EU’s 9th sanctions package extends investment ban to mining and quarrying sector; expands bans on exports and professional services; more asset freeze designations; derogations for divestments and agri-food
12 min read
On 16 December 2022, the EU adopted its ninth sanctions package against Russia.1 It includes a ban on new investments in the mining and quarrying sector. The professional services that cannot be provided to Russian entities or the Russian Government now includes market research, public opinion polling services, technical testing and analysis services and advertising services. Furthermore, the EU expanded the products subject to export-related restrictions to more industrial, high-tech and aviation goods. Additional derogations covering divestment from Russia and international trade in agricultural and food products apply. Finally, the EU designated 141 more individuals and 49 entities on the asset freeze list. Separately, the EU has taken various measures to step up sanctions enforcement.
Investment ban on the mining and quarrying sector in Russia2
The EU extends to the mining and quarrying sector in Russia a similar investment ban that exists in relation to the Russian energy sector. The investment ban prohibits:
- Acquiring or extending participation in entities incorporated in Russia or other non-EU countries and operating in the mining and quarrying sector in Russia.
- Granting or being part of any arrangement to grant new loan or credit, or otherwise provide financing – including equity capital or investment services – to entities incorporated in Russia or other non-EU countries and operating in the mining and quarrying sector in Russia.
- Creating any new joint venture with any entities incorporated in Russia or other non-EU countries and operating in the mining and quarrying sector in Russia.
- Providing investment services directly related to the above activities.
The mining and quarrying sector is defined as covering ‘the location, extraction, management and processing activities relating to non-energy producing materials’. An exemption (not requiring prior authorisation) applies in relation to mining and quarrying activities that yield their highest value from, or have as their primary objective the production of certain materials listed in Annex XXX (i.e. currently, aluminium, chromium, cobalt, copper, iron ore, mineral fertilisers (including potash and phosphate rock), molybdenum, nickel, palladium, rhodium, scandium, titanium, vanadium, heavy rare earths and light rare earths).
Ban on market research and public opinion polling services, technical testing and analysis services and advertising services to Russian companies and the Russian Government
EU sanctions already prohibited 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. This ban was extended to also cover market research and public opinion polling services, technical testing and analysis services and advertising services.3
A wind-down exemption allows the provision of this new enlisted category of services if strictly necessary for the termination by 16 January 2023 of non-compliant contracts concluded before 17 December 2022 (and any ancillary contracts necessary for their execution). An exemption also applies in respect of services that are provided for the exclusive use of Russian entities that are owned or controlled by entity incorporated in the EU, the EEA, Switzerland, the US, Japan, UK or South Korea.4
Derogations (subject to prior authorisation) also exist for services that are necessary for humanitarian purposes, civil society activities that promote democracy, human rights or the rule of law in Russia, the functioning of certain diplomatic and consular representation of the EU and ensuring critical energy supplies and infrastructure.5
Expanded Ban on management functions
As from 16 January 2023, any person falling within EU sanctions jurisdiction (e.g. EU nationals or residents) will be prohibited from holding any post in the governing bodies of Russian entities (i) which are publicly owned or controlled, (ii) in which Russia, the Russian Government or Central Bank has the right to participate in profits or (iii) with which Russia, its Government or its Central Bank has other ‘substantial economic relationship’ (as well a certain of their affiliates).6 Several derogations (subject to prior authorisation) apply, including in respect of certain EU-related joint ventures or subsidiaries established before 17 December 2022 or if deemed necessary for ensuring critical energy supply.
The EU also added the Russian Regional Development Bank to Annex XIX of Council Regulation 833/2014, making it subject to the transaction ban in Article 5aa. An exemption (not requiring an authorisation) allows the execution of contracts concluded with the Russian Regional Development Bank before 17 December 2022 until 18 March 2023.7
New derogation from EU export and import bans to support divestments or wind-down of business activities in Russia
To enable EU operators to divest from the Russian market or the wind-down of business activities in Russia, the EU has introduced specific and time-limited derogations (requiring a prior authorisation) from the existing export and import bans.8
More specifically, the competent national authority can authorise the sale, supply and transfer until 30 September 2023 of items that are the subject of an export ban,9 where such sale, supply or transfer is strictly necessary for the divestment from Russia or the wind-down of business activities in Russia, and provided that the three following cumulative conditions are met: (i) the items must be owned or controlled by EU persons, either directly or indirectly (through a legal person established in Russia), (ii) the competent authority has no reason to believe that the item might be for military end-user or have a military end-use in Russia and (iii) items were physically located in Russia before the relevant export restrictions entered into force.
