Washington, D.C. (July 11, 2023) - The European Union'sadoption of its 11th package of Russian sanctionson June 23, 2023 continues a trend of growing Western restrictions on Russia's imports and exports. In addition to expanding the types of affected goods, this latest round introduces stepped-up measures to prevent circumvention of existing sanctions. At the same time, new exemptions to facilitate energy projects and enable divestment efforts add further complexity to the multinational sanctions infrastructure.
Measures to Prevent Sanctions Evasion
The latest EU sanctions package aims to close off a range of mechanisms for sanctions evasion. Importers of sanctioned iron and steel goods now carry the burden of proving that their inputs did not originate in Russia. Similarly, the new sanctions target sea vessels that conduct ship-to-ship oil transfers by prohibiting them from entering EU ports if they are suspected of violating the ban on maritime imports or the price cap on Russian oil products. Ships carrying Russian oil suspected of turning off their navigation tracking systems are likewise banned from sailing into EU ports.
Expanded Restrictions on Dual-Use Items
Curbs on dual-use items have grown too, as the new sanctions expand the list of restricted dual-use items to encompass electronic components, semiconductor materials, and marine equipment, among others. Notably, 87 new entities in Russia and around the world that helped circumvent sanctions and supply the Russian defense sector now face restrictions on dual use exports. Further, the new package extends an existing ban on EU exports to third countries transiting through Russia. This ban now covers additional sensitive items including advanced technology, aviation-related inputs, and navigational tools. As a "last resort," the EU has also crafted a mechanism to restrict the export of sensitive items to third countries if they are at a "particularly high risk of circumvention."
New Restrictions
In addition to strengthening enforcement by limiting circumvention, the 11th EU sanctions package imposes new restrictions on various goods, services, and individuals. For example, exporting certain machinery components and providing intellectual property related to restricted goods to Russia are now banned. Existing bans on broadcasting by Russian state-controlled media and bans on exporting electric, hybrid, and larger luxury vehicles have been extended. The new measures extend blocking sanctions to cover an additional 71 new Russian individuals and 33 Russian entities. In addition, the sanctions affect road transportation, as they ban trailers and semi-trailers registered in Russia from carrying goods to the EU.
Exemptions from Sanctions
While Western sanctions on Russia have tended to expand in scope since the start of the invasion, tailored carve-outs remain. The EU's sanctions package offers exemptions to facilitate divestment from Russian holdings and to obtain services necessary to remove a sanctioned individual's control over EU-based assets. Exemptions also exist for particular energy projects, including the transit of oil through Russia via the Druzhba pipeline from third countries like Kazakhstan. Moreover, the EU's new sanctions provide exemptions specifically for financing and servicing the Caspian Pipeline Consortium, another pipeline carrying Kazakh oil to the EU through Russia.
Likewise, Japan also allows exemptions from sanctions for specific Russian energy projects. For example, on June 30, 2023, Japan exempted the Sakhalin 1 and 2 projects alongside the Arctic LNG 2 project from sanctions that prohibit the country's companies from providing architectural and engineering services to Russia. This carve-out allows Russian exports of liquefied natural gas to Japan to proceed unaffected by the broader sanctions regime. In a sign of cooperation between developed economies, the EU's latest sanctions package accounts for this by excepting Sakhalin oil bound for Japan from the price cap that applies to the rest of Russia's oil.
Importance of Robust Sanctions Compliance Program
Exemptions can change as rapidly as new sanctions. For example, with its latest sanctions package, the EU revoked an earlier carve-out that had temporarily allowed Russia to export crude to Germany and Poland via the Druzhba pipeline. The changing nature of the multinational sanctions regime heightens the legal risk in which today's businesses operate. Businesses engaged in shipping, for example, must ensure their operations do not inadvertently assist in sanctions evasion, while those operating in the energy sector must keep abreast of fluctuating exemptions. A robust sanctions compliance program is therefore valuable for businesses to reduce their liability when operating in this difficult space.
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