On Monday, 24 June 2024, the EU adopted the 14th package of sanctions against Russia. This package adds to and tightens the existing sanctions from the previous packages, most recently from 23 February 2024 (article of 26 February 2024).
The declared aim of the new sanctions package is – as with the previous packages – to more effectively prevent circumvention of the sanctions against Russia, especially through third countries. The fact that it took so long for the 27 EU Member States to agree on the 14th sanctions package this time was due to a lack of consent by Germany. The German government was critical of the measures originally planned mainly because it feared that the expected disadvantages for EU companies would outweigh the benefits. Germany was sharply criticised for its stance by the other Member States, which considered the negative consequences for EU companies to be acceptable.
The 14th sanctions package focuses on measures targeting the Russian liquefied natural gas (LNG) industry along with measures that (indirectly) seek to extend the territorial scope of the EU’s sanctions against Russia.
EU sanctions
The EU’s 14th sanctions package (Regulation (EU) 2024/1745 and Implementing Regulation (EU) 2024/1746) further tightens and adapts the existing sanctions against Russia. The measures concern the trade-related sanctions in Regulation (EU) 833/2014 and the personal sanctions in Regulation (EU) 269/2014.
Restrictions on Russian energy carriers: LNG
The 14th sanctions package is the first to target the Russian LNG industry, a sector of Russia’s economy that was previously unaffected by European sanctions. The relevant measures only take effect in certain instances; in particular, there is no comprehensive ban on the import of Russian LNG, which continues to play an indispensable role in the European energy infrastructure.
The new Article 3r Regulation (EU) 833/2014 prohibits the provision of reloading services for Russian LNG in EU territory. This is intended to reduce Russia’s significant revenues from the sale and transport of LNG that is transhipped in the EU for onward transport to third countries. The prohibition applies to both ship-to-ship and ship-to-shore transfers (transshipments) and is thus intended to cover all services for the transshipment and onward transport of Russian LNG. However, services that are necessary for the bunkering of LNG-fuelled vessels are excluded.
In addition, the new Article 3u Regulation (EU) 833/2014 establishes import restrictions on Russian LNG through specific EU terminals that are not connected to the EU gas grid. However, importing Russian LNG into the EU is otherwise still permitted to avoid adverse effects on the EU’s gas market and security of supply. The EU still aims to end its dependence on Russian fossil fuels by 2027.
The new Article 3t Regulation (EU) 833/2014 prohibits of the provision of goods, technologies, services and financial assistance necessary for the completion of Russia’s LNG projects under construction, such as Arctic LNG 2 and Murmansk LNG.
The prohibition under Article 3a(1)(a) Regulation (EU) 833/2014 against acquiring new participations in non-European companies operating in the Russian energy sector was already introduced in the February 2022 sanctions package. This provision has now been revised to make it clear that LNG projects under construction also constitute a relevant activity in the Russian energy sector.
Prevention of re-exports, “control of non-European subsidiaries”
The EU has created further instruments to strengthen efforts to counteract Russia’s continued circumvention of sanctions.
Article 12g Regulation (EU) 833/2014, which was introduced with the 12th sanctions package and stipulates the use of a “No Russia” clause, has been revised. The new paragraph 2(a) ensures that the goods newly added to Annex XL to Regulation (EU) 833/2014 falling under CN codes 8457 10, 8458 11, 8458 91, 8459 61 and 8466 93 do not trigger an obligation under Article 12g(1) Regulation (EU) 833/2014. The new paragraph 2a also removes public contracts concluded with third countries or international organisations from the scope of application.
Despite support by many EU Member States, the tightening of the rules according to which third-country subsidiaries of EU parent companies were also to be obliged to incorporate “No Russia” clauses in their agreements with contracting partners was unsuccessful due to Germany’s resistance. As a result, corresponding provision was not added to Article 12g Regulation (EU) 833/2014. However, recital 32 of Regulation (EU) 2024/1745 makes it clear that this issue is not yet resolved, but will continue to be monitored by the EU.
The newly inserted Article 12ga Regulation (EU) 833/2014 combines the IP restrictions from the 11th sanctions package with the “No Russia” clause from the 12th sanctions package. When transferring intellectual property rights or trade secrets to contracting partners from third countries, EU companies must now also contractually prohibit the contracting partner from using these rights in connection with Annex XL goods intended for the Russian market; the contracting partner must also undertake to impose corresponding use restrictions on any sublicensees.
