The EU Adopts Its 12th Package of Sanctions Against Russia

The Council of the European Union (the “Council”) adopted its 12th package of sanctions against Russia on 18 December 2023. The package consists of Regulations (EU) 2023/2873 and 2023/2875, both amending Regulation (EU) No 269/2014, as well as Regulation (EU) 2023/2878, amending Regulation (EU) 833/2014 (together, “12th Russia sanctions package” or “the package”).

The 12th Russia sanctions package provides several amendments to Regulation (EU) 269/2014 and Regulation (EU) 833/2014, among others:

 

Trade restrictions

Import restrictions

Russian diamond ban

The package imposes a prohibition on the direct or indirect import, purchase or transfer of diamonds from Russia. The prohibition includes diamonds transiting Russia and Russian diamonds when processed in third countries other than Russia. The prohibition applies to non-industrial natural and synthetic diamonds, as well as diamond jewelry. The ban will be phased in from 1 January to 1 September 2024 and is part of a G7 effort to develop an internationally coordinated Russian diamond ban. The provision of related services (technical or financial assistance, etc) for such prohibited imports is also banned. Diamond importers will be required to provide traceability evidence in order to implement the ban.

Croatia and Czech Republic crude oil exemptions extended

Croatia’s and the Czech Republic’s existing exceptions in connection to the import ban on crude oil were extended by one year.

Iron and steel partner country list

A list of partner countries has been introduced to ease the import of iron and steel products. Such products are exempt – when imported into the EU from a listed partner country – from the requirement for importers to provide evidence of the country of origin of the iron and steel inputs. This is because the partner countries already apply substantially equivalent restrictive measures as the EU does on imports of iron and steel. The partner country list is limited currently to Switzerland and Norway.

Personal use exemption

Exemptions have been introduced when importing personal use items which are manifestly not intended for sale, such as for personal hygiene items and clothing worn by travelers. Also exempted are cars owned by EU citizens or an immediate family member residing in Russia and being driven into the EU for strict personal use.

Additional import restrictions

Import restrictions on items which generate significant revenues for Russia have been expanded to target, inter alia, pig iron and spiegeleisen, copper wires, aluminum wires, foil, tubes and pipes, as well as liquefied propane gas (LPG).

 

Export restrictions

No Russia clause

EU exporters must contractually prohibit, when exporting to any non-EU country except certain partner countries, the re-exportation to Russia and re-exportation for use in Russia of particularly sensitive goods and technology. The clause covers prohibited items used in Russian military systems found on the battlefield in Ukraine or critical to the development, production or use of those Russian military systems, as well as aviation goods and weapons. Items concerned include aircraft and aircraft parts, jet fuels, firearms, and ammunition. The contractual clause must contain adequate remedies for breach, with exporters required to immediately report any breach as soon as becoming aware.

Reporting on transfers exceeding EUR100 000

Reporting requirements will now apply to EU entities which are more than 40% owned by Russian nationals, residents, or entities for any transfer of funds exceeding EUR100 000 outside the EU. Credit and financial institutions must also report information on such transfers that they initiated for such EU entities.

Clarified and extended controls

The EU has provided clarity on restrictions pertaining to items outlined in Annex XXIII of Regulation (EU) 833/2014, emphasizing that these restrictions apply universally, irrespective of the item's origin within the EU.

Additionally, the EU has imposed a transit ban through Russia specifically for items exported from the EU. It is important to note that this ban is applicable only to a subset of Annex XXIII items, specifically those enumerated in the newly introduced Annex XXXVII to Regulation (EU) 833/2014.

Additional export bans

The list of restricted items which contribute to the technological enhancement of Russia’s defense and security sector was expanded to include chemicals, lithium batteries, machine tools and machinery parts.

29 entities were also added to the list of those directly supporting Russia’s military and industrial complex in Ukraine, subjecting them to enhanced export restrictions on dual-use and advanced technology items. Besides Russia, the entities are also located in Uzbekistan and Singapore.

