevant annex, the prohibition will cover the direct or indirect sale, supply, transfer or export of relevant goods to persons in the relevant country, as well as related services and IP rights. Existing exemptions and derogations (subject to prior authorisation) under EU export bans to or for use in Russia would also apply to any listed third countries.4
Export bans extended to IP rights, trade secrets and related services, and more goods
All EU export bans were expanded to cover:
- The direct or indirect sale, licensing or transfer of intellectual property ("IP") rights or trade secrets, and
- the granting of rights to access or re-use any material or information protected by means of IP rights or constituting trade secrets
"related to" the restricted goods and technology or the provision, manufacture, maintenance and use of those goods and technology to any person in Russia or for use in Russia.5 This will prohibit any new transfers of IP rights related to restricted industrial or luxury goods and technology, unless covered by a relevant derogation.6 Guidance from the Commission states that this also covers sharing a trade secret with a third-country operator whilst knowing, suspecting or accepting the risk that those IPRs or trade secrets will be used to manufacture restricted goods destined for Russia or to be affixed on restricted technology or goods that will be exported to Russia, as well as granting access to data covered by copyright to obtain regulatory registrations or any other licenses, including in third countries, to manufacture restricted technology or goods which will be used in Russia.7
In addition, the scope of products and services subject to export restrictions has been expanded:
- The export ban on luxury goods now also covers related services (i.e. financing and financial assistance, technical assistance, brokering services or "other services").8
- The list of industrial goods in Annex XXIII now covers, amongst others9:
- corrugated paper products,
- rubber conveyor belts,
- new pneumatic tires of rubber, of a kind used for buses and lorries,
- machinery for working rubber or plastics.
- Annex XXIII now also covers, with limited wind-down periods available, goods previously subject to the EU export ban on luxury goods such as:
- motor cars and other vehicles designed principally for transport of <10 persons,
- yachts, and
- The list of high-tech goods in Annex VII now covers, amongst others: (i) equipment for manufacture of Printed Circuit Boards (PCBs) and related components and materials and (ii) various new products listed by tariff code and belonging to product categories such as electronic devices, modules and assemblies (e.g. radio navigational aid apparatus).10
- The list of firearms now also covers spring, air or gas guns and pistols.11
In addition, 87 entities were added to the list of companies linked to military end-users, which are subject to tighter export restrictions in relation to restricted dual-use items and high-tech goods. Some of those newly listed military end-users are located outside Russia (e.g. Iran, Hong Kong, UAE).12
Expanded EU import bans to third country iron and steel with Russian-origin input
The EU import ban on Russian revenue-generating goods has been extended to incorporate the goods that were previously subject to a separate ban on coal imports.13
The EU will gradually phase out imports of iron and steel products processed in a third country that incorporate iron and steel products originating in Russia. Depending on the products, these prohibitions will take effect from 30 September 2023, 1 April 2024 and 1 October 202414. To enable the application of these rules, importers of these iron and steel products into the EU must provide evidence attesting to the origin of the iron and steel inputs used for the processing of the product taking place in a third country.15
Further, the temporary exemptions for crude oil imports through the northern section of the Druzhba oil pipeline to Germany and Poland have been removed. To recall, in principle EU sanctions prohibit the direct or indirect purchase, import or transfer of certain crude oil and petroleum products that originate in Russia or are exported from Russia (including related services). Originally, there was an exemption for direct imports of Russian crude oil (CN code 2709 00) via pipeline to EU Member States. This exemption has been discontinued with respect to Germany and Poland (i.e. the Northern Druzhba pipeline), but remains in place with respect to other Member States, i.e. the Southern Druzhba pipeline which goes to Slovakia, Hungary, Czech Republic and Croatia.
