Client Alert 28 Jun. 2023

Council of the EU Adopts 11th Sanctions Package

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  1. On June 23, 2023, the Council of the EU adopted its 11th sanctions package on sanctions against Russia. The main purpose of the 11th sanctions package is to restrict activities whose object or effect is to circumvent the existing prohibitions or undermine the purpose and effectiveness of sanctions adopted by the EU thus far.
  1. The 11th package has these key elements:

Asset Freezes (Council Regulation (EU) No. 269/2014)

  • New bases for designation: EU has added new bases for designation. First, Article 3(1)(h) of Council Regulation (EU) No. 269/2014 which already authorized designation of persons facilitating infringement of the prohibition against circumvention of sanctions has been amended to add persons and entities “significantly frustrating” restrictive measures by third-country operators not bound by those measures in such a way as to contribute to Russia’s capacity to wage war. According to the preamble of Council Regulation (EU) No. 2023/1215, examples of frustration include situations where “the main activity of a third country operator consists of purchasing restricted goods in the Union that reach Russia, the involvement of Russian persons or entities at any stage, the recent creation of a company for purposes related to restricted goods reaching Russia, or a drastic increase in the turnover of a third country operator involved in such activities”. Second, EU added Article 3(1)(i) authorizing designations of legal persons operating in the Russian IT-sector with a license administered by the Federal Security Service of the Russian Federation (“FSB“). Also, on June 6, 2023, EU has expanded the basis for designation for leading businesspersons operating in Russia under Article 3(10)(g) of Council Regulation (EU) No. 269/2014 by adding their immediate family members, natural persons benefitting from them and any business persons, legal persons, entities or bodies involved in economic sectors providing a substantial source of revenue to the Government of the Russian Federation.
  • New designations: 71 individuals and 33 entities have been added to the list of designated persons in Annex I to Council Regulation (EU) No. 269/2014. The designations include senior military officials, decision makers, business persons, social-media bloggers, journalists and senior employees of certain media and TV channels, Russian IT companies holding licenses from FSB and Ministry of Trade to develop encryption and cryptography technology and specifically for the “development, production, testing, installation, maintenance, disposal and sale of weapons and military equipment”, banks operating in the occupied territories, entities manufacturing and servicing military equipment (including for use in aviation), and media channels. Among the designated are Yevgeniy Ivanovich Dietrich, director-general of the JSC GTLK, Vladimir Morozov, the Head of Belarusian Railways, Poisk-IT LLC (a company developing encryption and cryptography technology), children of Yury Chaika, the ex-Prosecutor General, and shareholders of a coal manufacturer, Sibougol LLC. The grounds for designating legal persons include circumvention.
  • New derogations from asset freezes: EU has expanded the available legal basis authorizing to seek licenses with national competent authorities to release frozen funds. First, persons who hold depository receipts with underlying Russian security via National Settlement depository will be authorized to sell and convert them to cash by December 25, 2023; license applications must be filed by September 2023. Second, EU authorized the release of asset freezes necessary for setting up of a firewall removing the control by the designated person over the assets of non-listed legal person or entity incorporated in the EU, provided no further funds accrue for the benefit of the designated person. Third, Alexey Mordashov was authorized to obtain an authorization to release frozen funds to wind down its joint-ventures or similar arrangements in Russia by August 31, 2023. Fourth, EU extended the list of banks eligible to seek licenses for the release of an asset freeze when related to agricultural transactions; these banks include Bank Rossiya, Promsvyazbank, VEB.RF, Otkritie FC Bank, Novikombank, Sovcombank, VTB Bank, CREDIT BANK OF MOSCOW, JSC ‘Far Eastern Bank’, JSC Ural Civil Aviation Factory, Alfa-Bank JSC, Public joint-stock company Rosbank, MRB Bank and CMR Bank.
  • New exemption for pilot services to vessels: EU exempted from asset freezes pilot services to vessels in innocent passage for reasons of maritime safety.

