LawFlash

Update: European Union Agrees on Further Sanctions on Russia

March 01, 2022

The European Union’s 25 February wave of sanctions build on, and significantly expand, its existing sanctions on Russia, imposing wide-ranging restrictions on the Russian economy—including in respect of Russia’s access to financial and capital markets—and the oil refining, aviation, and space sectors. More sanctions from the European Union are expected in the coming days, along with announcements on the disconnection of certain Russian banks from the SWIFT system.

The February 25 sanctions package was adopted by Council Regulation (EU) 2022/328 and came into effect on 26 February 2022. These sanctions build on the regime imposed on Russia by the European Union in 2014 (Council Regulation (EU) No 833/2014), together with those adopted by the European Union on 23 February 2022. The new sanctions both strengthen existing restrictions and impose additional restrictions on the trade in goods and associated services to significant sectors of the Russian economy. The new trade sanctions apply irrespective of whether the goods or technology originate in the European Union.

Oil and Gas Sector

The European Union has imposed new prohibitions on the sale, supply, transfer, or export to any Russian person or entity or for use in Russia (directly or indirectly) of specific goods and technologies suited for use in oil refining, together with restrictions on the provision of certain related services and financing. A list of the specified items is set out at the new Annex X to Regulation 833/2014.

There is a temporary exemption (or wind-down period) that effectively allows EU persons to continue to perform a contract (or ancillary contracts necessary for the execution of that contract) until 27 May 2022, provided that the contract was entered into before 26 February 2022. Furthermore, specific licences can be sought for the prevention or mitigation of events likely to have a serious and significant impact on human health and safety or the environment.

These new restrictions are in addition to the previous restrictions imposed on Russia’s energy sector in relation to oil exploration and production and associated services, which restrictions remain fully in effect.

Aviation and Space Sector

A number of new restrictions have been introduced in relation to Russia’s aviation and space sector, including prohibitions on

  1. the sale, supply, transfer, or export of aircrafts, spacecrafts, and parts thereof to Russian persons and entities (or otherwise for use in Russia);
  2. the overhaul, repair, inspection, replacement, modification, or defect rectification of aircrafts, spacecrafts, and parts to Russian persons and entities (or otherwise for use in Russia)—there is a limited exception to this restriction in respect of pre‑flight inspections;
  3. the provision of certain related services and financing; and
  4. the provision of insurance and reinsurance, directly or indirectly, in relation to goods and technology listed in Annex XI to any person, entity or body in Russia or for use in Russia.

A carve-out has been included which is intended to allow a short window (until 28 March 2022) within which EU persons and entities can execute contracts concluded before 26 February 2022 (and ancillary contracts necessary for the executions of such contracts) that are otherwise prohibited by paragraphs (i) and (iii) above. Notably, the carve-out does not extend to the insurance and reinsurance provisions or the activities in paragraph (ii) above.

A new prohibition introduced on 28 February 2022 pursuant to Regulation 2022/334 prohibits any aircraft operated by Russian air carriers, including as a marketing carrier in code-sharing or blocked-space arrangements; any Russian-registered aircraft; or any non-Russian-registered aircraft which is owned or chartered, or otherwise controlled by, any Russian person or entity from landing in, taking off from, or overflying the territory of the European Union. A member state may provide a licence on humanitarian grounds or for a purpose that is consistent with the objectives of Regulation 833/2014.

Dual-Use Items and Technology

The European Union has expanded the pre-existing restrictions on the export of controlled dual-use items to Russia by removing the previous requirement that the item be intended for military use and/or a military end user, i.e., there is now a blanket ban on the sale, supply, transfer, or export of dual-use items (and certain associated services) to any Russian person or for use in Russia (subject to certain derogations). Dual-use goods are items that have both a civilian and a military application; they are identified in Council Regulation (EU) 2021/821.

The new sanctions further prohibit the sale, supply, transfer or export of items (and certain associated services) to Russian persons, or for use in Russia, that may “contribute to Russia’s military and technological enhancement, or the development of the defence and security sector.” An extensive list of these items is included at the new Annex VII to Regulation 833/2014 and includes items related to encryption, electronics, telecoms, lasers, navigation and avionics, and computers/electronics.

