The EU adopts its 14th package of sanctions against Russia

On 24 June 2024, the Council of the European Union (Council) adopted its 14th package of EU sanctions against Russia since its invasion of Ukraine. The introduction of this long-awaited package was initially delayed due to some disagreements between Member States on the scope of certain measures, in particular anti-circumvention efforts. The package amends Council Regulation (EU) 269/2014 on individual sanctions, and Council Regulation (EU) 833/2014 on sectoral sanctions.

The below summarises the key new measures:

Council Regulation (EU) 833/2014 (sectoral sanctions)

Professional services and software ban (Article 5n)

• Extension of the previous wind-down period under Article 5n (7) from 20 June 2024 to 30 September 2024, allowing the provision of services and software to EU/Western-owned subsidiaries without authorisation.
• Exemption whereby EU nationals that are residents of Russia (and were so before 24 February 2022) are permitted to provide the prohibited professional services, excluding software, to EU/Western-owned subsidiaries that are their employers.

Trade-related restrictions

• Export bans: new goods under export ban, including manganese ores and rare-earths compounds, plastics, excavating machinery, monitors and electrical equipment (e.g., microwave and aerial amplifiers, flight data recorders), as well as All-Terrain Vehicles and certain vehicle parts.
• Import bans: helium is now banned from import from Russia.
• Ban on the acquisition of Ukrainian cultural goods if there are suspicions these goods were illegally removed from Ukraine.
• Diamonds imported into the EU before 1 September 2024 are not subject to the import prohibition.
• Extension until 31 December 2024 of the authorisation-based derogations allowing the sale, supply or transfer of sanctioned items in the context of a divestment from Russia.
• 61 entities added to the list under Annex IV of entities directly supporting Russian military and industrial complex. Stricter export control measures apply to these entities (additions include entities from China and Hong Kong, Turkey, Kyrgyzstan and the United Arab Emirates).

Transport-related restrictions

• Strengthening the take-off, landing and overfly prohibition of Russia-connected aircrafts by requiring, for non-scheduled flights, the operator to provide the ultimate beneficial owner of the aircraft and, where reasonable grounds to suspect circumvention exist, identifying information of all passengers and crew.
• Ban on road transport companies that are at least 25% Russian-owned from operating in the EU.
• Ban on access to EU ports and provision of services to vessels that contribute to Russia's ability to wage war; 27 such vessels are listed under the corresponding annex.

Anti-circumvention measures

• EU operators are required to undertake their ‘best efforts’ to ensure that any non-EU entity they own or control does not participate in activities that undermine EU sanctions.
  
  In Recital 30, ‘best efforts’ is defined as “comprising all actions that are suitable and necessary to achieve the result of preventing the undermining of the restrictive measures in Regulation (EU) 833/2014. Those actions can include, for example, the implementation of appropriate policies, controls and procedures to mitigate and manage risk effectively, considering factors such as the third country of establishment, the business sector and the type of activity of the legal person, entity or body that is owned or controlled by the Union operator. At the same time, best efforts should be understood as comprising only actions that are feasible for the Union operator in view of its nature, its size and the relevant factual circumstances, in particular the degree of effective control over the legal person, entity or body established outside the Union. Such circumstances include the situation where the Union operator, due to reasons that it did not cause itself, such as the legislation of a third country, is not able to exercise control over a legal person, entity or body that it owns.”
  
  
• Reinforcing the so-called ‘No Russia Re-export’ provisions for exporters in respect of items listed under Annex XL (common high priority goods) by requiring due diligence and risk mitigation controls to mitigate the risk those items’ export to Russia; the requirement extends to non-EU subsidiaries. A transitional period of six months has been introduced for these obligations.
• Article 12, which prohibits circumvention, has been expanded to incorporate key text from the European Court of Justice’s 2011 judgment in Afrasiabi in order to ensure alignment of interpretation with the Court of Justice of the European Union:
  It shall be prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent prohibitions in this Regulation, including by participating in such activities without deliberately seeking that object or effect but being aware that the participation may have that object or effect and accepting that possibility.

Financial sector-related prohibitions

• Ban on the use of the Financial Messaging System of the Russian Central Bank:
  • A prohibition for EU entities operating outside of Russia to directly connect to the System for Transfer of Financial Messages (SPFS).
  • A transaction ban against non-Russian entities using the SPFS, as listed in the corresponding annex (no entities yet listed).
• A transaction ban against non-EU credit and financial institutions involved in the circumvention of EU sanctions in relation to sensitive tech items, as listed in the corresponding annex (no entities yet listed).