 

Service restrictions

Expanding service ban to provision of certain software

The existing prohibition on the provision of a wide array of services to the Government of Russia or Russian entities (e.g., accounting, tax consulting, engineering services, legal advice, etc) was extended to include the provision of software for the management of enterprises and software for industrial design and manufacture.

Software covered for the management of enterprises include enterprise resource planning (ERP), customer relationship management (CRM), and supply chain management (SCM), and typical components of the covered suites, including software for accounting, fleet management, logistics and human resources. Design and manufacturing software covered include computer-aided design (CAD) and computer-aided manufacturing (CAM), and typical components of covered suites.

Limited exemptions and derogations are available, including a temporary exemption until 20 March 2024 for the supply of the prohibited software under contracts concluded before 19 December 2023.

Changes to the exemptions and derogations

The package has also introduced some changes to the existing exemptions and derogations:

• The current exemption allowing the provision of prohibited services (and the supply of the said software) that are for the exclusive use of Russian entities owned or controlled by entities from the EU, EEA, Switzerland or a partner country (including, the UK, US and Japan) will end on 20 June 2024; and

• After 20 June 2024, an authorisation to the relevant National Competent Authority will be required for the provision of prohibited services and the supply of the said software that are for the exclusive use of Russian entities owned or controlled by entities from the EU, EEA, Switzerland or a partner country (including, the UK, US and Japan).

 

Other trade restrictions

Divestment facilitation

The deadlines for authorizing the provision of controlled items and business services where necessary for the divestment from Russia have been extended to 30 June 2024 for trade restrictions and 31 July 2024 for service restrictions. In addition, the exemption for transactions which are strictly necessary for the wind-down of a joint venture involving an entity subject to a transaction ban was extended by one year to 31 December 2024. Similarly, the derogation for divestment and withdrawal from an EU entity by an entity which is subject to a transaction ban was also extended by one year to 31 December 2024.

Crypto service-provider restrictions

Russian nationals or residents are banned from owning, controlling, or holding a post on the governing bodies of EU entities providing crypto-asset wallet, account, or custody services.

 

Oil price cap

The Council introduced tighter compliance rules to support the implementation of the price cap on Russian crude oil and petroleum products to address circumvention. Enhanced attestation requirements will be implemented requiring businesses to disclose information for ancillary costs, such as insurance and freight, upon request. New restrictions targeting tankers vis-à-vis oil transport were also introduced including a notification requirement for the sale of such tankers to any third country.

 

Asset tracing authorities

Member States must designate an asset tracing authority

Member States are now required to designate, by 31 October 2014, the national authorities competent to identify and trace, where appropriate, the funds and economic resources belonging to, or owned, held or controlled by, any individuals and entities under asset freeze measures that are located in their jurisdiction.

 

Additional designated persons and criteria

New listings

61 individuals and 86 entities were designated as subject to EU asset freeze measures.

Included among the newly designated are several telecommunications companies (LLC MirTelecom, LLC Miranda Media, LLC Shipping Company Lyukstrans, JSC Krymtelecom) and AlfaStrakhovanie, one of Russia’s largest insurers. Numerous individuals and entities related to the military were also added. In addition, a French national who is CEO of two Finnish logistic companies was designated related to sanctions circumvention through his role in exporting restricted goods to Russia.

 

Expanded criteria for designation and related derogation: forced company transfers

The package expands the criteria for what can get an entity designated to now include Russian subsidiaries of EU companies whose ownership or control of has been compulsorily transferred by the Government of Russia. In addition, individuals and entities which have benefitted from the transfer can also be designated, as well as individuals who have been appointed to the governing body of such a Russian entity without the consent of the EU entities previously owning or controlling it. 

There is also a new derogation from asset freeze measures permitted for individuals and entities designated pursuant to these new criteria. Authorizations are permitted if it is determined the funds or economic resources in question are necessary for the sale or use of shares in, or assets of, a Russian entity to enable the contractual or government-determined payment in the context of a compulsory transfer of ownership or control. This derogation enables, inter alia, the payment to EU persons to compensate for such a forced transfer.