Sanctions tracker – EU introduces sixth Russia sanctions package

This briefing summarises the new Russia sanctions measures agreed in the EU's sixth sanctions package, and provides a round-up of other recent EU and UK sanctions developments since our last sanctions tracker update.

EU

Publication of sixth sanctions package

On 3 June, the Council of the EU announced the imposition of a sixth package of sanctions targeting Russia and Belarus. The relevant restrictions are contained in legislation published on 3 June and are discussed in more detail in the following sections of this post.

In summary, the sixth package comprises the following elements:

• restrictions on the purchase, import or transfer of crude oil and certain petroleum products from Russia into the EU, to be introduced on a phased basis;
• "de-SWIFTing" of additional Russian and Belarusian banks;
• broadcasting restrictions on three Russian state-owned outlets;
• amendments to the existing trade sanctions regarding dual-use goods and goods and technology which may contribute to the technological enhancement of Russia's defence and security sector;
• restrictions on the provision of accounting, public relations and consultancy services to Russia; and
• additional asset freeze designations.

Most of the new measures came into force immediately upon publication, or on the day following publication of the legislation (i.e. on 3 or 4 June). However, the oil embargo measures will come into force in six / eight months' time, as set out in more detail below.

Oil embargo

The new oil restrictions are contained in Council Regulation (EU) 2022/879 ("Regulation 2022/879") which amends Regulation (EU) No 833/2014 (the "Russia Regulation"). Regulation 2022/879 introduces a new Article 3m into the Russia Regulation which prohibits the purchase, import or transfer of crude oil or petroleum products (as listed in Annex XXV of the Russia Regulation) into the EU if they originate in, or are exported from, Russia. Article 3m also contains related restrictions on the provision of technical assistance, brokering services, financing or financial assistance.

This prohibition is subject to various exemptions, including:

• until 5 December 2022 in respect of crude oil transactions in products falling under CN 2709 00, where the transaction is a one-off transaction for near term delivery, or involves the performance of contracts entered into before 4 June, subject to requirements for the relevant Member States to notify the Commission;
• until 5 February 2023 in respect of transactions in certain other petroleum products (falling under CN 2710) in similar circumstances and, again, subject to notification requirements;
• the purchase, import or transfer of seaborne crude oil/petroleum products originating in a third country but loaded in, departing from, or transiting through Russia, provided that both the origin and owner of the goods are non-Russian;
• crude oil delivered by pipeline from Russia into the EU until such time as the Council of the EU decides that pipeline supplies should be subject to these restrictions; and
• essential needs of a purchaser in Russia or of humanitarian projects in Russia.

An exceptional temporary derogation may be granted in the event of interruptions to the supply of Russian crude oil by pipeline to a landlocked Member State. The competent authorities of Bulgaria and Croatia are also empowered to authorise supplies from Russia in specific circumstances.

New Article 3n of the Russia Regulation also prohibits the provision of technical assistance, brokering services, financing or financial assistance related to the transport to third countries of listed crude oil or petroleum products originating in, or exported from, Russia.

In a recent speech to the European Parliament, President Charles Michel noted that the embargo will cover 90% of oil imports from Russia into the EU by the end of 2022 and will be extended to all pipeline oil "as soon as possible".

SWIFT sanctions

Regulation 2022/879 adds Sberbank, Credit Bank of Moscow and Russian Agricultural Bank to the list of banks in Annex XIV of the Russia Regulation which are subject to SWIFT restrictions. Restrictions on access to SWIFT were originally applied to certain Russian banks in March 2022 (and are discussed in our previous blogpost). These restrictions will take effect on 14 June 2022.

Equivalent SWIFT restrictions were also imposed on an additional Belarusian bank by Council Regulation (EU) 2022/877 ("Regulation 2022/877").

Broadcasting restrictions

Regulation 2022/879 adds three additional Russian broadcasters to Annex XV of the Russia Regulation. As discussed in our previous blogpost, the following restrictions apply in respect of Annex XV entities:

• a prohibition on operators broadcasting or enabling, facilitating or otherwise contributing to broadcasting any content by the relevant entities; and
• suspension of any broadcasting licence or authorisation, transmission and distribution arrangement.

These restrictions have been expanded by Regulation 2022/879 to also include a prohibition on advertising products or services in any content produced or broadcast by the entities listed in Annex XV.

Trade sanctions

Regulation 2022/879 adds additional entities to Annex IV of the Russia Regulation. The Russia Regulation provides that Member States must refuse licences to supply military goods to Annex IV entities (Article 2(7) and 2a(7)) and may only authorise the supply of dual-use goods to Annex IV entities in certain limited circumstances (see Article 2b). Regulation 2022/877 expands the equivalent list for Belarus (amending Regulation (EC) No 765/2006).