LNG-related prohibitions

• Prohibition on reloading services for the purposes of transshipment operations for Russian LNG, including onward transportation to third countries. This covers both ship-to-ship transfers and ship-to-shore transfers, as well as re-loading operations, and does not affect import but only re-export to third countries via the EU.
• Ban on new investments, as well as the provision of goods, technology and services for the completion of LNG projects under construction in Russia, such as Arctic LNG 2 and Murmansk LNG.
• Prohibition to purchase or import Russia LNG through terminals not connected to the European interconnected gas system.

IP-related prohibitions

• Prohibiting new applications filed by Russian nationals, residents, or entities for the registration of intellectual property rights in EU IP offices, the European Patent Office, and the WIPO.
• In connection to the ‘No-Russia Re-Export’ provision, an obligation for EU operators licensing IP rights or trade secrets relating to common high priority items as listed in Annex XL, to contractually prohibit their counterparts and require them to prohibit possible sublicensees, from using those IP rights or trade secrets in connection with the items in Annex XL that are intended for sale or export to Russia or for use in Russia. 

Other provisions

• A ban on political parties and foundations, NGOs, including think tanks, or media service providers in the EU from accepting funding from the Russian government or its affiliates.
• Certain derogations relating to the Sakhalin-2 project, including the extension of the Sakhalin-2-specific wind-down period under the oil price cap.
• Member States’ penalties may consider the voluntary self-disclosure of EU sanctions infringements as a mitigating factor, in accordance with national law.
• Clarification in Recital 36 that the protection against liability granted under Article 10 to EU operators that do not know and had not reasonable cause to suspect that their actions would infringe EU sanctions, cannot be invoked where EU operators failed to carry out appropriate due diligence.

Council Regulation (EU) 269/2014 (individual sanctions)

• New listings of 69 natural persons and 47 entities under asset freeze and travel bans. These listings target various areas of the Russian economy and state, including the military, as well as aerospace and energy sectors. The listings also target several actors involved in propaganda.
• Introduction of authorisation-based derogations relating to sanctioned banks, which do not apply in respect of Central Securities Depositories (CSDs). These derogations allow national competent authorities to authorise the transfer:
  • Of funds from Russia that have been frozen due to a sanctioned intermediary bank.
  • Of payment of funds from Russia initiated through a listed entity, if the payment is between two unlisted persons. The beneficiaries can only be EU/EEA/Swiss nationals or residents.
• Article 9(1), which prohibits circumvention, has been expanded in the same way as was Article 12 of COUNCIL REGULATION (EU) 833/2014 (see above).

Legal claims in Russia

• EU sanctions prohibit the satisfaction of claims made by sanctions targets, in relation to a contract or transaction, the performance of which has been affected by EU sanctions. This is also known as the “no claims clause”. Russia permits such claims in its courts, and sanctions-related considerations are generally not recognized, leading to damages being awarded in Russia, the satisfaction of which would breach of EU sanctions.
• A transaction ban has been established for entities, as listed in the corresponding annex, that lodged a claim before a Russian court against an EU national or entity on the basis of Russian countersanctions in connection with any contract or transaction, the performance of which has been affected by EU sanctions. No entities are yet listed.
• The new package also entitles EU nationals and entities to recover any damages, including legal costs, incurred as a consequence of such claims lodged in third countries (available under both Regulations 269 and 833).
• In addition, EU nationals and entities are entitled to recover any damages, including legal costs, caused by any person targeted by the sanctions which have benefitted from a decision under Russian laws placing assets owned by investors associated with “unfriendly” States under temporary administration, provided the decision was illegal under international customary law or a bilateral investment treaty between a Member State and Russia.

Conclusion

With this 14th round of sanctions, the EU is further restricting economic ties with Russia by impacting a number of sectors with the notable addition of the liquefied natural gas (LNG). This new package continues to fight the circumvention of EU sanctions, including by introducing obligations on EU parent companies to avoid breaches by their non-EU subsidiaries and by expanding the statutory definition of circumvention. In addition, the Council has expanded the breadth of its sanctions, which now further restricts IP rights transfers, the funding of political parties and organizations in the EU, and Ukrainian cultural goods. The measures also introduce several exemptions and authorisation-based derogations and expand certain wind-down periods that may benefit EU operators.

EU companies should review their Russia-related operations to ensure they remain in compliance with the new restrictions imposed by the 14th package. Our sanctions and export controls practitioners can help businesses understand the implications of these restrictions and support their compliance and licensing efforts.