11th package of the EU sanctions against Russia and Russian countermeasures

New EU regulations against the Russian Federation for the continuation of the war against Ukraine were adopted on 23 June 2023. The new restrictive measures focus on strengthening export controls and also provide for a new anti-circumvention mechanism for companies suspected of evading the bans. This article will provide an overview of the new restrictive measures, analysing their objectives, scope and potential impact.

Anti-circumvention and trade restrictive measures

Regulation (EU) 2023/1214 amending Regulation (EU) 833/2014 concerning restrictive measures against Russia again affects the movement of goods to and from Russia and the provision of services.

Anti-circumvention mechanism

The European Union intends to strengthen bilateral and multilateral cooperation between the EU and third countries to ensure compliance with the sanctions Regulations. Should such cooperation fail to produce the desired effect, the Union may resort to the new anti-circumvention tool that has been introduced through the provision of a new Article 12 septies to Regulation 833/2014.

This provision provides for a prohibition on the sale, supply, transfer or export, directly or indirectly, of goods and technology listed in Annex XXXIII, whether or not originating in the Union, to any natural or legal person, entity or body in the third country identified in that Annex. The prohibition shall also extend to the provision of technical assistance, brokering services or other services related to such goods and technology, to the provision of financing or financial assistance related to such goods, as well as to the transfer of intellectual property rights or trade secrets related to goods and technology identified in Annex XXXIII.

Only sensitive dual-use goods and technologies, or goods and technologies which are capable of contributing to the strengthening of Russia’s military, technological or industrial capabilities or the development of Russia’s defence and security sector, so as to strengthen its war capability, and the export of which to Russia is prohibited under Regulation (EU) 833/2014 and for which there is a high and continuing risk of sale, supply, transfer or export to Russia from third countries after sale, supply, transfer or export from the Union, will be included in Annex XXXIII.

It is provided that Annex XXXIII will specify, for each listed good or technology, the third countries to which the sale, supply, transfer or export is prohibited. Only third countries that have systematically and persistently failed to prevent the sale, supply, transfer or export to Russia of goods and technology listed in that Annex and exported from the Union, despite previous information and assistance from the Union to the country in question, will be included.

Currently, Annex XXXIII does not contain any indication of third countries or goods. This anti-circumvention tool is designed as an exceptional remedy, should other measures taken by the Union against the third countries concerned prove insufficient to combat circumvention.

New partner country

Regulation 2023/1214 adds Switzerland to the list of EU partner countries in Annex VIII. It should be recalled that the countries qualified as partner countries are beneficiaries of certain derogations from the prohibitions introduced by same Regulation 833/2014.

IP rights and trade secrets

To the prohibitions of the movement of goods and technology for which there is a ban on exports to Russia (dual-use goods, Annex VII goods, etc.) is added a prohibition of selling, licensing or otherwise transferring, directly or indirectly, intellectual property rights or trade secrets as well as recognising, accessing or reusing material or information that is protected by intellectual property rights or constitutes trade secrets in connection with such goods and technology, and on the supply, manufacture, maintenance and use of such goods and technology, to any natural or legal person, entity or body in Russia, or for use in Russia.

Transit through Russian territory

An extension of the transit ban is envisaged for goods and technologies listed:

– in Annex VII, which includes goods that can contribute to the military and technological strengthening or development of Russia’s defence and security sector;

– in Annex XI, which includes goods suitable for use in the aviation or space industry; and

– in Annex XX, which contains the list of fuels and fuel additives.

It should be remembered that the above annexes include goods for which a ban on transfer to any natural person or entity or for use in Russia is already established. The new transit ban aims to reduce the risk of circumvention of the previously established sales ban.

By way of derogation from the transit ban, the competent authorities may authorise the transit through the territory of Russia of goods and technologies, which may contribute to military and technological reinforcement, after ascertaining that such goods or technologies are intended for the purposes expressly permitted by Regulation 833/2014.

New export restrictions

The amendments to Regulation 833/2014 provide for expansion of the lists of goods included in Annex VII, where, by way of example, electronic components, manufacturing and test equipment for electronic integrated circuits and printed circuit boards, optical components, navigational instruments, defence metals and marine equipment are added.

The list of goods contributing to the strengthening of Russian industrial capacity in Annex XXIII has also been expanded.

The restrictions on imports of steel products in Annex XVII are strengthened by requiring importers of sanctioned steel products that have been processed in a third country to prove that the inputs used did not originate in Russia.

New measures in the automotive sector are also foreseen, extending the export ban on luxury cars to all new and used cars above a certain engine size and to all electric and hybrid vehicles.

