Scope clear for new EU sanctions regulations against Russia

Scope now clear for new EU sanctions regulations against Russia following the military action in Ukraine

Overnight, the exact scope and extent of the latest round of European Union (“EU”) sanctions became clear, as the Council Regulations and Council Decisions imposing the EU sanctions were published. In response to Russia’s military actions in Ukraine, the member states of the EU along with the United States, the United Kingdom and other countries have imposed further sanctions on Russia. The EU sanctions entered into force on 23 February 2022. Danish companies should take actions to ensure that they are in compliance with the new sanctions and keep monitoring the situation as new rounds of sanctions are likely.

New set of EU sanctions against Russia

As the Council Regulations and Council Decisions were published in the Official Journal of the European Union on 23 February 2022, the EU sanctions entered into force. Following Russia’s recognition of the separatist regions of Ukraine, Donetsk and Luhansk, as independent states and the entry of Russian forces into Ukraine, the EU member states have imposed asset freezes and travel bans on entities and individuals connected to the decision to recognize the separate regions. Furthermore, the sanctions impose asset freezes and travel bans in relation to the separatist regions.

The sanctions also prevent Russian state and regional governments, including state banks, from accessing European Union financial and capital markets, freeze the assets of three banks linked to the separatist regions and impose extensive trade bans relating to Luhansk and Donetsk.

The EU sanctions consisting of five different EU regulations can be found here.

The new EU set of sanctions does not yet cover major sectors like the Russian energy sector, however, the EU has expressed that due to the recent developments a wider set of sanctions is being negotiated. The sanctions are expected to target strategic sectors of Russia’s economy.

Asset freezes

Regulation 2022/260^[1] and regulation 2022/261^[2] add individuals and entities to the listed person under the existing Regulation 269/2014, which imposes assets freeze. Danish companies must ensure that they do not deal directly or indirectly with the newly added individuals and entities or entities owned or controlled by them. The list of relevant individuals and entities can be found here (starting on page 7 and continuing on page 19). Danish companies dealing with Russia should make sure to screen their business partners against these lists.

Sanctions related to securities and investment services

Regulation 2022/262^[3] imposes sanctions related to securities and investment services. The regulation prohibits directly or indirectly selling, providing investments services or dealing with transferable securities and money market instruments issued by Russia, its governments, the Central Bank of Russia or any individual or entity action on behalf of the government or Central Bank. The prohibition applies to instruments issued after 9 March 2022 and does not apply if the contract was concluded before 23 February 2022.

Sanctions related to the separatist regions, Donetsk and Luhansk

“Crimea-like” sanctions have been imposed relating to the separatist regions, Donetsk and Luhansk by regulation 2022/263^[4]. The regulation imposes a comprehensive import and export ban on goods originating from the separatist regions. Furthermore, the regulation restricts acquisition of real estate or ownership or control in entities in the separatist regions, grant or participation in loan or credit arrangements, joint ventures and investments services. The prohibitions do not apply to obligations arising from a contract concluded before 23 February 2022. Services related to tourism activities and infrastructure in the separatist regions are also restricted.

Danish companies importing goods from Ukraine or Russia must ensure that the imported goods do not originate from Donetsk and Luhansk. Furthermore, Danish companies must ensure that goods exported to Russia are not comprised by the list in annex II of regulation 2022/263, which can be found here (starting from page 88).

Danish companies must also consider how to address the Donetsk and Luhansk regions in sanctions policies and procedures as well as contractual clauses and obligations.

The European Union intends to adopt wider sanctions if needed in the light of the further developments.^[5] As we understand it, the EU member states have not fully agreed on what would constitute a trigger for that decision, and at the time of publication of this newsletter the contents of the larger sanctions package is still being debated. However, in the light of the latest development, it is expected that the EU will impose further wide-reaching sanctions.

Additionally, other countries have imposed new sanctions on Russia, including the United Kingdom and the United States. On 22 February 2022, the United Kingdom designated five Russian banks, namely IS Bank, Rossiya Bank, PJSC Promsvyazbank, JSC Genbank and JSC Black Sea Bank Development and Reconstruction, and three individuals. The United Kingdom has expressed that over the coming weeks, the United Kingdom will extend the sanctions imposed on Crimea to Donetsk and Luhansk and sanction members of the Russian Duma and Federation Council who voted to recognise the independence of the separatist regions.^[6]

On 22 February 2022, the United States also imposed sanctions, including assets freeze and travel bans on certain individuals and entities connected to the recognition of the separatist regions. Furthermore, the United States has designated the “financial service sector” of the Russian economy, imposed sanctions on two Russian banks, imposed new sanctions on secondary dealings in Russian sovereign debt and imposed an embargo on the separatist regions.^[7] The United States has also announced that further aggression will result in wider sanctions.

Furthermore, Germany has stopped certification of the Nord Stream 2 natural gas pipeline.

Impact on Danish companies

On this basis, Danish companies should take actions to ensure that they are not in any way directly or indirectly involved in businesses with the newly sanctioned individuals and entities and in the separatist regions. Danish companies should also ensure that their sanctions compliance programs, policies and screening processes are updated to ensure that the newly enacted sanctions are addressed. The situation must be monitored closely in order to ensure compliance with the potential wider sets of sanctions which may be imposed at short notice.

Gorrissen Federspiel closely follows the developments in the sanctions against Russia and can assist with the implementation of measures to ensure that sanctions are observed. If you have any questions, please contact a member of our CSR and Compliance team.