Sanctions Tracker: EU Adopts 11th Sanctions Package And UK Introduces Russia-related Legislation - Export Controls & Trade & Investment Sanctions

Following its announcement of an 11^th package of Russia sanctions in May (which we covered here), the European Union has now adopted the package. Key elements of the 11^th sanctions package include fresh targeted sanctions against individuals and entities, an enlargement of restrictions on the sale, export and transit of certain goods and technology, as well as additional measures to prevent sanctions circumvention. We summarise the key elements in this post, along with a round-up of other recent sanctions developments from the UK.

EU

Adoption of 11^th sanctions package

Following intense negotiations, on 23 June 2023, the European Union ("EU") officially adopted its 11^th round of sanctions against Russia ("11^th sanctions package"). The package consists of Council Regulation (EU) 2023/1214 and Council Regulation (EU) 2023/1215, which respectively update Regulation (EU) 833/2014 (the "Russia Regulation") and Regulation (EU) 269/2014 (the "Asset Freeze Regulation") and came into force on 24 June 2023 following their publication in the Official Journal. The Commission has also published a Q&A document regarding the 11^th package.

Key elements of the 11^th sanctions package include fresh targeted sanctions against individuals and entities, an enlargement of restrictions on the sale, export and transit of certain goods and technology, as well as additional measures to prevent sanctions circumvention. Two particularly notable aspects of the package are: (a) a new anti-circumvention framework allowing the EU to restrict sale and export of sanctioned goods to certain third countries, as well as targeting "shadow" entities from Russia and third countries which deliberately circumvent EU sanctions; and (b) the new Article 6b of the Russia Regulation, which introduces a broadly worded information sharing requirement on any entity or person who may possess information which would help the authorities implement sanctions regulations. This can potentially have wide-ranging implications. We address some of these key points below.

Key features of the 11^th sanctions package

Anti-circumvention tool

The Russia Regulation has been amended to allow the EU to restrict the "sale, supply, transfer or export of goods" to third countries which are considered to be particularly high risk of being used in order to evade EU sanctions. Once the EU decides that a given country poses a circumvention risk, it will progressively increase the pressure on that country to comply with sanctions in the following steps:

First, the EU will adopt individual measures targeted at specific individual entities and persons in the country in question.
Second, the EU will conduct a dialogue with the country in question.
Third—and as a measure of last resort– if circumvention persists despite individual measures and dialogue, the EU may list the country in question in the newly created Annex XXXIII of the Russia Regulation.

In accordance with the newly introduced Article 12f of the Russia Regulation, once a country is listed in Annex XXXIII, it will be "prohibited to sell, supply, transfer or export directly or indirectly, goods and technology listed in Annex XXXIII...to any natural or legal person, entity or body in the third country specified in that Annex."

At the time of writing, Annex XXXIII does not list any countries. However, we will be closely monitoring developments in this regard.

Also related to circumvention, the Asset Freeze Regulation has been amended to expand the grounds under which restrictions can be imposed on individuals and entities, now including those "significantly frustrating" the EU's sanctions.

Requirement to report sanctions relevant information to the authorities

The new Article 6b added to the Russia Regulation introduces what appears to be a broad ranging obligation on any person or entity to "supply any information which would facilitate the implementation of [the Russia Regulation]" to "the competent authority of the Member State where they are resident or located". This has to be done "within two weeks of acquiring this information." The only exceptions are (i) communications between external lawyers and their clients; and (ii) "information held by judicial authorities".

This suggests that any person or entity (under EU jurisdiction) that has sanctions relevant information would have to inform the authorities of their Member State. The German authorities (who appear to be at the origin of this new provision) have described this as a "Jedermannspflicht " or "universal obligation" to report, and also as an obligation on companies to report their own violations. This may have wide ranging consequences taking into account its broad wording and the fact that non-compliance is, in principle, subject to criminal sanctions to be imposed by the Member States. The Commission can be expected to issue guidance on this new provision.

Additional targeted individuals and entities

The 11^th sanctions package has added a further 71 individuals and 33 entities who the EU sees as having aided Russia in various ways (particularly the deportation of Ukrainian children to Russia) to Annex I of the Asset Freeze Regulation. Individuals and entities listed in Annex I are subject to an asset freeze, and it is illegal to make funds or other economic resources available to them, whether directly or indirectly.