Restrictions on provision of services

Regulation 2022/879 introduces a new Article 5n prohibiting the provision (directly or indirectly) of accounting, auditing, bookkeeping or tax consulting services, or business and management consulting or public relations services to the Government of Russia or legal persons, entities or bodies established in Russia. Exemptions apply to services that are strictly necessary for the termination of pre-existing contracts by 5 July 2022, services that are strictly necessary for the exercise of the right of defence in judicial proceedings and the right to an effective legal remedy, and services intended for the exclusive use of Russian subsidiaries of EU entities. Member States may also license the provision of services necessary for humanitarian purposes or civil society activities in Russia.

The Recitals to Regulation 2022/879 provide further detail on the services in scope of this new restriction, stating that: "…, accounting, auditing, bookkeeping and tax consultancy services cover the recording of commercial transactions for businesses and others; examination services of accounting records and financial statements; business tax planning and consulting; and the preparation of tax documents. Business and management consulting and public relations services cover advisory, guidance and operational assistance services provided to businesses for business policy and strategy and the overall planning, structuring and control of an organisation. Management fees, management auditing; market management, human resources, production management and project management consulting; and advisory, guidance and operational services related to improving the image of the clients and their relations with the general public and other institutions are all included."

Asset freeze

Council Implementing Regulation (EU) 2022/878 adds 65 individuals and 18 entities to the Ukraine-related asset freeze with effect from 3 June 2022. The Council's press release states that the 65 individuals include military staff, together with "politicians, propagandists, leading businesspersons and family members of already sanctioned individuals". The 18 entities include companies said to support the Russian armed forces and government. EU asset freezing restrictions now apply to a total of 1,158 individuals and 98 entities.

Also in relation to the asset freeze, Council Regulation (EU) 2022/880 introduces a new exemption from the asset freeze in respect of funds or economic resources that are strictly necessary for the provision of electronic communication services by EU telecommunication operators, for the provision of associated facilities and services necessary for the operation, maintenance and security of such services in Russia, in Ukraine, in the EU, between Ukraine and the EU, and for data centre services in the EU.

The EU also imposed asset freezing sanctions on a further 12 individuals and eight entities in respect of their role in ongoing internal repression and human rights abuses in Belarus. Those designations were effected by Council Implementing Regulation (EU) 2022/876. The newly designated persons include state officials, businesspeople, members of the judicial branch and propagandists, together with Belarus's main potash producer and other companies manufacturing tobacco and public transport vehicles.

Other amendments to the Russia Regulation

In addition to the key elements of the sixth package outlined above, Regulation 2022/879 makes certain other amendments to the provisions of the Russia Regulation. We summarise the principal changes below:

• Regulation 2022/879 updates Annex XXI of the Russia Regulation which lists goods which generate significant revenues for Russia. Annex XXI goods are subject to import restrictions, as set out in Article 3i of the Russia Regulation (and as discussed in our previous blogpost);
• amendments to the Article 5aa prohibition on engaging in transactions with certain Russian state-owned entities (see our previous blogpost for details of the Article 5aa restrictions) to add exemptions in respect of (i) the receipt of payments "due by" the listed entities pursuant to contracts performed before 15 May 2022, (ii) transactions strictly necessary for the wind-down, by 5 September 2022, of a joint venture or similar legal arrangement concluded before 16 March 2022 involving a listed person, and (iii) transactions relating to the provision of electronic communication services and certain other services to a listed entity;
• amendments to the grounds on which Member State competent authorities may authorise the acceptance of deposits over the €100,000 threshold (see our previous blogpost for a summary of the restrictions regarding acceptance of deposits) to include the payment of fees or service charges for the routine holding or maintenance of frozen funds or economic resources (Article 5c);
• an amendment to the prohibition on the sale of securities to Russian nationals (discussed here) to exempt nationals or residents of countries within the European Economic Area or Switzerland (Article 5f);
• the existing restrictions on the provision of trust and company services to Russia (Article 5m – see our previous blogpost for further details) include a prohibition on acting as, or arranging for another person to act as, a trustee, nominee shareholder, director, secretary or a similar position for a trust or similar arrangement falling within Article 5m. This has been amended so that the prohibition will take effect on 10 July 2022, and similarly the 'wind down' period for terminating services relating to the provision of registered office and management services to the targeted types of trusts has been extended to 10 July 2022. Amendments have also been made to the licensing grounds applicable to these activities under Article 5m, including to add the possibility of wind-down activities being licensed until 5 September 2022, and to enable the licensing of trusts with certain specified purposes, including the administration of occupational pension schemes, insurance policies and employee share schemes;
• amendments have been made to various existing licensing grounds to note that licences cannot be granted in respect of transactions which are prohibited by the new oil embargo measures; and
• the United Kingdom and South Korea have been added to the list of "partner countries" in Annex VIII of the Russia Regulation. Amongst other matters, the export of dual use goods can be licensed if they are for non-military use and intended for the exclusive use of entities owned, or solely or jointly controlled, by a company incorporated in a partner country.

EU sanctions enforcement

In other recent EU developments, on 25 May, the European Commission announced its proposal to add the violation of EU sanctions to the list of "EU crimes". The detailed proposal explains that this would allow the EU to set a common basic standard on criminal offences and penalties across the EU, making it easier to prosecute and punish sanctions violations in all Member States. If agreed by Member States, the Commission will present a legislative proposal.