Similarly, the competent national authority can authorise the import or transfer of items that are the subject of an import ban10 where such import or transfer is strictly necessary for the divestment from Russia or the wind-down of business activities in Russia and provided that the two following cumulative conditions are met: (i) the items must be owned or controlled by EU persons, either directly or indirectly (through a legal person established in Russia), and (ii) the items were physically located in Russia before the relevant import restrictions entered into force.
In respect of the state-owned enterprises (SOEs) that are the subject of a transaction ban, the EU has also introduced a derogation (requiring a prior authorisation) for transactions that are strictly necessary for divestment and withdrawals by 30 June 2023 of such SOEs or their subsidiaries from an EU entity.11
Export ban on industrial, high-tech and aviation-related goods
The scope of products covered by export-related restrictions has been expanded, as follows:
- The list of goods, which could contribute in particular to the enhancement of Russian industrial capacities now also covers inter alia: (i) various data-processing machines (e.g. laptops) as well as related input or output units (e.g. keyboards), storage units (e.g. hard drives), related parts, etc., (ii) printed circuits and radio-related apparatus, (iii) objective lenses for cameras, projectors, or photographic enlargers or reducers, and (iv) certain toys and models incorporating a motor.12
- The list of high-tech goods, which may contribute to Russia’s military and technological enhancement now also covers inter alia now also covers: (i) certain electrical and magnetic components and (ii) certain machines for additive manufacturing by plastics, rubber plaster, cement, ceramics or glass deposit and related parts.13
- The list of aviation-related goods now also covers inter alia: (i) spark-ignition reciprocating or rotary internal combustion piston engines for aircraft and (ii) parts suitable for use solely or principally with internal combustion piston engine for aircraft.14
The new products added to EU export bans can benefit from exemptions (not requiring an authorisation), which allow the execution of contracts concluded before 17 December 2022 until 16 January 2023.
New exemptions and derogations from EU Import bans
The EU has introduced new exemptions from the existing EU import ban on certain iron and steel products for goods processed in third countries and incorporating steel products falling under CN code 7224 90 (i.e. relating to other alloy steel ; semi-finished products of other alloy steel). For these products, subject to prior quota exemption, the EU import ban will apply as from October 2024.15
The existing EU import ban relating to the purchase, import and transfer on crude oil and petroleum products was revised to allow certain derogations to be authorised by the competent authorities of Bulgaria, Hungary and Slovakia. As from 5 February 2023, these authorities can authorise export, sale, supply or transfer of petroleum products listed in Annex XXXI to Ukraine. In addition, goods obtained from crude oil, listed in new Annex XXXII, may be subject to a specific prior authorisation only by the Bulgarian authorities. Lastly, as from 5 February 2023, it will be prohibited to sell petroleum products falling under CN code 2710 that have been imported on the basis of a wind-down derogation granted by the Bulgarian competent to other EU Member States or third states.16
In order to avoid circumvention and ensure that restricted natural gas condensate products are not purchased, imported or transported into the EU or to third countries, the EU introduced a new reporting obligation for operators engaged in transactions concerned natural gas condensate from LNG production plans.17
The EU also introduced a new wind-down exemption from the existing EU import ban on goods which generate significant revenues for Russia in respect of goods falling under CN subheading 2905 11 (i.e. Methanol (methyl alcohol)). The wind-down exemption allows the execution of contracts concluded before 7 October 2022 until 18 June 2023.18
Expansion of other sectoral sanctions
EU trading venues
The existing ban, which prohibits the listing and provision of services for transferable securities of Russia-established entities with more than 50 per cent public ownership on EU trading venues, as of 12 April 2022, has been expanded with a prohibition on admitting any such transferable securities to trading on EU trading venues, as of 29 January 2022.19
Reporting obligation with respect to deposits exceeding EUR 100,000
In order to align the reporting obligations on deposits, a reporting obligation to EU Member States’ competent authorities now also applies in respect of deposits exceeding EUR 100,000 held by non-EU legal entities that are owned for more than 50 per cent by Russian nationals or residents. Updates must be provided every 12 months and must be provided to the Commission or the relevant national competent authority by 27 May 2023.20
