To address shortcomings in enforcing sanctions imposed on Russia in response to its ongoing war of aggression against Ukraine, the European Union adopted an eleventh package of sanctions on 23 June 2023.
The eleventh sanctions package tightens and clarifies the existing sanctions from the previous ten packages, most recently from 25 February 2023 (article of 1 March 2023). The EU believes that while the sanctions are having an impact, their effectiveness is being undermined by various means of circumvention. Countering that circumvention – whether identified or suspected – is therefore one of the main objectives of its latest set of sanctions. In particular, the eleventh set of sanctions foresees a new schedule of measures of varying severity that will allow the EU to ban the export of certain goods to third countries as a last resort.
Trade-related sanctions have also been expanded, including sanctions on the sale, license or transfer of intellectual property and the trade and transport of oil. Other existing sanctions have also been clarified.
EU sanctions
The EU’s eleventh package of measures (Regulations (EU) 2023/1214 and 2022/1273 and Implementing Regulations (EU) 2023/1215 and 2023/1216) further tightens and adapts the existing sanctions against Russia. The measures affect in particular the personal sanctions in Regulation (EU) 269/2014 and the trade sanctions in Regulation (EU) 833/2014.
I. Personal sanctions
The EU has added 71 individuals and 33 entities to the list of personal sanctions since its last package, and the list now has more than 1,800 entries. Regulation (EU) 269/2014 freezes funds and economic resources belonging to, owned or held by the persons and entities listed in Annex I to the Regulation. No funds or economic resources may be made available, directly or indirectly, to or for the benefit of these persons and entities. The natural persons listed are also banned from entering or transiting through EU territory (see our articles of 7 March 2022, 12 April 2022 and 9 June 2022).
- The eleventh sanctions package expands the sanctions list in Annex I of Regulation (EU) 269/2014 to include those persons and entities linked to the information warfare conducted by Russia as part of its attack on Ukraine. It also targets individuals and organisations that circumvent or undermine restrictions. To this end, the criteria for including persons and entities to the sanctions list in Article 3h of Regulation 269/2014 have been adapted and expanded to allow listing of (non-Russian) legal persons, entities or bodies “otherwise significantly frustrating” the EU’s sanctions against Russia.
- An example of such frustration can be an economic operator from a third country whose main activity is purchasing goods listed in the EU, which subsequently enter Russia. Recently established businesses that purchase listed goods in the EU which subsequently enter Russia, as well as the dramatic increase in sales of a third-country economic operator involved in such activities, can also be indications of sanctions circumvention.
- Regulation (EU) 269/2014 has been supplemented to include further exemptions to the asset freeze and to providing listed persons with funds or economic resources. This is aimed at allowing EU companies to withdraw investments from Russian companies and to divest certain types of securities.
II. Trade sanctions
The EU’s eleventh sanctions package also includes new trade sanctions measures:
- A further 87 entities have been included in Annex IV to Regulation (EU) 833/2014. The persons, entities and bodies listed (now 593 in total) are, in the legislator’s assessment, military end-users, supporters of Russia’s military and industrial complex or, in any event, commercially or otherwise associated with the Russian security and defence sector. In addition to the Russian and Iranian companies already listed, the EU has now also included companies from China, Uzbekistan, the United Arab Emirates, Syria and Armenia. The inclusion of a person, entity or body in Annex IV to Regulation (EU) 833/2014 has direct consequences under this Regulation (no possibility of obtaining authorisation to bypass certain trade restrictions). In addition, when supplying unlisted dual-use goods to persons, entities or bodies included in Annex IV, European companies should check with particular care whether they are subject to any authorisation requirements under Article 4 of Regulation (EU) 2021/821.
- The import restrictions on iron and steel products processed in a third country using iron and steel products originating in Russia listed in Annex XVII to Regulation (EU) 833/2014, which were already introduced with the tenth package of sanctions but will not take effect until 30 September 2023, have been supplemented by an obligation to provide proof: as of 30 September 2023, when importing iron and steel products listed in Annex XVII to Regulation (EU) 833/2014 from a third country, an importer must provide proof of the country of origin of the iron and steel inputs used for the processing of the product in a third country.