Certain exemptions apply, including for humanitarian, medical, or pharmaceutical purposes; non-governmental cybersecurity; software updates; temporary use by news media; and personal use. Licences will not normally be required where the exemptions apply. However, it may be necessary in some circumstances to declare any impacted items on customs declaration forms and to inform the competent authority/authorities of the reliance on an exemption.

Specific licences may also be available depending on the items and purpose for which they are intended.

Financial Sector: Capital Markets and Loans

The European Union has imposed additional restrictions on Russia’s access to capital markets—including extending restrictions on dealings involving transferable securities and money market instruments and/or new loans or credit to four additional Russian banks (Alfa Bank, Bank Otkritie, Bank Rossiya, and Promsvyazbank) and to eight state-owned companies (Almaz-Antey, Kamaz, Novorossiysk Commercial Sea Port, Rostec, Russian Railways, JSC PO Sevmash, Sovcomflot, and United Shipbuilding Corporation). These entities are identified at new Annexes XII and XIII of Regulation 833/2014.

Furthermore, the existing measures have been strengthened so that there will be no minimum maturity limit in respect of (i) transferable securities and money market instruments issued after 12 April 2022; and (ii) new loans and credit after 26 February 2022.

From 12 April 2022, it will also be prohibited to list and provide services on trading venues registered or recognized in the European Union for the transferable securities of any entity established in Russia and with more than 50% public ownership.

The new sanctions package also contains further prohibitions relating to transferable securities.

Financial Sector: Deposit Restrictions

EU financial institutions are prohibited from accepting deposits of more than EUR 100,000 euros (approximately $112,000) from Russian nationals, residents, or entities. In addition, they must report any deposits in excess of these limits by no later than 27 May 2022 and will be required to provide an update every 12 months.

Certain exemptions apply, including deposits necessary for lawful trade in goods and services between the European Union and Russia, as well as individuals’ basic needs, civil society activities, humanitarian purposes, reasonable legal/professional fees, and certain extraordinary expenses (although licences will need to be obtained in relation to most of the above).

Further, while nationals and residents of EU member states are exempt from these measures, financial institutions must provide details of deposits exceeding these limits held by Russian nationals or residents who have acquired EU member state citizenship or EU residence rights through an investor citizenship or residence scheme.

Financial Sector: Public Financing

The European Union has prohibited the provision of public financing or financial assistance for trade with, or investment in, Russia.

Exemptions are available for (i) binding financing or financial assistance commitments established prior to 26 February 2022; (ii) the provision of public financing or financial assistance up to the total value of 10,000,000 euros (approximately $11,200,000) per project to small and medium-sized enterprises established in the European Union; and (iii) the provision of public financing or financial assistance for trade in food and for agricultural, medical, or humanitarian purposes.

Individuals

In addition to the restrictions above, following Council Decision (CFSP) 2022/331, the European Union has also designated an additional 99 individuals, including the Russian president and the foreign minister. This list also includes certain Belarusian persons identified as having participated in or supported Russia’s military activities in Ukraine.

It is already anticipated that the European Union will impose further sanctions against Russia in the coming weeks, including significant further designations against those seen as either benefiting from or supporting those deemed responsible for Russia’s actions in Ukraine.

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Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash or on Russia sanctions imposed by the United States, European Union, or United Kingdom generally, please contact any of the following Morgan Lewis lawyers:

Ukraine Task Force
Giovanna M. Cinelli
Joanna Christoforou
Bruce Johnston
Grigory Marinichev
Michael Masling
Kenneth J. Nunnenkamp
Georgia M. Quenby
Christina Renner
Melanie Ryan
Vasilisa Strizh
Carl A. Valenstein
Alexey Chertov
Jiazhen (Ivon) Guo
Katelyn M. Hilferty
Nicola Kelly
Christian Kozlowski
Daniel Lopez Rus
Charles C. Rush
Eli Rymland-Kelly