Also in connection with the common high priority items listed in Annex XL to Regulation (EU) 833/2014, the new Article 12gb Regulation (EU) 833/2014 contains even more extensive provisions. Companies that sell, transfer or export goods listed in Annex XL to Regulation (EU) 833/2014 are obliged by Article 12gb(1) Regulation (EU) 833/2014 to take measures to identify and minimise the risk of these goods being diverted to Russia or for use in Russia. Special due diligence requirements for export control compliance in connection with common high priority items were already recommended by the European Commission in its guidance paper on avoiding circumvention of sanctions (Guidance for EU operators: Implementing enhanced due diligence to shield against Russia sanctions circumvention). Under Article 12gb Regulation (EU) 833/2014, companies now have a formal legal obligation to take appropriate measures. It remains to be seen whether or how the failure to take the due diligence measures required by Article 12gb Regulation (EU) 833/2014 will be sanctioned. It seems obvious that companies which supply Annex XL goods to third countries – in cases where these goods ultimately end up in Russia (e.g. through diversions by third parties) – may find themselves accused of (grossly negligent) sanctions violations through “indirect supply” if they have not taken or not adequately taken the measures required by Article 12gb Regulation (EU) 833/2014 (see also recital 36 Regulation (EU) 2024/1745). This gives rise to new liability risks, also in light of the efforts to standardise criminal sanctions of (grossly negligent) sanctions violations at EU level (EU introduces stricter, harmonised rules for criminal prosecution of sanctions violations | Gleiss Lutz).
This new provision has become even more contentious due to the fact that the new Article 12gb(3) Regulation (EU) 833/2014 actually obliges EU companies to ensure that their non-European subsidiaries also comply with the requirements imposed on them in relation to Annex XL goods. The provision is very broad and in particular not limited to cases in which the Annex XL goods were originally exported from the Union. Ultimately, Article 12gb(3) Regulation (EU) 833/2014 brings about a watered-down version of the obligation of non-European subsidiaries to comply with Article 12g Regulation (EU) 833/2014 – which has been frequently demanded by some but rejected by Germany – through the backdoor. According to Article 12gb(3) Regulation (EU) 833/2014, the German parent company of a Chinese subsidiary, for example, must now ensure that its Chinese subsidiary which trades in ball bearings (CN code 8482 10) assesses the risk of exporting these ball bearings to Russia and takes risk-minimising measures. It is quite obvious that this could, for example, include an obligation on the part of the customer not to resell the ball bearings to Russia.
This approach of also making European companies responsible for the business activities of their non-European subsidiaries is supplemented by the inclusion of the new Article 8a Regulation (EU) 833/2014. Under this provision, an EU parent company must “undertake its best efforts to ensure”that none of its subsidiaries engages in activities that undermine the EU’s sanctions against Russia. Ultimately, the Regulation thus requires EU companies to take feasible measures to ensure that their non-European subsidiaries also comply with the sanctions against Russia (see also recital 30 of Regulation (EU) 2024/1745).
Ban on using Russian payment system and transaction bans as a form of secondary sanctions
The new Article 5ac(1) Regulation (EU) 833/2014 prohibits EU companies from using the System for Transfer of Financial Messages (SPFS), which was developed by the Central Bank of Russia in response to Article 5h Regulation (EU) 833/2014. Russian subsidiaries of EU entities will be able to continue to use SPFS. Article 5ac(2) Regulation (EU) 833/2014 also bans transactions with companies from third countries that use Russian payment systems and, by such use, increase Russia’s financial resilience and support the circumvention of the sanctions against Russia. This transaction ban only applies to those companies that have been included in the new – not yet filled – Annex XLIV to Regulation (EU) 833/2014; the provision therefore does not yet have an effect.
The new Article 5ad Regulation (EU) 833/2014 creates a similar means of imposing a transaction ban on third-country credit, financial or crypto-asset institutions involved in transactions with certain goods subject to export restrictions. This transaction ban also only applies to companies that have been included in the new – not yet filled – Annex XLV to Regulation (EU) 833/2014 and companies that act on behalf of or on the instruction of the companies included in Annex XLV to Regulation (EU) 833/2014.
This mechanism for imposing transaction bans on companies from third countries involved in the circumvention of sanctions builds upon the principle of secondary sanctions from US sanctions law.
According to the new Article 5ab(1) Regulation (EU) 833/2014, further transaction bans apply to companies listed in Annex XLIII to Regulation (EU) 833/2014 that avail themselves of certain privileges of Russian arbitration at the expense of EU companies in order to enforce claims whose fulfilment Article 11 Regulation (EU) 833/2014 seeks to prevent. Annex XLIII to Regulation (EU) 833/2014 has not yet been drafted either.
Russia’s dark fleet, EU flight ban, transport restrictions
The new Article 3s Regulation (EU) 833/2014 imposes sanctions on the Russian dark fleet ships listed in Annex XLII Regulation (EU) 833/2014. These vessels will no longer be granted access to ports, anchorage zones or locks in the territory of the Union; a large number of commercial activities in relation to these ships (such as purchasing, chartering, operating) and the provision of services (such as bunkering) for these vessels is also prohibited.
The scope of aircraft take-off, landing and overflight bans and the associated reporting obligations in Article 3d Regulation (EU) 833/2014 have also been extended.
The ban on transport within the territory of the Union under Article 3l Regulation (EU) 833/2014, which previously only applied to road transport undertakings established in Russia, has been extended to EU companies in which a Russian shareholder holds 25% or more of the shares (excluding Russian nationals who are also nationals of an EU Member State).