The EU expanded the list of entities that are the subject of the media ban, which prohibits the broadcasting of any content by certain Russian media companies, to include (i) NTV/NTV Mir, (ii) Rossiya 1, (iii) REN TV and (iv) Pervyi Kanal.21
The EU further extended the list of individuals and entities subject to asset freeze restrictions. The new designations focus on persons that have played a role in banking, technology companies, media companies and related individuals, defence-related companies and government officials and cover 141 individuals and 49 entities.22 Notable designations include:
- Credit Bank of Moscow
- Dalnevostochny Bank (aka ‘Far Eastern Bank’)
- JSC Bryansk Automobile Plant (aka ‘BAZ’)
- National Media Group
- Boris Yurievich Kovalchuk (General Director and Chairman of the Management Board of PJSC Inter RAO, one of Russia’s largest public energy companies)
The EU also introduced various new derogations from the asset freeze in relation to the designated Russian state-owned banks and in respect of activities relating to agricultural and food products23, as follows:
Specific derogation (subject to prior authorisation) from the asset freeze on Sberbank in respect of funds or economic resources that are necessary for the completion, by 17 June 2023, of an ongoing sale and transfer of proprietary rights directly or indirectly owned by Sberbank in an EU entity, while specifying that the provision does not retroactively validate non-compliant divestments.24
Specific derogation (subject to prior authorisation) from the asset freeze on Credit Bank of Moscow and Dalnevostochny Bank in respect of funds or economic resources that are necessary for the termination by 17 June 2023, of operations, contracts or other agreements, including correspondent banking relations, concluded with those entities before 16 December 2022.
Specific derogation (subject to prior authorisation) from the asset freeze on the designated Russian banks (i.e. Bank Rossiya, Promsvyazbank, VEB, Otkritie FC Bank, Novikombank, Sovcombank, VTB Bank, Sberbank, Credit Bank of Moscow and Dalnevostochny Bank) in relation to funds or economic resources that are necessary for the purchase, import or transport of agricultural and food products, including wheat and fertilisers.
Specific derogation (subject to prior authorisation) from the asset freeze on any designated person who held a significant role in international trade in agricultural and food products, including wheat and fertilisers, prior to their listing in relation to funds or economic resources that are necessary for the sale, supply, transfer or export of agricultural and food products, including wheat and fertilisers, to third countries in order to address food security.
EU takes steps to step up sanctions enforcement
Separately, the EU has been working on several initiatives to harmonise and step up EU sanctions enforcement.
On 28 November 2022, the Council adopted a decision to add violations of EU sanctions to the “List of EU Crimes”. 25 The decision harmonized various national definitions into a single definition of the crime of breaching of EU sanctions as a ‘violation of restrictive measures’.
On 5 December 2022, following the Council decision, the Commission adopted a draft proposal for a Directive providing for minimum rules concerning the definition of criminal offences and penalties for the violation of EU sanctions.26 The draft proposal is currently pending before the EU institutions and is expected to be adopted in 2023.
According to the draft proposal, EU Member States must take the necessary measures to ensure that an EU sanctions violation constitutes a criminal offence when it (a) was committed intentionally, and (b) falls in one of the following categories27:
- making funds or economic resources available to, or for the benefit of, a designated person;
- failing to freeze funds or economic resources of a designated person;
- enabling entry of a designated person into the territory of, or the transit through, an EU Member State;
- entering into transactions with third countries (state-owned entities) that are prohibited or restricted by EU sanctions;
- trading in goods or services whose import, export, sale, purchase, transfer, transit or transport is prohibited or restricted;
- providing financial activities that are prohibited or restricted;
- providing professional services that are prohibited or restricted;
- circumventing EU sanctions, including by concealing funds or concealing the fact that a designated person is the ultimate owner of funds;
- breaching or failing to fulfil conditions under authorisations.
The draft proposal also requires that EU Member States establish specific penalty levels and types for criminal offences relating to EU sanctions violations. The draft proposal will be discussed within the EU institutions before it is expected to be adopted (likely with certain revisions) and enter into force.