Extended bans on transit through Russia, road transport bans and access to EU ports
Certain restricted high-tech goods, aviation/space industry goods, jet fuel, and fuel additives that already could not be exported to Russia are also now subject to a ban on transit through Russian territory (in addition to the transit ban already in place for dual-use goods). Limited exemptions and derogations apply.16
The existing ban on transport of goods by road in the EU by undertakings established in Russia now also covers Russia-registered trailers and semi-trailers, including when hauled by trucks registered outside of Russia.17 In practice, this effectively bans any commercial transit with such vehicles, unless allowed under an authorisation or an exception for universal mail. The transport ban will also apply to trade in non-restricted goods in transit with the Kaliningrad Oblast and Russia.18
The EU introduced a new ban on access to EU ports and locks which will apply to so-called "shadow-shipping", if competent authorities have a reason to suspect that such ships: (i) engaged in ship-to-ship transfers in violation of the oil import ban or oil price cap or (ii) illegally interfered with, switched off or otherwise disabled their navigation tracking system when transporting Russian oil subject to the oil import ban or oil price cap. The national authority must also block access if a vessel failed to notify at least 48 hours in advance a ship-to-ship transfer occurring in the Exclusive Economic Zone or territorial waters of a Member State. Limited exemptions apply.19
Extended restrictions on trading securities
The ban on selling to Russian nationals, residents or entities any transferable securities denominated in any official currency of a Member State issued after 12 April 2022 to Russian persons was expanded to securities in any other currency issued after 6 August 2023. The concept of securities also covers crypto-assets, which will be subject to new compliance requirements with restrictions under the EU Asset Freeze.21
Further extension of the media ban
RT Balkan, Oriental Review, Tsargrad, New Eastern Outlook and Katehon have been added to the list of companies that are targeted by the media ban.22
Additions to the EU asset freeze list
The EU has designated another 71 individuals and 33 entities on the EU asset freeze list in relation to Russia,23 focusing on banks, military-industrial companies, IT companies holding licenses issued by the FSB, media outlets, propagandists and various government officials. Noteworthy designations include:
- Yvgeniy Ivanovich Dietrich, Director-general of JSC GTLK
- MRB Bank (aka "International Settlement Bank" LLC or Mezhdunarodnyi Raschetnyi Bank)
- CMRBank (aka TSMRBank or Bank "Centre for International Settlements" LLC)
- Joint-stock company "PMC Wagner Centre"
- PMC Patriot
- Vulkan LLC
- SPS CJSC
The EU also added new grounds for the designation under the EU asset freeze. The criteria of persons or entities facilitating infringements of the circumvention prohibition under Russia- or Ukraine-related sanctions have been expanded to cover persons "otherwise significantly frustrating those provisions"24 and persons operating in the Russian IT sector under legal persons, entities or bodies operating in the Russian IT-sector under certain licenses administered by the FSB or the Russian Ministry of Industry and Trade.25 An earlier amendment had added "immediate family members of leading businesspersons operating in Russia [subject to EU Asset Freeze], or other natural persons, benefitting from them"26.
Derogations for Swiss-owned and controlled entities
The existing list of "Partner Countries" now also includes Switzerland.27 Listed Partner Countries are allowed certain exemptions to trade and services restrictions, e.g. to permit restricted activities of companies established in Russia that are owned or controlled by entities established in the partner countries as well as in relation to exemptions for diplomatic missions.28
New exemptions and derogations under export and import bans
For some of the newly listed goods under the EU export ban on industrial goods, there is a wind-down exemption until 25 September 2023, based on pre-existing contracts namely: (i) motor vehicles and yachts, if valued below EUR 50k29, (ii) specified products including rubber convey or belts or new pneumatic tyres for lorries30 or (iii) goods that were moved from the EU export ban on luxury goods, such as binoculars.31
A new derogation from the EU export ban on luxury goods covers sale or supply of and technical assistance, financing and financial assistance to specified vessels. It applies until 25 September 2023 for pre-existing contracts.32
An additional derogation was added to the EU export bans on high-tech and aviation goods for the sale, supply, transfer or export, directly or indirectly, of goods and technology, intended for the exclusive use and covered by maintenance obligations under a long-term lease agreement between that Member State and Russia.33
There are two new derogations for specific projects:
- Exemption from the EU import ban of iron and steel products for the maintenance or repair of the Budapest metro;34
- EU export bans for dual-use, maritime navigation goods and technology and industrial for the Caspian Pipeline Consortium (CPC) for transport of crude and petroleum products from Kazakhstan which is loaded, departing or being transited through Russia. This derogation may also extend to the provision of certain specified professional services (e.g. engineering services).35
New derogations from EU ban on professional services
EU sanctions currently prohibit the provision of accounting, auditing, bookkeeping, tax consulting services, business and management consulting or public relations services, architectural and engineering services, non-contentious legal advisory services and IT consultancy services, directly or indirectly, to Russian entities and the Government of Russia.
