On 23 June 2023, the Council of the European Union (the “Council”) adopted a new package of economic sanctions against Russia. In addition to new asset-freezing designations, this eleventh package of sanctions includes new trade, transport and financial restrictive measures.
In recent weeks the UK has implemented various amendments to its existing sanctions regimes targeting Russia and Belarus, including the expansion of the UK’s Belarus-related sanctions regime to include certain restrictions previously introduced with respect to Russia and restrictions on the provision by UK persons of certain legal services. The UK has also amended a number of General Licenses applicable to these two sanctions regimes and introduced new General Licenses, and updated aspects of its sanctions-related guidance, as detailed below.
Summary of New EU Russia Sanctions
Council Implementing Regulation (EU) 2023/1216 designates additional individuals and entities to the EU asset-freezing list. The new designations include Russian government and military officials as well as Russian IT companies and the two Russian banks, MRB Bank and CMR Bank, which operate in the non-government controlled Ukrainian territories of Donetsk, Luhansk, Kherson and Zaporizhzhia.
Council Regulation (EU) 2023/1215 broadens the listing criteria upon which specific designations can be made under EU sanctions against Russia, to include, inter alia, the significant frustration of EU sanctions as a basis for designation. The regulation also introduces new derogations, including a derogation for the winding down of a Russian joint venture co-owned with the designated individual Alexey Alexandrovits Mordashov as well as a derogation allowing the disposal of certain types of securities held with specified listed entities.
In addition to the new asset-freezing designations, Council Regulation (EU) 2023/1214, which amends Council Regulation (EU) No 833/2014 (“Regulation 833”), introduces new, and expands existing, sectoral sanctions in relation to Russia. Those measures include the following restrictions:
- Additional export/supply controls: The regulation adds additional items to Annex VII of Regulation 833 (which lists “goods and technology which might contribute to Russia’s military and technological enhancement, or the development of the defence and security sector”) including: additional electronic devices, semiconductor materials, manufacturing and testing equipment for electronic integrated circuits and printed circuit boards, precursors to energetic materials, certain chemicals and optical components used for cameras. Additional items have also been added to Annex XXIII (which lists “goods which could contribute to the enhancement of Russian industrial capacities”).
The regulation furthermore adds new entities to the list of designated entities in Annex IV of Regulation 833 that are subject to enhanced export controls regarding dual-use and Annex VII items. The export of the controlled items to these entities always requires an export license which will only be granted under narrowly defined circumstances.
- Intellectual Property Restrictions: The regulation introduces a prohibition on the sale, license or transfer of intellectual property rights (“IPR”) or trade secrets, as well as on the granting of rights to access or reuse any material or information protected by means of IPR or constituting trade secrets, related to the restricted goods and technology whose sale, supply, transfer or export to a person, entity or body in Russia or for use in Russia is prohibited under Regulation 833 as listed in the annexes.
- Transit Restrictions: The regulation expands the existing transit ban for dual-use items to include items listed in Annex VII to Regulation 833 and aviation-related materials listed in Annexes XI and XX. Items subject to these restrictions may not be transported to third countries via Russia.
- Iron and steel import prohibition: The regulation tightens existing import restrictions concerning Russian iron and steel products by requiring importers of listed iron and steel products that have been processed in a third country to provide evidence that the country of origin of the underlying iron and steel inputs used for processing of the product is not Russia.
- Luxury Goods: Similar to other export restrictions in Regulation 833, the pre-existing trade restrictions concerning items listed in Annex XVIII (“Luxury Goods”) are expanded to include additional items (including a wider range of vehicles than were listed previously) and now also restrict the provision of technical assistance, brokering services or “other services” related to the restricted goods as well as the provision of related financing or financial assistance. The aforementioned IPR and trade secrets related restrictions will also apply with regards to Annex XVIII goods.
- Third-Country trade restrictions: The regulation establishes the legal basis for the EU to restrict the sale, supply, transfer or export of specific dual-use goods and Annex VII items to certain third country jurisdictions considered to be at continued and particularly high risk of circumvention of EU sanctions. The regulation does not designate any countries that will be subject to these third-country export restrictions nor does it list any specific products that will be captured – rather it establishes the legal basis for the Council to do so in the future.
- Vessel-related restrictions: A new prohibition is introduced against granting access to EU ports and locks to any vessel performing ship-to-ship transfers in breach of, or suspected to be in breach of, the Russian oil import ban as well as the price cap restrictions. Furthermore, vessels will be prohibited from accessing EU ports and locks if they do not notify the competent authority at least 48 hours in advance about a ship-to-ship transfer occurring within the Exclusive Economic Zone of a Member State or within 12 nautical miles from the baseline of that Member State’s coast.
