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The 14th package of EU-Russia sanctions

  1. The 14th EU sanctions package against Russia – further amendments to EU sanctions law

On 24 June 2020, the EU member states once again agreed on a comprehensive package of sanctions in response to Russian aggression and the war waged by Russia in Ukraine. Since 25 June 2024, these regulations have entered into full force and thus once again extensions of trade-related as well as personal sanctions, which have led to changes in the respective classification under the existing EU Regulations 833/2014 and 269/2014.

  1. Personal sanctions

A further 69 individuals and 47 organisations were added to Annex I of EU Regulation 269/2014, on 28 June 2024 two more individuals and four organisations were listed, this list now comprises more than 2,200 entries.

  1. Goods-related and sectoral sanctions

The EU member states have once again expanded the lists of import and export restrictions. Annex VII of EU Regulation 833/2014 has been expanded to include certain machine tools and off-road vehicles, which fall under the export ban of Art. 2a of Regulation 833/2014. The focus is once again on the objective of weakening Russia’s military operational capabilities. It also serves this purpose that the EU member states have agreed on mechanisms to impose special due diligence obligations on companies whose goods are contained in weapons systems or other goods found on the battlefield, in particular technical equipment. This is intended to prevent the recurrence of circumvention transactions in particular.

The containment of circumvention transactions also plays an important role in this EU sanctions package.

Not only the activities of EU economic operators in the EU are covered by the regulations, but also those of their subsidiaries abroad. The standard applied here is weakened compared to the standard for actions on EU territory and requires that EU economic operators must make their best endeavours to avoid the risk of being targeted by the investigating authorities for sanctions violations.

This standard triggered a lot of discussion in the run-up to the announcement of the 14th EU sanctions package.

The weakening of the standard for subsidiaries based abroad is attributed in particular to the influence of the German export industry on companies that have subsidiaries based abroad. However, it should be noted that even the less stringent standard does not give companies a free pass. In individual cases, it will be necessary to prove what measures a company has taken to prevent transactions in breach of sanctions from being carried out by subsidiaries based abroad.

In order to be able to provide evidence in the event of an investigation directed against a company for violation of Art. 8a of EU Regulation 833/2014, it is advisable for a company to carefully document all relevant compliance measures and, if necessary, to restructure the internal compliance programme (“ICP”). Not taking any precautionary measures will certainly not fulfil the standard of being able to demonstrate “best endeavours”.

Nevertheless, this provision is a minus, as this provision, already referred to as the “best endeavours” clause, falls short of the originally conceived extension of the “no-Russia” clause of Art. 12g of EU Regulation 833/2014. Previous experience with the almost overwhelming bureaucracy that this clause presents as a new reality for companies and the criticised lack of effectiveness of this clause may have played a significant role in this compromise.

This provision of Art. 8a clearly manifests that the EU sanctions claim secondary effect. A claim that is remarkable in view of the long-standing criticism of such an approach by the United States of America in the context of sanctions directed against Cuba or Iran.

Companies that still control subsidiaries based in Russia are in a particular dilemma. On the one hand, Russian law requires them to disregard EU sanctions law; on the other hand, there are now standards to ensure that subsidiaries also comply with sanctions.

The considerations of the “no-Russia” clause are also not far removed from the 14th EU sanctions package. They are reflected in Art. 12ga para. 1 of EU Regulation 833/2014 with regard to the use of intellectual property rights, trade secrets and information. This also has an impact on contract design and the ICP. From 26 December 2024, business partners from third countries must be prohibited from directly or indirectly making such rights, trade secrets or information available for the benefit of Russian interests. There is a grandfather clause on this; contracts that were concluded before 25 June 2024 and will be fulfilled by 26 June 2025 are exempt from this. For many companies, there is therefore an immediate need for action to ensure company-wide implementation of this provision. Considering that the export of such information can regularly take place through data exchange or even telephone calls, the scope of application of this regulation is very broad. It is therefore strongly recommended that the conclusion of new contracts be checked by persons within or outside the company who are familiar with the provisions of sanctions law. It is important to emphasise that this regulation not only affects companies and, in particular, technology-intensive companies with direct links to Russia or countries of the Eurasian Economic Union, but also all economic players based in the EU and their foreign subsidiaries.

The discovery of Western technology goods on the battlefields in Ukraine has led to a new requirement for all companies exporting war-related goods. From 26 December 2024, they must carry out risk assessments and risk evaluations with regard to potential exports to Russia or the use of these goods in Russia (Art. 12gb para. 1 lit. a of EU Regulation 833/2014). On this basis, they must take appropriate risk mitigation and risk management measures (Art. 12gb para. 1 lit. b of EU Regulation 833/2014). The risk assessment must be documented and kept up to date on an ongoing basis. In this respect, this company is required to maintain constant and vigilant geopolitical awareness, which must also be constantly implemented in ongoing business operations. This poses a particular challenge for those responsible for compliance in such companies. Without taking geopolitical circumstances into account, it is difficult to imagine that such a company can conduct its business in compliance with sanctions. The increasing demands on the fulfilment of compliance tasks is also likely to drive consolidation in this business environment.

  1. Tightening of sanctions in the energy and transport sector

In addition to restricting military operational capability, the EU member states are also constantly seeking to limit Russia’s financial options with the sanctions package, which contribute to the continuation of hostilities.

These include the current ban on the transhipment of Russian LNG at European ports for onward transport to third countries and the prohibition of investments in Russian LNG projects (Art. 3a and 3r of EU Regulation 833/2014). In our previous articles, we have already dealt in detail with other commodity markets such as the trade in crude oil and the existing price cap (see our previous article on the 9th EU sanctions package) or the diamond trade (see our previous article on the 12th EU sanctions package).

