knowledge 26 July 2024 |

Update on Russian Sanctions: 14th Package of EU Sanctions in force and Sanctions Renewed Until 2025

On 24 June 2024, the Council adopted the 14th package of restrictive measures against Russia, aimed at further weakening Russia’s economic capacity and limiting their ability to fund the ongoing war against Ukraine. The new package¹ targets key sectors such as finance, trade and economy, including new sanctions on Russian liquid natural gas (LNG) and listing 116 new sanctioned individuals and entities².

Additionally, this package includes new provisions to ensure compliance and target circumvention by in certain cases, extending the reach of EU sanctions to foreign subsidiaries; a new development for EU sanctions.

These sanctions are to remain in place for at least another 6 months, following the green light from the Council of the EU on 22 July 2024, to extend the EU sanctions against Russian until at least 31 January 2025.

New Obligations for EU parent companies with foreign subsidiaries 

While EU sanctions do not directly apply to foreign jurisdictions, it is important that non-EU subsidiaries of EU companies do not operate in a way that undermines EU sanctions. The provisions adopted in this new package, which are incorporated into Regulation (EU) 833/2014, impose the following anti-circumvention obligations on EU parent companies who own or control foreign subsidiaries:

• Best efforts obligation: EU parent companies are required to undertake their best efforts to ensure that any third country subsidiaries they own, or control do not take part in activities that undermine EU sanctions. ‘Best efforts’ is defined as “comprising all actions that are suitable and necessary to achieve the result of preventing the undermining of the restrictive measures in Regulation (EU) No 833/2014.”³   EU operators are considered to own or control their non-EU subsidiaries if they are able to assert “a decisive influence” over them.⁴ Ownership means being in possession of 50% or more of the proprietary rights of the legal person, entity or body, or holding a majority interest.
• Due Diligence: EU companies are obliged to prevent Common High Priority (“CHP”) goods from reaching Russia and must ensure their foreign subsidiaries do the same by imposing due diligence measures. Such measures must be capable of (i) identifying and assessing the risks of re-exportation to Russia and (ii) mitigating such risks.

Anti-Circumvention Measures

Under the ‘safe harbour’ provisions in Article 10 of Regulation 833/2014 and Article 10(2) of Regulation 269/2014, EU operators shall not be held liable, if they “did not know” and “had no reasonable cause to suspect”, that their actions infringed EU sanctions. The updated recitals in both Regulations suggest a new minimum standard in interpreting these provisions, which would prevent EU operators from relying on Article 10 where they fail to carry out appropriate due diligence, including considering public or readily available information.⁵

Additionally, the language in the anti-circumvention provisions⁶ has been broadened in this 14th package, and now states (with additional text underlined) that, "it shall be prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent prohibitions in this Regulation, including by participating in such activities without deliberately seeking that object or effect but being aware that the participation may have that object or effect and accepting that possibility".

Other Key Measures - Regulation (EU) 833/2014

• Extension of “No Russia” clause: The 14th package includes an additional ‘no-Russia’ clause⁷ which provides that companies must contractually prohibit transferred intellectual property rights to third countries from being used by them, or their sublicensees, for manufacturing CHP goods to Russia.
• Financial Sector: EU banks are now prohibited from carrying out transactions using the Financial Messaging System of the Central Bank of Russia (“SPFS”). SPFS is a Russian mechanism designed to avoid international sanctions, with currently 160 banks around the world connected to the system (Article 5ac).
• Energy: For the first time, the EU is targeting Russian liquified natural gas (“LNG”)⁸ thereby reducing the significant revenues that Russia earns from LNG sales and transport. Sanctions include prohibiting transhipments to third countries, prohibiting investment in Russian LNG projects and restrictions on importing Russian LNG into EU terminals.
• Transport related restrictions: For non–scheduled flights, the operator will be required to provide the ultimate beneficial owner of the aircraft and, where reasonable grounds to suspect circumvention exist, identifying information for all passengers and crew.⁹
• Other Trade related measures: New bans imposed on imports and exports that reinforce current sanctions on key categories of products including chemicals, plastics, vehicle parts and machinery.

Conclusion

The 14th package of restrictive measures aims to increase the impact of EU sanctions against Russia through expanding the reach to new areas of banking and trade and tightening compliance and anti-circumvention provisions. The increased responsibility for EU parent companies to ensure their non-EU foreign subsidiaries are not acting in a way which conflicts with EU sanctions against Russia is a significant extension of the measures. In light of these new provisions, it is important for operators to assess their risk exposure and to consider updating their compliance procedures, noting that a breach of EU sanctions is a criminal offence under Irish law. 

Also contributed to by Cara Conlon