In addition, vessels that transport Russian crude oil and petroleum products will not be granted access to EU ports and locks if they manipulate or turn off their navigation tracking.
- Transport restrictions: The existing restrictions that prohibit Russian road transport undertakings from involvement in the transport of goods through the EU are expanded to cover road transport undertakings that transport goods in trailers or semi-trailers registered in Russia.
- Caspian Pipeline Consortium: The regulation introduces a derogation allowing Member States to grant a license for the export of restricted items and the provision of related services necessary for the operation and maintenance of the Caspian Pipeline Consortium (“CPC”) pipelines that transport the Kazakh oil through Russia under certain conditions.
- Oil import restrictions: An exemption for the supply of crude oil by pipeline from Russia will no longer apply for Germany and Poland.
- Pre-existing restrictions on the sale of transferable securities denominated in any official currency of an EU Member State or units in collective investment undertakings providing exposure to such securities will be extended to transferable securities denominated in any currency issued after 6 August 2023.
- Media sanctions: The EU broadcasting restrictions, which prohibit EU persons from broadcasting content by the designated media outlets as well as from advertising products or services in any content produced or broadcasted by listed entities, have been extended to include RT Balkan, Oriental Review, Tsargrad, New Eastern Outlook, and Katehon.
UK Sanctions Developments
Amendments to UK Sanctions Targeting Russia
On 19 June 2023, the Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2023 amended the Russia (Sanctions) (EU Exit) Regulations 2019 (the “UK-Russia Regulations”) to extend existing restrictions relating to the non-government controlled Ukrainian territory, which previously applied to the regions of Crimea, Donetsk and Luhansk, to also include the regions of Kherson and Zaporizhzhia. Restrictions relating to non-government controlled Ukrainian territory (including with respect to exports, investment and transport) have been amended accordingly. Following this change, on 20 June 2023, HM Treasury’s Office of Financial Sanctions Implementation (OFSI) updated its General License relating to the provision of humanitarian assistance in Ukraine to amend the definition of “non-government controlled Ukrainian territory” to include Kherson and Zaporizhzhia.
The amendment to the regulations also added to the existing statutory purpose of the UK’s sanctions targeting Russia, as set forth in regulation 4 of the UK-Russia Regulations, the purpose of: “promoting the payment of compensation by Russia for damage, loss or injury suffered by Ukraine on or after 24th February 2022 as a result of Russia’s invasion of Ukraine”. This change was referenced in a UK government announcement as indicating that the UK could now “maintain Russian sanctions until compensation is paid to Ukraine”.
On 30 June 2023, the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023 further amended the UK-Russia Regulations to introduce a restriction on the provision by UK persons of certain legal services in particular circumstances, subject to exemptions set forth in the Regulations. This amendment also introduced a new exception to the professional services restrictions in the UK-Russia Regulations to permit the provision of auditing services where there are relevant statutory or regulatory obligations relating to such services and in relation to the provision of expert evidence in the context of legal proceedings (including arbitral or mediation proceedings).
Announcement of Further Forthcoming Russia Sanctions Measures
In the same 19 June announcement, the UK indicated its intention to introduce through further sanctions legislation additional reporting obligations to require:
- UK persons designated for UK asset-freezing sanctions to disclose assets that they hold in the UK; and
- Persons holding assets in the UK on behalf of the Central Bank of Russia, the Russian Ministry of Finance or the Russian National Wealth Fund to disclose them to HM’s Treasury.
The UK government also indicated in the announcement that it is considering introducing a legal mechanism that would allow individuals designated for UK asset-freezing sanctions under the UK-Russia Regulations to “donate frozen funds for Ukrainian reconstruction” as part of a voluntary process for which no sanctions relief would be offered in return.
These amendments have not yet been implemented in law and it remains to be seen if, when and in what form they might be in the coming weeks or months.
Expansion of UK Sanctions Targeting Belarus
On 8 June 2023, the UK amended its sanctions targeting Belarus, as set forth in The Republic of Belarus (Sanctions) (EU Exit) Regulations 2019 (the “UK-Belarus Regulations”), to introduce a number of further restrictions on Belarus, many of which are similar to equivalent restrictions on Russia under the UK-Russia Regulations. These measures include:
- Expanding the designation criteria under which persons can be designated for UK asset-freezing sanctions under the UK-Belarus Regulations to include:
i. being “involved in obtaining a benefit from or supporting the Government of Belarus through carrying on a relevant business activity” by holding the right to nominate a director or trustee of an entity affiliated with the Belarusian government;
ii. being involved in “conduct destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine” or “obtaining a benefit from or supporting the Government of Belarus through carrying on a relevant business activity” by working for the Belarusian government in a specifically listed role (e.g., as head or deputy head of a public body); and
iii. obtaining a financial or other benefit from an “involved person” (persons who were involved in the disappearance of political opposition leaders Yury Zakharanka and Viktar Hanchar, businessman Anatol Krasouski or journalist Dzmitry Zavadski). (Note: this criteria also extends to immediate family members of such involved persons.)
