UK: AIM Market And Russian Sanctions

Last Updated: 25 September 2014
Article by Nigel Kushner


EU sanctions have slowly ramped up this year, culminating in Council Regulation EU 960/2014 ("Regulation") finally being rolled out on 12th September 2014. These sanctions closely mirror the US sanctions. However, unlike US sanctions relating to Iran, US sanctions relating to Russia have only limited extra-territorial bite. Currently, both the EU and US sanctions are limited in scope but do impact financial institutions, exporters and those involved in the oil and gas, military and dual use goods sectors. Further, the sanctions create exposures for any EU entity which has dealings with a company anywhere in the world which is owned or controlled by an individual or entity listed in the asset freeze.

Some commentators speculate that certain EU Member States do not have the stomach to significantly ramp up sanctions whether due to a fear of tit-for-tat reprisals or because sanctions may impact home markets. However, there remains a significant risk that if the situation in Ukraine escalates then the EU will have little choice but to broaden sanctions in a meaningful way.

We have advised numerous private and publicly listed entities on EU sanctions regimes, primarily related to Iran, Libya, Egypt and Syria. However, many entities who previously considered they were immune from sanctions regulations due to their geographical concentration must now sit up and reassess their due diligence procedures and risk management systems. Sanctions are complex and fast-changing and you must devote sufficient resources in order to ensure compliance. In many cases, implementing a bespoke checklist throughout the business will significantly reduce exposures.

A different area of risk relates to contracts which may not be capable of being performed by you because of sanctions. In such a case, you may find you are contractually liable for non-performance in the absence of a carefully crafted sanctions clause.

Directors and employees may be criminally liable in respect of breaches, and publicly listed companies risk fines, damage to their reputation and a drop in share price if they are found to be in breach.

On 18th September 2014, The London Stock Exchange ("LSE") published AIM List 40 to NOMADs, Finance Directors, Company Secretaries and to all AIM companies. The LSE now requires all AIM companies to inform their NOMAD immediately if they "fall within" the recent EU regulations.

We summarise below the primary elements of the current sanctions regime concerning Russia.


There is currently an asset freeze and travel ban on 119 individuals and an asset freeze on 23 companies.


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 with particular care is with regards your dealings with companies which may be owned, beneficially or otherwise, in whole or part, by a person or entity subject to the asset freeze. For example, if Roman Abramovic (alleged Chelsea beneficial owner) was subject to the asset freeze (and we have no reason to believe he will or should be subject to it) you may not be able to buy season tickets for Chelsea because this could result in a benefit to such owner.

EU entities and persons must exercise increased due diligence in their dealings with Russian companies and insist on understanding the ownership chain and ultimate beneficial ownership. The same applies to non-Russian entities which may be owned in whole or part by persons listed in the asset freeze list. There is no substitute for knowing your customer.

You may wish to add clauses to contracts which contain a warranty by your counterpart that no person or entity subject to the EU asset freeze has any ownership interest in, or control over, your counterpart and to undertake to notify you immediately should this occur.

EU entities should carefully consider the position of overseas subsidiaries outside of the EU. It may be that non-EU subsidiaries may be free to conduct certain business which would result in a breach of the EU sanctions regulations if the parent company conducted such business. However, if directors or officers of that non EU subsidiary are EU nationals such EU nationals may be committing an offence.


1. Product controls: dual-use goods and technology for specific targeted companies Previous sanctions relating to dual-use goods and technology were limited. They applied to the sale, supply, transfer or export (directly or indirectly) to, or for use, in Russia only if those items were intended for military use or to a military end-user.

The Regulation now places an outright ban on dual-use goods and technology where the sale, supply, transfer or export is to listed Russian businesses. It does not matter if the targeted entity is a military end-user or whether the item will have a military end-use. The list includes: JSC Sirius, OJSC Stankoinstrument, OAO JSC Chemcomposite, JSC Kalashnikov, JSC Tula Arms Plant, NPK Technologii Maschinostrojenija, OAO Wysokototschnye Kompleksi, OAO Almaz Antey and OAO NPO Bazalt.