- New or expanded transit bans now also apply to the goods listed in Annex VII to Regulation (EU) 833/2014 (Article 2a(1a) of Regulation (EU) 833/2014), to the firearms and other weapons listed in the new Annex XXXV to Regulation (EU) 833/2014 (Article 2aa(1a) in conjunction with paragraph 1 of Regulation (EU) 833/2014) and to the goods and fuels for the aerospace industry listed in Annexes XI and XX to Regulation (EU) 833/2014 (Article 3c(1a) of Regulation (EU) 833/2014). Companies that trade in the goods listed there should check their supply routes.
- The eleventh package once again expands or reorganises the various lists of sanctioned goods in the relevant annexes. These include Annex VII (Goods and technology which contribute to Russia’s military and technological enhancement), Annex XVII (Iron and steel products), Annex XVIII (Luxury goods), Annex XXI (Goods which generate significant revenues for Russia) and Annex XXIII (Goods which could contribute to the enhancement of Russian industrial capacities). Companies should carefully review the new versions to check which goods have been affected.
III. Expansion of goods-related sanctions to include intellectual property rights
The eleventh package introduces entirely new measures restricting intellectual property rights as part of the goods-related sanctions under Articles 2, 2a, 3, 3b, 3c, 3f, 3h and 3k of Regulation (EU) 833/2014:
- Up to now, the sale, supply, transfer and export bans laid down in Regulation (EU) 833/2014 have generally been accompanied by prohibitions on the provision of technical assistance, brokering and other services as well as financing and financial assistance.
- The EU has now added an explicit ban on the sale, license or transfer in any other way of intellectual property rights or trade secrets, as well as the granting of rights to access or re-use any material or information protected by means of intellectual property rights or constituting trade secrets, related to the listed goods and technology, to a person, entity or body in Russia or for use in Russia.
- It is not entirely clear whether this entails an expansion of the sanctions framework or merely clarifies the legal position that already applies. In the FAQs published on Regulation (EU) 833/2014, the European Commission had previously taken the view that the licensing of intellectual property rights in connection with listed goods and technology was already covered by the respective prohibition as the provision of “other services”. The new measure will eliminate any legal uncertainty.
IV. New rules to combat sanction circumvention
The regulations of the eleventh sanctions package aim primarily to improve the overall effectiveness of the sanctions against Russia by refining the existing sanctions and, in particular, combating circumvention. The EU strongly suspects that certain third countries (including Armenia, Kazakhstan and the United Arab Emirates) are hubs for transactions geared towards circumventing, for example, export bans by supplying or transiting goods via third countries. In addition to tightening individual provisions, the package also introduces a new instrument to combat sanction circumvention.
This involves a graduated approach: First, third countries that are strongly suspected of being linked to circumvention are to be supported within the framework of multilateral and bilateral cooperation through diplomatic engagement and the provision of increased technical assistance in order to minimise the incentives for such circumvention transactions. In cases where this is not effective, appropriate individual measures may be taken against the third-country companies involved in circumvention (e.g. inclusion in Annex I to Regulation (EU) 269/2014 or Annex IV to Regulation (EU) 833/2014). It is only if these measures are not sufficient – given the systemic nature of the ongoing circumvention via the third country concerned – that the sale, supply, transfer or export of certain goods to third countries may be restricted as a “last resort” by including both the goods and third countries in the new Annex XXXIII to Regulation (EU) 833/2014. There are no such goods or third countries listed in Annex XXXIII as yet, which means that the prohibition specified in Article 12f of Regulation (EU) 833/2014 does not actually apply to anything at present. It is difficult to say whether this will change in the coming months, given the various steps that must be taken before entries can be added to the list.
V. Sanctions in the energy and transport sector
The strategy to prevent circumventions also foresees the tightening of various sanctions in the (energy) transport sector:
- Access to ports and locks within the territory of the EU will be further restricted. The modified and extended access ban under Article 3eb of Regulation 833/2014 now also applies to ship-to-ship transfers if the competent authorities have reasonable cause to suspect that a vessel is in breach of the prohibitions on the import of seaborne Russian crude oil and petroleum products into the EU imposed by the tenth sanctions package (see our article of 1 March 2023) or is transporting Russian crude oil or petroleum products that were purchased at a price above the price cap. This access ban is accompanied by various measures supporting enforcement including, in particular, notification obligations for planned ship-to-ship transfers.
