European Union: Russian Sanctions Update – What EU Companies Need To Know

Last Updated: 24 July 2014
Article by Nigel Kushner

Current EU Sanctions On Russia

There is currently an asset freeze and travel ban on 72 individuals and an asset freeze on 2 companies.

What Does The Asst Freeze Mean?

No EU national or entity may make funds or economic resources available, directly or indirectly, to or for the benefit of a person or entity subject to an asset freeze. All funds and economic resources held by a person or entity in the EU must be frozen. Economic resources includes almost anything which may be used to obtain funds. In essence you must not provide anything of value to and nor can you hold anything of value for a person or entity subject to the asset freeze. Where you need to tread carefully is with regards to your dealings with companies which may be beneficially owned, in whole or part by a person or entity subject to the asset freeze. For example, if Roman Abramovic (Chelsea beneficial owner) or Alisher Usmanov (alleged part Arsenal beneficial owner) were subject to the asset freeze you may not be able to buy your season tickets for Chelsea or Arsenal, respectively, because this could result in a benefit to such owner.

New EU Sanctions

Following a meeting on 16th July 2014, the EU announced six new measures. They have not yet come into force, but this will most likely be achieved imminently through amending Regulation 269/2014.

The new measures are likely to comprise:

Further asset freezes on individuals and companies who materially or financially

  1. support actions undermining or threatening Ukrainian sovereignty, territorial integrity and independence of Ukraine. The EU may also target individuals and companies actively providing material or financial support to Russian decision-makers responsible for the annexation of Crimea or the destabilisation of eastern Ukraine;
  2. suspending new European Investment Bank financing operations regarding public sector projects in Russia;
  3. suspending new European Bank for Reconstruction and Development funding of public sector projects in Russia;
  4. the European Commission will re-assess bilateral EU-Russia cooperation programmes, although projects in relation to civil society and cross-border cooperation are unlikely to be suspended.
  5. restricting European investment in Crimea; and
  6. restricting financing by international financial institutions of projects that explicitly or implicitly recognise the illegal annexation of Crimea by Russia.

Impact Of MH 17 Tragedy

A number of EU Member States have called for tougher sanctions against Russia including "Tier 3" sanctions ie sectoral measures which will place restrictions on certain sectors of the Russian economy, including financial services, the arms industry and the oil and gas sector. The UK, Holland and Poland are leading this push. Others, such as Germany and Italy have concerns given their dependence on Russian gas and the French are not minded to cancel their pending delivery of warships to Russia. As a result, although we expect new sanctions to be implemented imminently, it is unlikely that they will have any meaningful impact. Indeed, they were contemplated prior to the MH 17 tragedy.

Recent US Sanctions

On July 16, 2014 the US Treasury Department issued new Ukraine-related sanctions that target the following sectors of the Russian economy: financial services, energy, and arms or related material sectors of Russia. The sanctioned entities include two major Russian financial institutions (Gazprombank OAO and VEB) and two Russian energy firms (OAO Novatek and Rosneft). Also sanctioned are eight Russian arms firms, four Russian government officials, a shipping facility in the Crimean peninsula (Feodosiya Enterprises), and the so-called "Luhansk People's Republic" and the "Donetsk People's Republic."

The sanctions against the Russian banks and energy firms prohibit US persons from transacting in, providing financing for, or otherwise dealing in debt of longer than 90 days maturity issued by the entities on or after July 16, 2014. US persons are also prohibited from dealing in new equity of the targeted Russian banks. However, the US also issued a general license which authorizes transactions involving certain related derivative products. It should be noted that the targeted Russian banks and energy firms have not been designated as Specially Designated Nationals (SDNs), and their property and interests in property have not been blocked. The other newly-targeted entities and individuals – Russian arms firms, Russian government officials, Feodosiya Enterprises, and the Luhansk and Donetsk People's Republic have been designated as SDNs.

EU / Russian Trade

Figures for 2012 demonstrate that EU/Russian trade was worth €267 Billion. During the same period EU/US trade was worth only €18 Billion. Clearly, the EU may have a greater impact on Russian trade than the US (assuming the US does not place extra territorial sanctions on Russia whereby they may punish non US persons who have certain dealings with Russia).

What Does The Future Hold?

We are already seeing an impact with a number of clients unwilling to enter into new contracts with Russia because of the fear of future sanctions. This is perhaps more powerful than the sanctions themselves. Consequently, non EU entities will be delighted to step into the shoes of Western businesses pulling out of Russia.

If Russia were to "formally" send troops into Eastern Ukraine then we consider that the EU and the US will likely have little choice but to significantly broaden sanctions against Russia in a meaningful way. It remains to be seen whether Ukraine will defeat the separatists in Donetsk and how Russia will react. This is critical.

The EU is currently suffering from too many internal divisions which is preventing any meaningful sanctions against Russia. It may be that the UK and others "go it alone" and implement unilateral sanctions against Russia although this currently appears unlikely.

The current international focus is shifting to ensuring independent access to the MH17 incident site. Sanctions are being threatened if independent access and investigation is not permitted. Rather, we would have expected that the focus would be on implementing sanctions as a result of the incident itself. It is somewhat ironic that if independent access is provided then the threatened sanctions will likely be more limited. If so, perhaps the West is sending a distorted message to Russia: we

will not punish you so much for shooting down a domestic passenger airline; rather, we will punish you for impeding the investigation. If Russia ensures independent access (of sorts) then perhaps it will have avoided the onerous sanctions which may otherwise have been implemented in relation to the incident itself.

We anticipate further EU sanctions on Russia but they will have little meaningful impact unless Russia "march in" to Eastern Ukraine. In the meantime, we will probably witness the occasional positive gesture and promises from both the Donetsk insurgents and Russia, mixed with obfuscation and lacking any meaningful follow-through. Russia will ultimately deny any direct involvement in the incident.

It will be interesting to see how the Russian crisis impacts the current negotiations with Iran. Iran are currently negotiating a significant oil for barter deal with Russia. Will Russia now seek to move closer to Iran? Will Iran be able to negotiate a "better deal" on the nuclear issue if they agree to forgo a closer relationship with Russia?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.