New round of sanctions targets Russia

New Russia sanctions target export of luxury goods, the Russian energy sector and certain state-owned enterprises

Late yesterday, the European Union (“EU”) adopted further sanctions against Russia. The measures introduce a ban on the export of all luxury goods as well as a ban on new investment across the Russian energy sector. Additionally, restrictions on any transactions with certain Russian state-owned enterprises are imposed, certain import restrictions are put in place, and new individuals and entities are added to the asset freeze list. Danish companies should take action to ensure compliance with these new sanctions, as well as the pre-existing sanctions. Finally, the European Commission (“EC”) has initiated a consultation on state aid to support the EU economy in the context of Russia’s invasion of Ukraine.

New round of sanctions targets Russia

The latest round of EU sanctions entered into force on 15 March 2022 and imposes additional import and export restrictions on Russia along with an expansion of the already comprehensive financial sanctions.

The new EU sanctions are set out in two different regulations accessible here and here.

New measures restrict the export of luxury goods

Regulation 2022/428[1] introduces sanctions on the export of luxury goods. The restrictions prohibit selling, supplying, transferring or exporting luxury goods to any natural or legal person, entity or body in Russia, for use in Russia. Luxury goods are defined as certain goods listed in a new annex to the regulation, if generally exceeding 300 euro in value per item. Goods listed in the annex include various goods, such as certain consumer goods, electronic items, vehicles etc.

Expansion on export of pipeline products

Regulation 2022/428 expands the existing sanctions by implementing a prohibition on the export of pipeline construction products to any natural or legal person, entity or body in Russia, including its Exclusive Economic Zone and continental shelf, or for use in Russia, including its Exclusive Economic Zone and continental shelf.

Import restrictions on iron and steel products

Regulation 2022/428 also imposes restrictions on the import of certain iron and steel products that are exported from or originate in Russia. The products are listed in a new annex, which cover numerous items, including tin mill products, railway material etc.

Financial restrictions on investments in the Russian Energy sector

Additionally, Regulation 2022/428 prohibits new investments in the Russian energy sector. The rules restrict any new, or any extension of, existing participation in any legal person, entity or body incorporated or constituted under the law of Russia or any other third country and operating in the energy sector in Russia. The competent authorities of the member states may, however, authorise new participation if it is necessary for ensuring critical energy supply within the EU.

Full prohibition of any transactions with certain Russian State-owned enterprises

Regulation 2022/428 moreover prohibits any transactions with the Kremlin’s military-industrial complex[2] and cover a number of entities in Russia, which are publically controlled or with over 50 % public ownership or in which Russia, its Government or Central Bank has the right to participate in profits is restricted. Engagement in any transactions, directly or indirectly, with the entities listed in annex XIX is prohibited.

Additional individuals subject to asset freezes – Russia

Separately, Regulation 2022/427[3] imposes asset freezes on 14 additional individuals and 8 entities. The newly listed individuals and entities include more oligarchs and business elites linked to the Kremlin, as well as companies active in military and defence areas, which are logistically and materially supporting the invasion[4]. The total list now cover around 900 individuals and entities.

Sanctions by non-EU countries

Other (non-EU) countries have also imposed new and additional sanctions on Russia. On 15 March 2022, the UK government raised tariffs on certain Russian products by 35 %, and also banned the export of luxury goods to Russia[5].  On 11 March 2022, the US government issued sanctions targeting Russian and Kremlin elites, oligarchs, and Russia’s political and national security leaders, such as Dmitriy Sergeevich Peskov; Russian tycoon and Kremlin insider Viktor Vekselberg; and the Management Board of the sanctioned VTB Bank[6].

Russian countermeasures

On 15 March 2022, the Russian government issued sanctions on US president Biden along with certain members of the US administration[7]. Additional countermeasures may still be on the way, including the possible nationalization of assets of foreign companies in Russia.

New consultation on state aid temporary crisis framework

On 10 March 2022, the EC issued a press release announcing that they are consulting member states on a new draft proposal for a state aid temporary crisis framework.[8] The temporary crisis framework is needed because of Russia’s invasion of Ukraine and the consequential increase in energy prices. The draft proposal is under TFEU Article 107(3)(b), which allows member states to support companies affected by the crisis.

Notably, the draft proposal could enable member states to grant support to companies in the form of:

• Temporary liquidity support to all companies that are affected by the current crisis. According to the press release, this support could take the form of guarantees and subsidised loans.
• Aid for additional costs due to exceptionally high gas and electricity prices. This support could take any form, including limited grants, to partially compensate companies, especially intensive energy users, for energy price increases.

The EC invites member states to provide views on the draft state aid temporary crisis framework to assess the measures that should be used in tackling the current crisis. There is an existing possibility for member states to mitigate damage directly caused by the Russian military aggression against Ukraine under TFEU Article 107(2)(b). The new measures in the temporary crisis framework would complement this possibility, which includes certain direct effects of the economic sanctions or other restrictive measures taken in response to the invasion. The measures could be granted to all companies facing economic difficulties as a consequence of the Russian invasion.

After receiving the responses from the member states, the EC will assess these and finalise the state aid temporary crisis framework. Support measures notified by the member states is a matter of priority to the EC.

Impact on Danish companies

The scope of applicable sanctions targeting Russia is now very extensive, and Danish companies should ensure that their sanctions compliance programs, policies, screening processes and payment processes are updated to ensure that the newly enacted sanctions are addressed.

We recommend to closely monitor the situation in order to ensure compliance with potential new restrictions which may be imposed at short notice. We also recommend that Danish companies conduct a re-screening in regards to products and all business partners in light of the new extensive sanctions.

Gorrissen Federspiel closely follows the developments of sanctions against Russia as well as the process on the proposal on state aid and we can assist with the interpretation of and compliance with the applicable sanctions, as well as implementation of measures to ensure that sanctions are observed. If you have any questions, please contact a member of our CSR and Compliance team.

For more information on the previous EU sanctions packages, please see Gorrissen Federspiel’s newsletter of 10 March 2022 Gorrissen Federspiel’s newsletter of 2 March 2022, Gorrissen Federspiel’s newsletter of 28 February 2022 and Gorrissen Federspiel’s newsletter of 24 February 2022.