Additionally, the 11^th sanctions package also adds 87 entities seen as supporting the Russian military-industrial complex to the list in Annex IV of the Russia Regulation. It is noteworthy that the additions include entities from Armenia, Hong Kong, Iran, Syria, the United Arab Emirates and Uzbekistan in addition to Russia. The sale, supply, transfer and export of dual use goods and certain technologies (listed in Annex VII of the Russia Regulation) to these entities is restricted, and approval will only be granted provided the conditions set out in Article 2b of the Russia Regulation are met.

The latest measures also add five Russian media outlets (RT Balkan, Oriental Review, Tsargrad, New Eastern Outlook and Katehon) to the list in Annex XV to the Russia Regulation. Article 2f of the same Regulation suspends the broadcasting licences and authorisations, as well as any transmission and distribution arrangements with the outlets listed in Annex XV.

Additional restrictions relating to certain goods and technologies.

The 11^th sanctions package expands the list of goods and technologies which may contribute to improving Russia's defence and security sector. To this end, the EU has prohibited the export from the EU to third countries via Russia of several sensitive items including advanced technology and aviation-related materials. The updates to the Russia Regulation also introduce a prohibition on importing steel products from third countries which contain Russian-made steel products (Article 3g(1)(d)), as well as banning the transfer, sale or licensing of intellectual property rights and trade secrets related to restricted goods and technologies (Articles 3h(2)(c), 3k(2)(c),12b(1), and 12f(2)(c)).

Regarding Russia's important energy sector, as of 23 June 2023, Article 3m(3a) of the Russia Regulation has ended the exception to the general prohibition on importing Russian oil and petroleum products which Germany and Poland hitherto enjoyed. Conversely, Annex XXIX of the same regulation has been updated to continue allowing Japan to import Russian crude oil from the Sakhalin-2 Project in the Russian Far East until 31 March 2024.

Transport-related measures

Article 3l(1a) of the Russia Regulation introduces a new prohibition on transporting goods into the EU on trailers and semi-trailers registered in Russia.

Under Article 3eb of the same regulation, vessels which competent authorities suspect or "have reasonable cause to believe" are breaching the EU import ban on Russian seaborne crude petrol or the G7 price gap via "ship-to-ship transfers" are banned from accessing ports and locks within EU territory.

UK

New sanctions legislation

In the UK, the Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2023 the ("Amending Regulations") were published on 19 June, amending the Russia (Sanctions) (EU Exit) Regulations 2019 (the "Regulations"). The Amending Regulations expand the purposes for which sanctions can be imposed on Russia to include "promoting the payment of compensation by Russia for damage, loss or injury suffered by Ukraine on or after 24^th February 2022 as a result of Russia's invasion of Ukraine".

The press release announcing the Amending Regulations also notes that the UK government will (i) introduce a route for frozen Russian assets to be donated for Ukrainian reconstruction (with the precise mechanics of the fund which will disburse such funds to be announced in due course), (ii) require Russia-related designated persons who are located in the UK or who are UK persons to disclose assets that they hold in the UK, and (iii) that the UK is "preparing to legislate" to require those holding assets in the UK on behalf of the Central Bank of Russia, the Russian Ministry of Finance or Russian National Wealth Fund to disclose them to HM Treasury. However, these measures are not included within the Amending Regulations.

For completeness, we note that certain amendments to the Economic Crime and Corporate Transparency Bill were recently tabled which would introduce a new power for UK sanctions regulations to require designated persons to report to HM Treasury the funds or economic resources currently held, owned or controlled by them in the UK and any funds or economic resources held, owned or controlled by them within the UK six months prior to their designation. Those amendments were subsequently withdrawn on the basis of the above government proposals (it was noted in the House of Lords debate that the government is committed to introducing the legislation mentioned above by the end of 2023).

The Amending Regulations also make certain amendments to the trade sanctions which apply to non-government controlled areas of Ukraine, extending the existing restrictions to the non-government controlled areas of the Kherson and Zaporizhzhia oblasts.

Oil price cap

The Office of Financial Sanctions Implementation has published updated guidance on the oil price cap, and a new general licence (GL INT/2023/3074680) regarding trading in derivatives and futures.

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.