Sanctions against Russia. Recent Developments (21 December 2022 update)
This December, the EU introduced a series of restrictive measures targeting Russia.
Council of the EU approved the ninth package of sanctions.
Additionally, the European Commission proposed framework that would amend the Lisbon Treaty and harmonize criminalization of violation of sanctions at the level of the Union.
Finally, the EU introduced a price cap for oil originating or exported from Russia.
On 16 December, the EU adopted a ninth package of sanctions against Russia. Sanctions cover the following:
►Energy sector restrictions. In addition to the already existing investment ban in the energy sector in Russia, new EU investments in the Russian mining sector will also be prohibited, except for certain raw materials, namely transport of natural gas and oil.
►Governing positions in Russian entities. Starting from 16 January 2023 it becomes prohibited to hold any posts in the governing bodies of:
- An entity established in Russia, which is publicly controlled or with over 50 % public ownership, or in which Russia, its Government or Central Bank has the right to participate in profits or with which Russia, its Government or Central Bank has other substantial economic relationship;
- An entity directly or indirectly owned for more than 50 % by an entity above;
- An entity acting on behalf of the entities above.
Certain exceptions apply, namely to joint ventures. Additionally, prohibitions do not apply to the execution until 18 March 2023 of contracts concluded with the Russian Regional Development Bank (RRDB) before 17 December 2022, nor do they apply to the reception of payments due by RDBB pursuant to contracts performed before 18 March 2023.
►Individual listings. Adding approximately 200 individuals and entities to the sanctions list, including individual officers, defense industrial companies, members of the Parliament;
►New exports controls, specifically for dual-use goods.
- Aviation, space industry. Export controls in relation to newly-listed goods will not apply to the execution until 16 January 2023 of contracts concluded before 17 December 2022, or of ancillary contracts necessary for the execution of such contracts.
- Products that might enhance Russian industrial capacities. Export restrictions covering new goods do not apply to the execution until 16 January 2023 to the contracts concluded before 17 December 2022.
- Electronic components. Export restrictions to controlled items mentioned in Annex VII become applicable immediately.
- Extension of sectoral measures. The new package targets new Russian entities allegedely linked to the Russian military-industrial complex.
►Import controls. Import controls related to iron and steel products will not apply until 30 September 2023. Certain goods will not be subject to restrictions until April and October 2024.
►Banking sector designations. New package introduced sanctions on additional three Russian banks, including Credit Bank of Moscow and Dalnevostochniy Bank, as well as a full transaction ban on the RRDB.
►Ban of new services. Ban on the provision of market research and public opinion polling services, technical testing and analysis services, and advertising services.
On 2 December 2022, the European Commission proposed to adopt legislation harmonizing criminal offences and penalties for the violation of EU restrictive measures, according to the official press-release.
EU law does criminalize the violation of sanctions. Currently this is a direct matter of national laws which differ significantly. The EU proposes to expand the list of criminal offences listed in Article 83 § 1 of the Treaty on the Functioning of the EU resulting from the Lisbon Treaty.
►Punishable offences. A list of criminal offences includes:
- making funds or economic resources available to, or for the benefit of, a designated person, entity or body;
- failing to freeze these funds;
- enabling the entry of designated people into the territory of a Member State or their transit through the territory of a Member State;
- entering into transactions with third countries, which are prohibited or restricted by EU restrictive measures;
- trading in goods or services whose import, export, sale, purchase, transfer, transit or transport is prohibited or restricted;
- providing financial activities which are prohibited or restricted; or
- providing other services which are prohibited or restricted, such as legal advisory services, trust services and tax consulting services.
Offences will cover circumventing an EU restrictive measure: this means bypassing or attempting to bypass restrictive measures by concealing funds or concealing the fact that a person is the ultimate owner of funds.
►Penalties. Common basic standards for penalties:
- For the individual: a maximum penalty of at least five years in prison;
- For the company: at least 5% of the total worldwide turnover of the legal person (company) in the business year preceding the fining decision.
►Enforcement. Since the European institutions do not have criminal jurisdiction, it will therefore be up to the Member States to enforce the new rules by prosecuting said offences before their national criminal courts. This will first require the Member States to transpose the directive into their internal legislation.
This decision is not limited to violations of the sanctions against Russia, rather, it concerns all the economic sanctions adopted by the EU.
EU adopted Council Regulation (EU) 2022/2367 of 3 December 2022 providing further restrictions concerning oil originated from Russia.
►Price cap. The regulation provides for a price cap at USD 60 per barrel for oil originating or exported from Russia.
►Targeted products. Specifically, it is prohibited to trade, broker or transport, including through ship-to-ship transfers, to third countries, crude oil or petroleum products exceeding the price cap which originate in Russia, or which have been exported from Russia. The restrictions related to crude oil became effective on 5 December 2022. The restrictions regarding petroleum products will become effective on 5 February 2023.
►Transition period. There is a 45-day wind-down period for seaborne Russian crude oil purchased above the price cap, provided it is loaded onto a vessel at the port of loading prior to 5 December 2022 and unloaded at the final port of destination prior to 19 January 2023. Maritime-related services and maritime transport can be provided during this period. There is no equivalent provision for petroleum products.
►Review of the price cap. The regulation also provides for a regular review of the price cap as of mid-January 2023 and every 2 months thereafter. The principle for the review is that price cap should be at least 5% below the average market price for Russian oil and petroleum products.
►Consequences for violation of the price cap. If a third country flagged vessel intentionally carries Russian oil above the price cap, EU operators will be prohibited from insuring, financing and servicing this vessel for the transport of Russian oil or petroleum products for 90 days after the cargo purchased above the price cap has been unloaded. If an EU vessel, such as an EU flagged vessel, violates the price cap, it will be subject to the consequences that follow under each Member State’s national legislation.
We are actively following the developments related to those issues and are fully prepared to advise our clients.