The Commission has also published a proposed Directive on asset recovery and confiscation intended to: (i) extend the mandate of asset recovery offices to swiftly trace and identify assets of individuals and entities subject to EU sanctions; (ii) expand the possibility to confiscate assets from a wider set of crimes, including the violation of sanctions (once the above proposal on extending the list of EU crimes is approved); and (iii) establishing asset management offices in all EU Member States to ensure that frozen properly does not lose value, enabling the sale of frozen assets that could easily depreciate or are costly to maintain.

The Commission has also published a Q&A document in relation to these proposals.

The new EU legislation passed in relation to the sixth sanctions package (and described above) also amends the requirement for Member States to provide for effective, proportionate and dissuasive penalties in respect of sanctions breaches to: (i) expressly refer to criminal penalties "as appropriate", and (ii) to state that "Member States shall also provide for appropriate measures of confiscation of the proceeds of such infringements", supporting the Commission's stated desire to "step up" enforcement of sanctions breaches.

EU FAQs

The EU has also continued to update its FAQ page relating to the Russian sanctions, including additions to the FAQs on asset freezing, public procurement, and engagement with state-owned enterprises.  Updates have also been made to a number of other FAQ sections.

UK

Additional asset freeze designations

Evraz plc was added to the UK's asset freeze list on 5 May (following a period of some doubt regarding its status, as HMG's reasons for listing Mr Abramovich referred to his control of Evraz plc), and twelve individuals were added to the UK's asset freeze list on 13 May. At the same time, a General Licence was introduced relating to the continuation of business with Evraz's North American subsidiaries.

On 19 May, OFSI announced the designation of three Russian airlines as subject to an asset freeze: JSC Rossiya Airlines, JSC Ural Airlines and PJSC Aeroflot.

General licences ("GLs")

As noted above, on 5 May OFSI issued GL INT/2022/1710676 in relation to Evraz plc's North American subsidiaries.

On 17 May, a 'wind down', basic needs and insolvency licence (GL INT/2022/1678476) was issued in respect of Amsterdam Trade Bank NV, a subsidiary of Alfa Bank JSC.

On 23 May, OFSI published a GL permitting various travel activities (GL INT/2022/1839676). UK nationals or UK incorporated companies may purchase tickets from PJSC Aeroflot, JSC Rossiya Airlines, JSC Ural Airlines, or Russian Railways (or entities owned or controlled by those designated persons that provide rail or air passenger services) for flight or rail journeys originating in, or within, Russia. The GL also permits activity reasonably necessary to effect the purchase of such tickets. The licence expires on 23 May 2023.

OFSI published a new GL (GL INT/2022/1875276) on 30 May permitting the continuation of business of operations involving the provision of "civilian telecommunications services" to ZAO TransTeleCom Company (the "DP"). The permitted services are "electronic communication network" and "electronic communications service" as defined in the Communications Act 2003 but expressly exclude news reporting and journalistic services. The licence permits a person (other than a designated person) to make payments to or from the DP,  to make payments to or from any third party necessary to the continuation of contracts or other obligations between the person and the DP, and any activity reasonably necessary to effect the receipt or provision of civilian telecommunication services from the DP. The GL includes a requirement to provide written notice to HM Treasury in respect of activities carried out under the GL, and a requirement to keep accurate, complete and reasonable records for a minimum of six years. The GL expires on 30 May 2024.

On 30 May, the Board of Chelsea Football Club ("Chelsea FC") announced that its sale had been completed. On the same day, OFSI issued GL INT/2022/183876 which authorises certain conduct by interim managers and trustees appointed by the Charity Commission. On 31 May, OFSI confirmed that GL INT/2022/1327076, relating to the operation of Chelsea FC, had expired and has not been extended.

FCA guidance on reporting sanctions evasion

On 17 May, the FCA published an update on reporting sanctions evasion, confirming that they wish to hear about any sanctions evasion issues, or weaknesses in sanctions controls, where they relate to any firm or person listed on the FCA's registers, or to a UK-listed security. This includes information about: (i) any suggestion that firms have poor sanctions controls, (ii) actual or suspected sanctions breaches, and (iii) any method being used by firms or individuals to breach the sanctions regime. The relevant webpage contains a form which can be used to provide information.

Updated monetary penalties guidance

On 8 June, OFSI confirmed that the amendments to the monetary penalties regime introduced by the Economic Crime Act (and discussed in our previous briefing) would come into force on 15 June 2022. As a reminder, this includes a power for OFSI to impose civil monetary penalties in respect of sanctions breaches on a strict liability basis (i.e. irrespective of any knowledge or suspicion). OFSI has published revised guidance on its approach to enforcement and monetary penalties, which will apply to any potential breach taking place on or after 00:00 on 15 June 2022.

We will publish a more detailed briefing on the amended guidance in due course.