Washington, D.C. (November 1, 2023) - On October 23, 2023, the European Commission issued a Frequently Asked Questions ("FAQ") document clarifying the European Union's ("EU") blocking sanctions "50% Rule." The FAQ applies specifically to subsidiaries of the 13 Russian entities currently subject to blocking sanctions under Annex XIX to Council Regulation 833/2014, including Russian energy, transportation, and technology companies Rosneft, Transneft, Rostec, KAMAZ, and Sovcomflot, among others.
Under the EU's "50% Rule," if a sanctioned entity owns more than 50% of a company, that company is also subject to the same sanctions. Further, EU sanctions apply to entities acting "on behalf or at the direction" of a blocked entity. Thus, as the FAQ clarifies, simply reducing a blocked entity's ownership in another company to less than 50% may not lead to the lifting of sanctions. Rather, where a company's ownership by a blocked entity is transferred or otherwise modified to fall below the 50% mark, it will still be subject to sanctions for "acting on behalf or at the direction of" that blocked entity where (1) "the share transfer is operated within the same corporate group;" (2) "the transfer occurs close to" the date on which sanctions are imposed on the owning or controlling entity; or (3) if the blocked entity maintains "any material influence" over the company, such as veto rights or other management powers.
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