Navigational restrictions

The new package of sanctions introduces new rules prohibiting, starting from 24 July 2023, vessel engaged in ship-to-ship transhipment, at any point during a voyage to ports or locks of a Member State, from giving access to ports and locks located within the territory of the Union if the competent authority has reasonable grounds to suspect that they are in violation of prohibitions to directly or indirectly purchase, import or transfer crude oil or petroleum products originating in or exported from Russia.

A competent authority shall not give access to a vessel which fails to notify the competent authority at least 48 hours in advance of a ship-to-ship transhipment that occurs within the exclusive economic zone of a Member State or within 12 nautical miles from the baseline of the coast of that Member State.

Sale of securities

The amendment to Article 5 septies of Regulation 833/2014 broadens the scope of the prohibition on selling securities to Russian citizens or natural persons residing in Russia, or to legal persons, entities or bodies established in Russia. The prohibition is extended to securities in any currency issued after 6 August 2023, and not only to securities denominated in the official currency of a Member State, as was previously the case.

List of direct supporters of the Russian military and industrial complex

Regulation 1214/2023 expanded the list of entities contributing to the military and technological strengthening of Russia or to the development of the Russian defence and security sector included in Annex IV of Regulation 833/2014, to which 87 entities were added.

In addition, the definition of the Annex itself is amended. According to the new wording, it contains natural or legal persons, entities or bodies that are military end-users, are part of the Russian military-industrial complex or have commercial or other ties with the defence and security sector of Russia or otherwise support it. Such natural or legal persons, entities or bodies contribute to the military and technological strengthening of Russia or to the development of the Russian defence and security sector. The list also includes natural or legal persons, entities or bodies of third countries other than Russia. Their inclusion in Annex IV does not imply any attribution of responsibility for their actions to the jurisdiction in which they operate.

Road Transportations

To the prohibition previously imposed on any road haulage company established in Russia to transport goods by road within the territory of the Union is added a prohibition on the transport of goods by road haulage companies with trailers or semi-trailers registered in Russia, even if they are towed by trucks registered in another country.

This prohibition shall not apply until 30 June 2023 to the carriage of goods that commenced before 24 June 2023, provided that the trailer or semi-trailer: a) was already in the territory of the Union on 24 June 2023; or b) is to transit through the Union in order to return to Russia.

Listing

With regard to individual measures and the freezing of assets, Regulation (EU) 1215/2023 introduces some important changes to the criteria for including natural and legal persons in the list of listed persons provided for in Regulation 269/2014.

New listing criteria

By updating the listing criteria, the European authorities are empowered to designate entities that facilitate violations of the prohibition of circumvention of the provisions of the respective EU Regulations, or otherwise significantly frustrate such provisions.

An additional criterion for IT subjects is added, providing for the listing of legal persons, entities or bodies operating in the Russian IT sector with a licence issued by the Centre for Licensing, Certification and Protection of State Secrets of the Russian Federal Security Service or with a ‘weapons and military equipment’ licence issued by the Russian Ministry of Industry and Trade.

At the same time, the amendments provide for numerous exemptions allowing the competent authorities of a Member State to authorise, under such conditions as they deem appropriate, the release of certain frozen funds or economic resources, or the making available to such entities of certain funds or economic resources.

New subjects

Finally, Implementing Regulation (EU) 1216/2023 added to Annex I of Regulation (EU) 269/2014 71 persons and 33 entities responsible for actions that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine. With these latest designs, the subjective measures currently apply in total to almost 1800 persons and entities.

Russian countermeasures

The Russian Foreign Affairs Ministry has stated that Russia imposes retaliatory measures after the EU’s 11th sanctions package adoption. They will be directed against Europeans who help Kiev. Russia will significantly expand the list of representatives of European institutions and EU member states who will be banned from entering Russian territory.  The Russian Foreign Affairs Ministry stated that the introduction of a new sanctions package against Russia by the EU is illegitimate and undermines the international legal prerogatives of the UN Security Council.

The entry bans are expected to be imposed on representatives of security agencies, state and trade organisations of EU member states that have been involved in military assistance to Kiev. The same restrictions could affect European citizens.

Conclusions

The EU’s 11th sanctions package against Russia represents a further step in the EU’s response to the continuing war against Ukraine. The new sanctions are likely to have a significant impact on the Russian economy, on those involved in human rights violations and on EU-Russia relations as a whole. The implementation of the sanctions and their impact will be closely monitored in the context of evolving EU-Russia relations.

The professionals at Andersen are at your disposal to provide the broadest possible advice on the issues highlighted in this article.