Other new derogations cover professional services strictly necessary for the removal of control by persons subject to the EU Asset Freeze over non-listed EU companies that are owned or controlled by the former ("firewall"),36 legal advisory services provided until 31 March 2024 that are legally required for the completion of a sale or transfer of proprietary rights owned by Russian companies in EU companies37 and professional services until 31 March 2024 that are strictly necessary for the divestment from Russia or the wind-down of Russian business activities.38
Divestment-related derogations from import and export sanctions
Subject to certain conditions, national authorities can authorise the otherwise restricted sale, supply or transfer of restricted items (and IP rights) if strictly necessary for divestment and wind-down activities. This derogation will apply until 31 December 2023.39
The existing derogation under EU import bans remains unchanged and applies until 30 September 2023.40
A new derogation for divestment covers the sale, supply, transfer or export, directly or indirectly, of otherwise restricted oil and gas equipment if: (i) strictly necessary for the divestment from an EU joint-venture incorporated or constituted before 24 February 2022, (ii) involving a Russian company and (iii) operating a gas pipeline infrastructure between Russia and third countries.41 The new derogation applies until 31 March 2024 and also covers the Russian Exclusive Economic Zone and Continental Shelf.
New derogations from the EU asset freeze
The EU also broadened the scope of specific existing derogations (subject to prior authorisation) from the Russia-related asset freeze restrictions. A number of these concern specific situations, such as:
- the disposal or the transfer by 31 December 2023 by an EU entity currently or previously controlled by VTB Bank of securities belonging to VTB Bank or the Russian National Settlement Depository (NSD), pursuant to operations, contracts or other agreements concluded with, or otherwise involving, VTB Bank and the Russian National Settlement Depository (NSD) before 3 June 2022;42
- transactions, including sales, which are strictly necessary for the wind-down, by 31 August 2023, of a joint-venture or similar legal arrangement established in Russia with Alexey Mordashov (Chairman of Severstal and Severgroup) or an entity owned by him before 28 February 2022;43
- the setting-up, certification or evaluation of a firewall that removes the control by a person subject to EU Asset Freeze over a non-designated EU entity;44 and
- the provision of pilot services to vessels in innocent passage for reasons of maritime safety.45
Further, a new derogation allows national authorities to authorise the conversion by 25 December 2023 by EU persons of certain depositary receipts with Russian underlying shares security where the NSD acts as depository, for the purpose of selling the underlying security. The precise scope of this derogation is unclear, with apparent divergences between different language versions.46
Extended reporting and information sharing within the EU
The new sanctions package provides for enhanced information sharing between national authorities and the Commission, especially in relation to authorisations granted or denied under various derogations. A new consultation requirement will be applicable when issuing an authorisation that was previously denied for essentially identical situations.47
Reflecting the increased reporting obligations under the EU asset freeze introduced in the 10th package,48 there is now a general obligation to supply any information that would facilitate implementation of the sanctions to the competent authority within two weeks of acquiring such information and to cooperate with the competent authority for information verification purposes. This is subject to lawyer-client confidentiality and the confidentiality of information held by judicial authorities.49
The EU also revised the existing reporting obligations under the EU asset freeze to carve out materials covered by lawyer-client confidentiality,50 and to require national authorities to process and exchange without delay information with each other and the Commission, in particular where circumvention or breaches are detected.51
1 See here for previous White & Case client alerts relating to sanctions.
2 See list of economically critical goods and list of high priority battlefield items.
3 New Article 12f and Annex XXXIII of Regulation 833/2014, as added by Regulation 2023/1214.
4 For example Articles 2(3)(d), 2a(3)(d) Regulation 833/2014 for software updates (no authorisation) and Articles 2(4)(h), 2a(4)(h) Regulation 833/2014 if intended for "exclusive use" of Russian companies (subject to authorisation) owned or controlled by established in the EU, USA, UK, South Korea, Australia, Canada, New Zealand, Norway and Switzerland, as amended by Regulation 2023/1214.
5 Relevant provisions of Regulation 833/2014 are revised Article 2(2)(c) (dual-use); new Article 2a(2(c) (high-tech goods); new Article 2aa(2)(c) (firearms); new Article 3(2) (iron & steel products); new Article 3b(2) (oil refining and liquefaction of natural gas; new Article 3c(4) (goods used in aviation or the space industry, jet fuel and fuel additives); new Article 3f(11)(c) (maritime and navigating goods); revised Article 3h(2)(c) (luxury goods); new Article 3k(2)(c) (industrial goods); new Article 12f(2)(c)), as added or amended by Regulation 2023/1214.
6 The exemptions vary according to the provision under which the relevant goods are covered.
7 European Commission FAQ G.11.19, updated 6 July 2023, available here.
8 New Article 3h(2a-b), 3h(4a) of Regulation 833/2014 as added by Regulation 2023/1214. Additional clarification added that the ban applies to goods exceeding EUR 300 per item.
9 Revised Article 3k, Annex XXIII of Regulation 833/2014 as amended by Regulation 2023/1214. For an overview of the relevant amendments, please contact: [email protected].