On 13 December 2022, the EU appointed David O’Sullivan as “International Special Envoy for the Implementation of EU Sanctions” to focus on global enforcement and prevent circumvention of EU sanctions, including through third countries.28 Separately, the EU is also considering to give the European Public Prosecutors Office (EPPO), i.e., the EU’s independent public prosecution office, the power to prosecute EU sanctions violations.
These proposals for enhancing the enforcement of the EU’s sanctions are expected to continue to progress in 2023.
1 See here for previous White & Case client alerts relating to sanctions.
2 Article 3a of Regulation 833/2014, as amended by Regulation 2022/2474.
3 Article 5n of Regulation 833/2014, as amended by Regulation 2022/2474.
4 Article 5n(7) of Regulation 833/2014 was by Regulation 1904/2022, with partner countries listed in Annex VIII: the US, Japan, UK and South Korea.
5 Article 5n of Regulation 833/2014, as amended by Regulation 2022/2474.
6 Article 5aa and Annex XIX of Regulation 833/2014, as amended by Regulation 2022/2474.
7 Article 5aa and Annex XIX, Part C of Regulation 833/2014, as amended by Regulation 2022/2474.
8 Article 12b of Regulation 833/2014, as amended by Regulation 2022/2474.
9 The new derogation covers all existing EU export bans imposed on: (i) dual-use goods and technology (Article 2), (ii) goods that might contribute to Russia’s military and technological enhancement (Article 2a, Annex VII), (iii) goods for use in the oil and gas industry (Article 3, Annex II), (iv) goods for the use in oil refining and liquefaction of natural gas (Article 3b, Annex X), (v) goods and technology for use in the aviation and space industry and jet fuels (Article 3c, Annex XI,XX), (vi) maritime navigation goods and technology (Article 3f, Annex XVI), (vii) luxury goods (Article 3h, Annex XVIII), and (viii) goods that might contribute to Russia’s industrial enhancement (Article 3k, Annex XXIII).
10 The new derogation applies to the EU import bans on (i) iron and steel products (Article 3g, Annex XVII) and (ii) goods responsible for generating significant revenues for Russia (Article 3i, Annex XXI).
11 New Article 5aa(3a) of Regulation 833/2014, as amended by Regulation 2022/2474.
12 Article 3k and new Annex XXIII, Part B of Regulation 833/2014, as amended by Regulation 2022/2474.
13 Revised Annex VII – Part B relating to Article 2a of Regulation 833/2014, as amended by Regulation 2022/2474.
14 Article 3c and new Annex XI, Part C of Regulation 833/2014, as amended by Regulation 2022/2474.
15 Revised Article 3g(1)(d) and 3g(5a) of Regulation 833/2014, as amended by Regulation 2022/2474.
16 Revised Article 3m(7) of Regulation 833/2014, as amended by Regulation 2022/2474.
17 Revised Articles 3m and 3n of Regulation 833/2014, as amended by Regulation 2022/2474. It covers natural gas condensates (CN subheading 2709.00.10).
18 New Article 3k(3ba) of Regulation 833/2014, as amended by Regulation 2022/2474.
19 Article 5, paragraph 5 of Regulation 833/2014, as amended by Regulation 2022/2474.
20 Article 5g of EU Regulation 833/2014 as amended by Council Regulation 2022/2474.
21 Annex XV relating to Article 2fof EU Regulation 833/2014 as amended by Council Regulation 2022/2474.
22 Annex I of Regulation 269/2014, as amended by Council Decision (CFSP) 2022/2476.
23 Articles 6b and 6e of EU Regulation 269/2014 as amended by Council Regulation 2022/2475 of 16 December 2022.
24 Article 6b of EU Regulation 269/2014 as amended by Council Regulation 2022/2475 of 16 December 2022.
25 Article 1 of Council Decision 2022/2332 of 28 November 2022
26 Proposal for a Directive of The European Parliament and of The Council on the definition of criminal offences and penalties for the violation of Union restrictive measures,
European Commission, COM (2022) 684 final, 2 December 2022.
27 Proposed Article 3 in Proposal for a Directive of The European Parliament and of The Council on the definition of criminal offences and penalties for the violation of Union restrictive measures, European Commission, COM (2022) 684 final, 2 December 2022, page 24.
28 EU appoints an International Special Envoy for the Implementation of EU Sanctions to reinforce ongoing international action and contacts with third countries, European Commission, 13 December 2022
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
© 2023 White & Case LLP