The Regulation includes a prohibition on the provision of related services (technical assistance, brokering services, and financial assistance) in connection with dual-use items to the same listed entities. The broad definition of these related services requires significant due diligence in order to ensure compliance.

The ban applies whether or not the items originate from the EU. However, the ban does not apply to contracts concluded before 12th September 2014 and does not apply to the provision of assistance that is necessary to the maintenance and safety of existing capabilities within the EU. The latter exemption reads to us as a clause inserted to placate certain EU Member States.

2. Services in relation to projects regarding deep water oil exploration and production, arctic oil exploration and production, or shale oil projects in Russia

The previous regulations covered only the provision of technical assistance or brokering services related to certain listed oil-related equipment and technology. The Regulation now provides for a much wider prohibition on the direct or indirect provision of services associated to such projects: drilling, well testing, logging and completion services and the supply of floating vessels. These services are now prohibited, irrespective of whether prohibited items are involved.

Again, the ban does not apply to contracts entered into before 12th September 2014. Nor does it apply where the services are necessary to prevent a serious impact on human health and safety or the environment. Certain EU Member States may give a liberal and broad interpretation to such exclusion.

3. Services related to goods and technology listed in the Common Military List

The Regulation expands the existing prohibitions to prohibit the provision of insurance and reinsurance services for the sale, supply, transfer or export of goods and technology listed in the Common Military List.

4. Access to capital markets

Under existing regulations there were restrictions on access to capital markets in respect of transferable securities and moneymarket instruments with a maturity exceeding 90 days, issued after 1st August 2014 by certain listed banks (currently: Sberbank, VTB bank, Gazprombank, Vnesheconombank (VEB), Rosselkhozbank). The Regulation expands these restrictions to cover transferable securities and money-market instruments with a maturity exceeding 30 days where these are issued after 12th September 2014 by the same banks.

In addition, the Regulation now prohibits the direct or indirect purchase, sale or provision of investment services for, or assistance in the issuance of, or otherwise dealing with transferable securities and money-market instruments with a maturity exceeding 30 days and issued after 12th September 2014 by entities specifically listed who:

(i) Provide military equipment or services (OPK OBORONPROM, United Aircraft Corporation and Uralvagonzavod); or who are

(ii) Publicly controlled or with over 50% public ownership, with estimated total assets of over 1 trillion Roubles and its estimated revenues originating for at least 50% from the sale or transportation of crude oil or petroleum products (Rosneft, Transneft and Gazprom Neft).

These restrictions also apply to entities that (i) are directly or indirectly more than 50% owned by the listed entities, or (ii) act on behalf of or at the direction of any listed entity. The latter restriction will likely require significant due diligence and representations and warranties contained in your contracts.

5. Provision of loans

No new (syndicated) loans or credit with a maturity exceeding 30 days can be made directly or indirectly to the persons targeted by the access to capital markets restrictions. This prohibition is subject to limited exceptions.


A revised AIM application form has been issued which requires confirmation that the application does not fall under Articles 5.1 or 5.2 of Council Regulation (EU) No 833/2014 of 31st July 2014 as amended. These provisions deal with access to capital markets. The role of the NOMAD is gradually becoming more onerous following AIM imposing obligations to educate directors and to conduct meaningful due diligence on directors. Now a NOMAD must consider the application of a complex and fast moving set of sanctions regimes.


EU businesses should be alive to retaliatory sanctions by Russia. These include food and agricultural imports. Russia is courting exporters in Latin America and Asia to step into the shoes of EU exporters. Rumours abound that Russia may prevent imports of cars from the EU or may prevent certain airlines flying over Russian airspace.


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).


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.

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.

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?


We have a dedicated team advising on sanctions compliance for a multitude of private and publicly listed entities, financial institutions, insurers, shipowners, exporters and traders. We guide our clients through the complex myriad of ever changing rules and provide practical, hands-on advice to your business and to directors personally. We prepare bespoke sanction risk management tool kits and policies and procedures, conduct internal training and have performed formal and informal audits. Most importantly, we endeavour to provide clear advice upon which you may rely, without caveats. For a fixed fee quote, please contact us.

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.

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