- New export restrictions which prohibit the export, supply, delivery or making available or transfer from the UK to Belarus of: banknotes denominated in British pounds sterling or any official EU currency; chemical and biological weapons-related technology (as listed in Part 2 of Schedule 2H to the UK-Belarus Regulations); and machinery-related items (as listed in Part 2 of Schedule 2I to the UK-Belarus Regulations).The export restrictions under the UK-Belarus Regulations generally extend also to the provision of related technical assistance, financial and brokering services.
- New import restrictions which prohibit the import, acquisition, supply and delivery (including to third countries) of restricted goods which originate in, or are located in, Belarus, and the provision of related services.The following items have been added to the restricted items to which import restrictions apply (as listed at Schedule 2J to the UK-Belarus Regulations): cement (under commodity codes 2523 and 6810); gold (under commodity codes 7108, 71129 10000 and ex 7118 9000); gold jewellery (under commodity codes ex 7113 and ex 7114); rubber (under commodity code 4011 for “new pneumatic tyres, of rubber”); and wood (under commodity code 44 for “wood and articles of wood, wood charcoal”). The new import restrictions extend also to “relevant processed gold”, which is defined as gold that has been processed in a third country (i.e., other than Belarus, the UK or the Isle of Man) that incorporates gold that, on or after 21 July 2022, originated in and was exported from Belarus. These restrictions are subject to limited targeted exceptions.
- New restrictions on Belarusian media companies which, in a similar manner to the equivalent restrictions under the UK-Russia Regulations, permit the UK government to designate Belarusian media companies that it considers to be spreading propaganda in the UK for purposes of restrictions that require: social media service providers to take reasonable steps to prevent UK users from accessing content generated, uploaded or shared by designated media companies; internet access service providers to take reasonable steps to prevent UK users from accessing internet services provided by designated media companies; and application store providers to take reasonable steps to prevent UK users from downloading or accessing by means of an application store an internet service provided by a designated media company.The UK’s communications regulator, Ofcom, has the authority to impose financial penalties for breaches of these restrictions or failure to produce to Ofcom upon request information or documents with respect to these internet services related restrictions.
- Expanded investment/credit restrictions which expand existing investment and credit restrictions to apply to dealings with transferable securities or money-market instruments with a maturity of more than 90 days to include securities or instruments issued by entities acting on behalf, or at the direction of, the Belarusian state, a Belarusian authority (which is defined as including among others any ministry of government and the National Bank of Belarus), or entities wholly owned by the foregoing.
Further Amendments to UK General Licenses
In recent weeks, the UK has made changes to the General Licenses (“GLs”) issued in relation to both the UK-Russia Regulations and the UK-Belarus Regulations.
- INT/2022/1875276 – Telecommunications and News Media Services in Russia: On 26 June 2023 OFSI amended this GL, which permits certain financial transactions relating to the provision of telecommunications and news media services in Russia, to remove entities “which OFSI does not believe are owned or controlled by designated persons”, which include PSJC MegaFon, Mobile TeleSystems PJSC (MTS) and PJSC Moscow City Telephone Network (MGTS), and to add Rossiya Segodnya as a designated provider of News Media Services.
- INT/2023/3074680 – Oil Price Cap Trading in Derivatives and Futures: On 14 June 2023 OFSI issued a new GL that permits UK persons to engage in the trading of oil derivatives and futures financial products that would otherwise be prohibited under the restrictions in the UK-Russia Regulations relating to the Oil Price Cap (specifically regulation 46Z9C).This GL is of indefinite duration and does not have reporting requirements attached to its use.
- INT/2022/2349952 – Transactions Relating to Agricultural Commodities: On 6 June 2023 OFSI amended this GL, which relates to transactions for commodities such as food, fertiliser, seed and feed for the production of food for animals, was amended to allow the Grain and Feed Trade Association (“GAFTA”) to receive funds and economic resources from any person in connection to the provision of services related to contracts for the trade in agricultural commodities by or on behalf of GAFTA.This GL is of indefinite duration.
