EU moves to tighten up sanctions package imposed on Russia - Stacy Keen

The 14th Russia sanctions package has been adopted by the Council of the European Commission after a delay caused by disagreement among EU member states.

The package targets high-value sectors of the Russian economy, including energy finance and trade, and is intended to “make it ever more difficult to circumvent EU sanctions”.

The “test” for circumvention has been lowered. Prior to the new package, the EU circumvention restriction was triggered only where an EU operator engaged in activities knowing and intending that the object or effect of such was to “get around” the sanction.

Stacy Keen, Partner and sanctions and financial crime specialist at Pinsent Masons

EU circumvention can now be triggered where there is awareness that the activity may have such an object or effect. This is coupled with confirmation in the recitals that EU operators will not be able to rely on a “no knowledge or reasonable cause to suspect” defence to allegations of EU sanctions infringement, unless they have carried out appropriate due diligence.

EU parent companies must use their best efforts to ensure that their non-EU third-party subsidiaries do not take part in any activities resulting in an outcome that the sanctions seek to prevent.

The example given of such an outcome is a recipient in Russia obtaining goods or services that fall within the scope of the EU Russian sanctions restrictions. The degree of effective control that a parent entity has over its subsidiary is a relevant factor in assessing what constitutes best efforts, with the 14th package recitals referring specifically to the implementation of appropriate policies, controls and procedures to mitigate and manage risk effectively.

The wider amendments focused on anti-circumvention relate to due diligence and contractual controls. EU operators selling so called common high priority items, for example battlefield goods, to third countries, will need to implement due diligence mechanisms capable of identifying and assessing risks of re-exportation to Russia, and mitigating them.

Additionally, EU operators transferring intellectual property rights to third-country commercial counterparts must include contractual provisions to ensure that such know-how will not be used for manufacturing Common High Priority (CHP) goods destined to Russia. This builds on the “no-Russia clause” introduced by the 13th Sanctions package and is intended to help combat the re-exportation of CHP goods to Russia.

The new sanctions package continues the approach of targeting sectors important to the Russian economy – energy, finance and trade – and include rules on new investment, and the provision of goods and technology.

The measures impact services for completion of Liquified Natural Gas (LNG) projects under construction including Arctic LNG 2 and Murmansk LNG. Further import restrictions have also been imposed on Russian LNG through EU terminals not connected to the natural gas system.

Transactions with targeted credit and financial institutions and crypto assets providers established outside of the EU, when these entities facilitate transactions that support Russia’s defence-industrial base, are prohibited.

Restrictions have also been introduced relating to the funding of political parties and other organisations from the Russian State and its proxies, bans on port access and provision of services to specific vessels, widening of transport related and application for IP rights by Russian nationals and companies.

Stacy Keen, Partner and sanctions and financial crime specialist at Pinsent Masons