Provision of services for Russian subsidiaries of EU companies
Originally, the provision of services covered by Article 5n Regulation (EU) 833/2014 for Russian subsidiaries of EU companies was only permitted without the corresponding licences until 20 June 2024. This period has been extended to 30 September 2024. Companies that have not yet received the necessary licence under Article 5n(10) Regulation (EU) 833/2014 (or – if the services are provided from Germany – have not yet registered to use General Export Authorisation No. 42 issued by the Federal Office for Economic Affairs and Export Control (BAFA)) now have an additional three months to do so.
The new Article 5n(8a) Regulation (EU) 833/2014 now excludes nationals of an EU Member State who were already Russian residents before 24 February 2022 and are employees of a Russian subsidiary of an EU company from the scope of the services ban under Article 5n. However, this provision underscores that the services ban under Article 5n Regulation (EU) 833/2014 does generally apply to employees of Russian companies who are nationals of an EU Member State.
Ban on EU patent applications by Russians and acceptance of Russian funds
Under the new Article 5s(1) Regulation (EU) 833/2014, European intellectual property offices and other competent institutions will no longer accept applications for the registration of trademarks, patents and other intellectual property rights filed by Russian nationals, residents or companies.
Meant as a means to protect against Russia influencing public discourse in the Union, the new Article 5t Regulation (EU) 833/2014 prohibits “actors that form part of the public-opinion forming process” (see recital 21 of Regulation (EU) 2024/1745) and political parties from accepting donations or economic benefits from the Russian government or Russian state-owned companies.
Legal basis for compensation claims in connection with Russian claims in non-EU jurisdictions without legal protection
The newly introduced Articles 11a and Article 11b Regulation (EU) 833/2014 have created a legal basis for EU operators to claim compensation in Member State courts for damages caused by Russian companies.
Article 11a Regulation (EU) 833/2014 establishes a right to recover damages by EU nationals or entities that are denied access to effective legal remedies and therefore rendered unable to defend themselves effectively against legal proceedings in a third country relating to a contract or transaction the performance of which has been affected by the measures imposed by Regulation (EU) 833/2014.
Article 11b Regulation (EU) 833/2014 concerns compensation for damage suffered by EU nationals or entities due to the fact that Russian individuals or entities have benefited from the temporary administration of assets of investors from “unfriendly states” ordered by the Russian Presidential Decree of 25 April 2023 or comparable Russian legal acts in violation of international law or bilateral investment treaties at the expense of the EU subject (see also recital 25 of Regulation (EU) 2024/1745).
Extension of import and export restrictions; addition of Iceland and Liechtenstein to the group of partner countries
Like previous packages have done, the 14th sanctions package expands the lists of goods that fall under import and export restrictions.
For example, Annexes VII and Annex XXIII – which are relevant for the export bans under Article 2a Regulation (EU) 833/2014 and Article 3k Regulation (EU) 833/2014 – have been amended to include certain machine tools and all-terrain vehicles (Annex VII) as well as certain chemicals, plastics, excavating machinery and electrical equipment (Annex XXIII). Helium products, among other things, have been added to Annex XXI, which is relevant for the import bans under Article 3i Regulation (EU) 833/2014.
The list of partner countries in Annex VIII Regulation (EU) 833/2014 has also been expanded, adding Iceland and the Principality of Liechtenstein.
Support for Ukraine using revenues from frozen Russian assets held in the EU
The amendments to Article 5a Regulation (EU) 833/2014 already made by Regulation (EU) 2024/1469 of 21 May 2024 make it possible to use extraordinary revenues from frozen Russian assets to support Ukraine’s self-defence and reconstruction. Since 15 February 2024, all central securities depositories holding Russian assets of more than EUR 1 million have paid a financial contribution to that goal from the net profits generated by those assets.
Personal sanctions
The EU has added a total of 116 new entries to Regulation (EU) 269/2014’s list of personal sanctions, comprising an additional 69 individuals and 47 entities. The list now extends to more than 2,000 individuals and entities.
Outlook
While the EU’s 14th sanctions package again introduces some significant changes, it maintains the course taken by previous packages – to impede Russia’s efforts to circumvent the sanctions. What stands out in this context is the increasing (indirect) extension of the territorial scope of EU sanctions law to non-European subsidiaries and – through transaction bans – to companies from third countries
In addition to the measures addressing the circumvention of sanctions, the sanctions package once again targets – with the LNG-related provisions – a previously untouched Russian economic sector in order to further diminish Russia’s economic strength and sources of income.
The package again triggers the need for urgent and comprehensive action on the part of European companies. This is true in particular for companies that – either themselves or via non-European subsidiaries – trade in Annex XL goods.
In addition, all companies with international subsidiaries will face the challenge of translating the uncertainties of the “best efforts rule” from Article 8a Regulation (EU) 833/2014 into practical solutions. It remains to be seen how and by what standard the Regulation’s requirements will be assessed by the competent national authorities.
Forward