Sectoral Sanctions (Council Regulation (EU) No. 833/2014)

  • Prohibition on transit through Russia: EU prohibited transit through Russia of goods exported from EU. Goods subject to the prohibition include goods and technology which might contribute to Russia’s military and technological enhancement or to the development of its defence and security sector (Annex VII), goods and technology suited for use in aviation or the space industry, jet fuel and additives. Transit can be permitted in limited circumstances and is subject to licensing.
  • New anti-circumvention mechanism: EU can now restrict the sale, supply, transfer, or export of specific sensitive sanctioned goods and technology to certain third countries considered at risk of circumventing EU sanctions. The measure is of last resort if dialogue with the third country’s authorities is not successful. The focus of this new mechanism would be on dual-use goods and technology that could enhance Russia’s military capacities. Prior to including a third country on the list of countries concerned by the measures, EU should inform and seek remedial action from the government of that country. EU further warns that third-country individuals and entities participating in circumvention or undermining objectives of EU sanctions (e.g., re-exporting banned goods to Russia) can be targeted with asset freezes and travel bans.
  • Additional export restrictions: 87 new entities have been added to the list of entities supporting Russia’s military and industrial complex (including for the first time third-country entities registered in China, Uzbekistan, UAE, Syria and Armenia). Export of dual-use goods and technology and goods and technology which might contribute to the technological enhancement of Russia’s defence and security sector listed to these entities is now prohibited.
  • Additional export controls: The list of goods and technology which might contribute to the technological enhancement of Russia’s defence and security sector has been further expanded to include electronic components, semiconductor materials, manufacturing and testing equipment for electronic integrated circuits and printed circuit boards, precursors to energetic materials and precursors to chemical weapons, optical components, navigational instruments, metals used in the defence sector and marine equipment.
  • Additional import requirements: Additional requirements were imposed on importers of iron and steel products to prove that iron and steel products imported to EU from third countries do not violate the ban on iron and steel from Russia.
  • Energy restrictions: The exemption authorizing the import of Russian oil by Druzhba pipeline to Germany and Poland stopped applying. The exception from the oil price cap for the Sakhalin-2 project supplying oil to Japan was extended through 31 March 2024.
  • Extended prohibitions affecting road transport and access of vessels to EU ports: EU extended (a) the prohibition on road transport to trailers and semi-trailers registered in Russia including when hauled by trucks registered outside of Russia, and (b) the prohibition on access to EU ports and locks for (i) vessels that engage in ship-to-ship transfers suspected to be in breach of prohibition on Russian oil import or price cap; (ii) vessels that do not notify ship-to-ship transfers occurring within a certain time or at a certain distance: and (iii) vessels that manipulate or turn off navigation tracking systems. The prohibition applies to any vessel whether moored at a port or at anchorage in territorial waters.
  • New licensing grounds authorizing the provision of vessels to Russia: EU authorized the provision of cruise ships, ferry-boats and vessels designed to transport persons and vessels to Russia under certain conditions, including when the use is non-military and not for the benefit of designated persons.
  • Restrictions on intellectual property rights: Persons subject to EU jurisdiction are prohibited from selling, licensing or transferring intellectual property (“IP”) rights and trade secrets or granting rights to access or reuse materials protected by IP rights to any person in Russia or for use in Russia if those IP rights or trade secrets are related to certain goods and technology subject to export controls.
  • Suspension of broadcasting licenses: EU has suspended broadcasting licenses to five Russian media outlets, and prohibited broadcasting their content within EU. The media outlets are RT Balkan, Oriental Review, Tsargrad, new Eastern Outlook and Katehon.
  • Derogation from the prohibition to provide certain goods, technology or services to Russia to ensure critical energy supplies: Sale, supply, transfer or export directly or indirectly to any natural or legal person, entity or body in Russia or for use in Russia of certain goods or technology, on the provision of related financing or financial assistance, technical assistance, brokering services or other services, or on the provision of auditing services, engineering services, legal advisory services, technical testing and analysis services have been authorized, subject to licensing, if necessary for the operation and maintenance of CPC pipelines and associated infrastructure for the transport of crude oil (CN 2709 00) of Kazakh origin loaded or departing from Russia or transiting through Russia.
  • Authorisation to provide certain restricted services to divest from Russia: EU has extended the authorization for the provision of certain restricted services, including legal advisory services, to Russian government and legal entities incorporated in Russia through March 31, 2024, if such services are strictly necessary to divest from Russia.

Other Measures

  • New Reporting Obligations on National Competent Authorities: Member States will now have to share with the Commission and other Member States any information supplied about funds and economic resources owned or controlled by designated persons, and any decision to reject an application for authorization. They will also have to inform the Commission and other Member States in case they want to grant an authorization essentially identical to one already denied by another Member State. The National Competent Authorities of EU Member States shall also provide any information on suspected forum-shopping.

About Curtis

Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm. Headquartered in New York, Curtis has 19 offices in the United States, Latin America, Europe, the Middle East and Asia. Curtis represents a wide range of clients, including multinational corporations and financial institutions, governments and state-owned companies, money managers, sovereign wealth funds, family-owned businesses, individuals and entrepreneurs.

Attorney advertising. The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice. No legal or business decision should be based on its contents.

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