- INT/2022/1552576 – Payment of LCIA Costs: On 5 June 2023 OFSI amended this GL, which relates to the payment of costs at the London Court of International Arbitration (“LCIA”), to: allow representatives of designated persons subject to UK asset-freezing sanctions to pay funds to the LCIA for arbitration costs; allow designated persons or their representatives to transfer funds to their legal representatives for onward transfer to the LCIA to cover arbitration costs; and allow non-designated person arbitral parties to pay substitute deposits to the LCIA. This GL is of indefinite duration.
- INT/2023/3024200 – Prior Obligations: On 22 May 2023 OFSI issued a new GL that permits a UK person owed funds or economic resources by a person designated for asset-freezing sanctions under the UK-Russia Regulations or the UK-Belarus Regulations to receive payment where: (i) the contractual obligation under which the funds or economic resources are owed was signed before the relevant designated person was designated; (ii) the payment is for the benefit of a UK person; (iii) the value of the payment does not exceed £200,000; and (iv) payment is not made to another designated person (including indirectly).This GL will expire on 21 November 2023 and there are reporting obligations associated with its use that require notification to be given to OFSI within one month of receiving a payment under the GL.OFSI has published guidance regarding the use of this GL.
Updated UK Sanctions Guidance
The UK has also recently issued updated formal guidance on various aspects of UK sanctions.
- Protection of Trading Interests (“Blocking Regulation”): On 26 June 2023 the UK Department for Business and Trade published guidance concerning how “UK persons’ trading interests are protected and when authorisations must be obtained to trade with countries subject to specific extraterritorial laws”.This guidance concerns the operation of the so called “blocking regulation”, a version of which the UK retained after the UK’s exit from the EU in December 2020.The guidance provides information on the scope of the definition of a “protected person” under the legislation and when such persons should seek authorisation to engage in acts that would otherwise be prohibited.It also sets forth a list of proscribed sanctions legislation to which the Protection of Trading Interests legislation applies, which currently includes U.S. sanctions legislation concerning restrictions on trade with Iran and Cuba.
- Industry Guidance on the UK Maritime Services Ban and Oil Price Cap: On 14 June 2023 OFSI updated this guidance to confirm that it will introduce a 45-day wind-down period for any future changes to the Oil Price Cap and to provide further detail on OFSI’s view of what will constitute taking steps to withdraw contracted services “as soon as reasonably practicable” in the event of a suspected breach of the relevant restrictions.
- FCDO Common High Priority Items List: On 30 May 2023 the UK Foreign, Commonwealth & Development Office issued a notice that identified and listed items deemed critical to Russian weapons systems and its military development, and stated that suppliers should undertake due diligence to ensure that the end destination for exports of such items is not Russia. The list is separated into four “tiers” which relate to: integrated circuits (also referred to as microelectronics); electronics items related to wireless communication, satellite-based radio navigation, and passive electronic components; discrete electronic components, electronics cabling and connectors, digital cameras and related optical components; and manufacturing, production, and quality testing equipment of electric components and circuits respectively.
- Trust Services Sanctions OFSI Blog: On 30 May 2023 OFSI published a blog addressing various questions that OFSI has received since the introduction of restrictions on the provision of trust services in December 2022.
- Notice to Exporters on Trade Sanctions Circumvention: On 22 May 2023 the UK Department for Business & Trade issued a guidance note for companies involved in the export of goods from the UK setting out requirements for compliance with UK sanctions restrictions, which covered expectations, best practice and risk indicators in relation to counterparty due diligence and the procurement cycle.
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Covington’s International Trade Controls team—which includes lawyers in the firm’s offices in the United States, London, Brussels, and Frankfurt—regularly advises clients across business sectors, and would be well-placed to provide support in connection with the emerging Russia sanctions.
Our trade controls lawyers also work closely with Covington’s Global Public Policy team which consists of over 120 former diplomats and policymakers in the United States, Europe, the Middle East, Latin America, Africa, and Asia. Many of the members of the Public Policy team have had substantial government experience in sanctions and export controls matters, and regularly advise our clients on emerging sanctions policy matters and related engagements with government stakeholders.
Covington is therefore exceptionally well-positioned to assist clients in navigating their most complex challenges, drawing on our trade and public policy teams as well as our additional multidisciplinary teams in areas including international arbitration and disputes, cybersecurity, anti-money laundering, corporate restructuring, finance, and insurance.
As the Ukraine crisis evolves, we will continue to monitor developments including regarding U.S., UK, and EU sanctions against Russia, and will issue further updates in the event of material developments.
Our team would be happy to address any questions you may have.