It has long been clear that LNG is one of the most important raw materials for Russia. Some ports, such as Zeebrugge, are significantly affected economically by this ban. However, in view of the importance of LNG as one of the largest sources of income for Russia from commodity trading, a regulation on this issue seemed to be overdue.

Furthermore, a ban on granting access to European ports was introduced with regard to listed ships (Art. 3s para. 1 of EU Regulation 833/2014) in conjunction with Annex XLII). Annex XLII). 27 ships are already listed under Annex XLII, and in view of the enormous growth in the shadow fleet (we also refer to our earlier article on the 12th EU sanctions package), it can be assumed that this annex will grow rapidly.

For the sake of completeness, it should be noted for the transport sector that the existing take-off, landing and overflight bans for aircraft have been extended to charter flights (Art. 3d para. 1 of EU Regulation 833/2014). The ban on Russian road transport companies from transporting goods within the territory of the Union has been extended to all EU companies that are at least one quarter Russian-owned (Art. 3l para. 1 of EU Regulation 833/2014).

  1. Tightening of the ban on circumvention

As with previous sanctions packages, the 14th sanctions package is also particularly concerned with responding to any circumvention of sanctions that has been identified. The 14th sanctions package includes a significant tightening of the prohibitions on circumventing sanctions in accordance with Art. 9 of EU Regulations 269/2014 and 833/2014. Whereas previously the knowing and wilful participation in circumvention transactions was prohibited, it is now sufficient to accept it. In short, this means that all EU economic operators are required to take a closer look; looking the other way can have fatal consequences for a company and the actors acting or not acting.

  1. No-claim rule

The new Art. 11a of EU Regulations 269/2014 and 833/2014 regulates an independent claim for damages (including legal costs) for EU companies if claims have been asserted against EU companies in a third country due to compliance with EU sanctions and the EU companies have no effective legal protection in these third countries. In this case, they can assert claims for damages in defence against such claims in the third country before the courts of the EU Member States.

For EU companies that suffer damage as a result of forced administration ordered by the Russian government in Russia, a claim for damages pursuant to Art. 11b of EU Regulation 833/2014 is provided for, which is directed against the companies or those who benefit from the forced administration.

The extent to which this provision can lead to enforceable claims will have to be examined on a case-by-case basis and will certainly depend on whether and where the assets of the group of claimants are located outside Russia.

  1. Financial sector

The Central Bank of Russia reacted to the exclusion from payment transactions, Art. 5h of EU Regulation 833/2014, by creating a system for financial messaging, “SPFS”.

Its use is prohibited for EU companies operating outside Russia. Engaging in transactions with persons and entities that use the SPFS or similar systems is also prohibited (Art. 5ac para. 2 of EU Regulation 833/2014). This is intended to reduce Russia’s financial resilience and prevent the circumvention of EU sanctions against Russia. However, there are exceptions, such as for transactions that are absolutely necessary for the purchase or transport of certain resources. A transaction ban is also linked to the new Art. 5ad with regard to credit, financial or crypto-asset institutions involved in the transaction of certain restricted export goods; this accompanying measure is to be understood as a preparatory measure, as it relates to companies listed in Annex XLV of EU Regulation 830/2014. Compliance with the prohibition standards is therefore transferred to a further business level at the financing level, a mechanism that has become known as “secondary sanctions” in sanction measures designed by the United States of America. The measures intensify the regulatory content of the bans, while at the same time requiring the financial sector to exercise particular caution in financing transactions. Due to the extensive prohibition of the indirect provision of economic resources and indirect sanctions violations, the new regulatory content of this provision can be regarded as limited, but certainly clarifying.

In the area of finance, it is worth noting that EU Council Regulation 2024/1469 of 21 May 2024 already created an amendment to Art. 5a of EU Regulation 833/2014, which was discussed among international law experts. The key question here was the extent to which the protection of property under the Universal Declaration of Human Rights, the EU Charter of Fundamental Rights and the European Convention on Human Rights protects frozen assets. According to the prevailing opinion, the protection of increases in value that occur after the assets have been frozen is not considered to be covered by the protective purpose of property rights. This makes it possible to use interest accrued on assets frozen on the basis of the EU-Russia sanctions for the reconstruction of Ukraine, for example.

  1. Comment

The EU sanctions against Russia are robust, unprecedented regulations with an enormous level of detail. The measures encourage the Russian government to take measures to circumvent the sanctions, so that constant monitoring and further development is required on the part of the EU member states. The aim of the sanctions is to target the Russian state and allied states such as Belarus, as well as the individual economic sectors and individuals covered by the sanctions. This objective should not be lost sight of when enforcing the sanctions. The sanctions regulations are associated with far-reaching and complex compliance tasks. Increasing effectiveness and closing certain regulatory loopholes with regard to the circumvention of sanctions should be emphasised as positive achievements of the 14th sanctions package. In many areas, this is accompanied by a considerable expansion of bureaucratic requirements, in particular the need for caution when transferring technologies to third parties and the requirements of the “No Russia” clause. This creates an immediate need for action for a large number of EU economic operators.

In view of the depth of detail of the regulations, legal advice should be sought in the event that a need for advice is identified; overview-type publications cannot replace advice in individual cases. This also applies to this article.

Do you have further questions on these or other topics? Our experts will be happy to support you with solutions tailored to your individual needs.