- There are exemptions which authorise access for reasons of maritime safety, including environmental concerns, for saving life at sea and for humanitarian purposes.
VI. Other additions and changes
- Five additional media organisations have been included in Annex XV to Regulation (EU) 833/2014 and are thus targeted by the broadcasting restrictions of Article 2f of Regulation (EU) 833/2014.
- The prohibition to transport goods under Article 3l of Regulation (EU) 833/2014, which previously only applied to road transport undertakings established in Russia, has been extended to carriage by road transport undertakings with trailers or semi-trailers registered in Russia. It has thus been made explicitly clear that this also applies if such trailers are hauled by trucks registered in other countries.
- The prohibition under Article 5f of Regulation (EU) 833/2014 on selling transferable securities to Russian nationals or persons, entities or bodies resident or established in Russia will in future no longer apply solely to securities denominated in an official currency of an EU Member State. Irrespective of the currency in which they are denominated, securities issued after 6 August 2023 may no longer be sold to the recipients referred to in Article 5f.
- Article 6b of Regulation (EU) 833/2014 introduced a new obligation to supply any information to the competent authorities which would “facilitate” the implementation of Regulation (EU) 833/2014. A similar provision can already be found in Article 8 of Regulation (EU) 269/2014. While the tenth sanctions package provided a catalogue of examples of which types of information qualify under Article 8 (article of 1 March 2023), such guidance is lacking in Article 6b of Regulation (EU) 833/2014. In the absence of such clarification, it seems questionable whether the obligation to provide information under Article 6b of Regulation (EU) 833/2014 is sufficiently precise for violations thereof to be punished as an administrative offence pursuant to section 19(5), no. 1 Foreign Trade and Payments Act (Außenwirtschaftsgesetz). Moreover, it is unclear whether “information that would facilitate the implementation” of Regulation (EU) 833/2014 also includes information about violations of this Regulation, i.e. whether Article 6b of Regulation (EU) 833/2014 is intended to introduce a kind of whistleblowing obligation.
VII. Authorisations
- The deadline for the authorisations provided for in Article 12b of Regulation (EU) 833/2014 for otherwise prohibited transactions that are strictly necessary for the divestment from Russia or the wind-down of business activities in Russia has been extended. Authorisations under Article 12b of Regulation (EU) 833/2014 can now be granted until 31 December 2023 (and in some cases until 31 March 2024). An authorisation possibility has been added for the provision of legal advisory services otherwise prohibited under Article 5n(2) of Regulation (EU) 833/2014, provided that such services are legally required for the completion of a sale and/or transfer of shares in an EU company. This is likely to include, in particular, issues of notarial involvement in the sale of companies in which undertakings established in Russia are involved as parties.
- Switzerland has been added to the list of partner countries (Annex VIII to Regulation (EU) 833/2014); Swiss companies and Swiss diplomatic missions therefore now also benefit from the possible authorisations in Article 2(4), Article 2a(4), Article 2d(4), Article 3h(3) and Article 3k(4) of Regulation (EU) 833/2014.
US and UK sanctions
The United States and the United Kingdom last imposed new sanctions against Russia in May 2023, just before the G7 summit. Among other things, these sanctions expanded the goods-related export restrictions and “blacklisted” additional entities and individuals from Russia and third countries. The UK sanctions included in particular a ban on Russian diamonds and the import of metals such as copper, aluminium and nickel from Russia.
Outlook
The eleventh sanctions package marks the first time that the EU has decided to effectively extend its sanctions to non-EU companies in order to prevent circumvention by third countries. As a result, the EU sanctions are more in line with the extraterritorial approach of US secondary sanctions, which have been the subject of much criticism from Europe. Whether this new approach is practicable has yet to be proven.
There is still no end in sight to the sanctions. Rather, the EU and its Western partners are determined to maintain and even further intensify the “collective pressure” on Russia. Yet Russia, for its part, has also responded with more and more entry bans for not just Europeans, but also Australians. Where transactions or other business ventures involving foreign countries are concerned, it remains important to stay abreast of the latest developments in the complex and constantly changing web of sanctions and to react quickly to changes in the law.
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