10 Revised Annex VII of Regulation 833/2014 as amended by Regulation 2023/1214.
11 Revised Annex XXXV of Regulation 833/2014 as amended by Regulation 2023/1214.
12 Revised Annex IV of Regulation 833/2014 as amended by Regulation 2023/1214.
13 Revised Annex XXI and deleted Article 3j, Annex XXII of Regulation 833/2014 as amended by Regulation 2023/1214.
14 Article 3g(1)(d) of Regulation 833/2014.
15 Revised Article 3g(1) of Regulation 833/2014 as amended by Regulation 2023/1214.
16 New Article 2a(1a, 3a, 4a); New Article 3c(4)(1a&6d) of Regulation 833/2014 as added by Regulation 2023/1214.
17 Revised Article 3l of Regulation 833/2014 as amended by Regulation 2023/1214.
18 Article 3l(2)(a-b) of Regulation 833/2014.
19 New Articles 3eb and 3ec of Regulation 833/2014 as added by Regulation 2023/1214.
20 Revised Article 5f(1) of Regulation 833/2014 as amended by Regulation 2023/1214.
21 Article 1(f) of Regulation 833/2014 and Article 23 of Regulation 2023/1113 on information accompanying transfers of funds and certain crypto-assets. The relevant guidelines will be issued by the European Banking Authority (EBA) by 30 December 2024.
22 Revised Annex XV under Article 2f of Regulation 833/2014 as amended by Regulation 2023/1214.
23 Revised Annex I of Regulation 269/2014 amended by Regulation (EU) 2023/1216.
24 Revised Article 3(1)(h) of Regulation 269/2014 amended by Regulation (EU) 2023/1215.
25 New Article 3(1)(i) of Regulation 269/2014 added by Regulation (EU) 2023/1215.
26 Revised Article 3(1)(g) of Regulation 269/2014 amended by Regulation (EU) 2023/1089 of 5 June 2023.
27 Revised Annex VIII of Regulation 833/2014 as amended by Regulation 2023/1214.
28 Articles 2(4), 2a(4), 3h(3), 3k(4) of Regulation 833/2014.
29 Revised Article 3k(3) of Regulation 833/2014 as amended by Regulation 2023/1214.
30 Revised Articles 3k(3a) of Regulation 833/2014 as amended by Regulation 2023/1214.
31 Revised Articles 3k(3b) of Regulation 833/2014 as amended by Regulation 2023/1214.
32 New Article 3h(4a) of Regulation 833/2014 as added by Regulation 2023/1214.
33 Article 2a(4)(i) and Article 3c(6e) of Regulation 833/2014 as added by Regulation 2023/1214. The latter applies only to goods listed in Annex XI – Part B.
34 New Article 3i(3e) of Regulation 833/2014 as added by Regulation 2023/1214.
35 New Article 5q of Regulation 833/2014 as added by Regulation 2023/1214.35 Existing derogation for provision of related services such as technical assistance under Sakhalin-2 project extended until 31 March 2024, from the initial deadline of 5 June 2023.
36 New Article 5n(9a) of Regulation 833/2014 as added by Regulation 2023/1214.
37 New Article 12b(2b) of Regulation 833/2014 as added by Regulation 2023/1214.
38 Revised Article 12b(2a) of Regulation 833/2014 as amended by Regulation 2023/1214. This derogation does not apply to the EU export ban under the new anti-circumvention tool.
39 Revised Article 12b(1) of Regulation 833/2014 as amended by Regulation 2023/1214.
40 Article 12b(2) of Regulation 833/2014.
41 Articles 3 and Annex II of Regulation 833/2014, New Article 12b(1a) of Regulation 833/2014 as added by Regulation 2023/1214.
42 Revised Article 6b(5a) of Regulation 269/2014 amended by Regulation (EU) 2023/1215.
43 New Article 6b(5c) of Regulation 269/2014 added by Regulation (EU) 2023/1215.
44 New Article 6b(5d) of Regulation 269/2014 added by Regulation (EU) 2023/1215.
45 New Article 6f of Regulation 269/2014 as added by Regulation (EU) 2023/1215.
46 Revised Article 6b(5aa) of Regulation 269/2014 amended by Regulation (EU) 2023/1215.
47 Revised Article 6(1) and New Article 6a of Regulation 833/2014 as added by Regulation 2023/1214.
48 See White & Case alert on the 10th EU sanctions package.
49 New Article 6b of Regulation 833/2014 as added by Regulation 2023/1214.
50 Revised Article 8(1) of Regulation 269/2014 amended by Regulation (EU) 2023/1215.
51 Revised Article 8(4) of Regulation 269/2014 amended by Regulation (EU) 2023/1215.
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