Sanctions Tracker – Update on Sanctions Responses to the Situation in Ukraine

On 23 February, the EU approved a sanctions package that designates the 351 members of the Russia State Duma, as well as 27 individuals and entities who are said to represent: 1) the decision-makers responsible for “threatening Ukraine and entities financially and materially supporting, or benefiting from them“; 2) persons operating in the defence sector for having played a role in the invasion and destabilisation actions; 3) those who engage in a “disinformation war” against Ukraine; and 4) banks that finance Russian decision-makers, military apparatus and other operations in Donetsk and Luhansk. Additional sectoral and trade sanctions have also been introduced. We summarise the new measures below.

Asset freezes

The new sanctions designate 23 individuals, including members of the Russian government, senior military personnel, people working for “pro-Russian” media and certain business people. Four entities have also been designated, namely the Internet Research Agency, Bank Rossiya, PROMSVYAZBANK, and VEB.RF.

The designation of government ministers may have implications for dealings with any agencies which could be said to be controlled by the relevant ministers (as it has done in respect of other sanctions regimes such as Belarus and Afghanistan), as the restrictive measures will also extend to any entity that is owned or controlled by a designated person.

Although the restrictive measures have immediate effect, the EU has introduced a mechanism which allows member states to authorise the release of certain frozen funds or economic resources belonging to Bank Rossiya, PROMSVYAZBANK, and VEB.RF, or the making available of funds or economic resources to them, where necessary in order to terminate pre-existing contracts or operations with these entities, including correspondent banking relations, by 24 August 2022.

A separate EU Decision and Regulation added 336 members of the Russian State Duma to the EU asset freeze list.

Sectoral restrictions

In addition to asset freezes, the EU has also introduced sectoral restrictions in respect of financing for Russia, the Russian government, the Central Bank of Russia and any entity acting on behalf or at the direction of the Central Bank of Russia (the “Sectorally Sanctioned Entities”). Council Decision (CFSP) 2022/264 & Council Regulation (EU) 2022/262, which amended the previous regulation in place in respect of Russian sectoral sanctions (Regulation (EU) 833/2014) introduces restrictions on Russian sovereign debt, such that the direct or indirect purchase or sale of, provision of investment services for or assistance in the issuance of, or any other dealing in transferable securities and money-market instruments issued after 9 March 2022 by the Sectorally Sanctioned Entities is prohibited. There are also prohibitions on r the making of  new loans and credit (of any tenor) to Sectorally Sanctioned Entities after 23 February 2022 (although some exceptions apply). In contrast to the existing EU Russian sectoral sanctions, there is no maturity threshold in respect of the securities to which the sanctions apply.

The lending restrictions will not apply to drawdown or disbursements made under a contract concluded before 23 February 2022, however, provided that certain conditions are met (namely that (a) all the terms and conditions of such drawdown or disbursements: (i) were agreed before 23 February 2022; and (ii) have not been modified on or after that date; and (b) before 23 February 2022 a contractual maturity date has been fixed for the repayment in full of all funds made available and for the cancellation of all the commitments, rights and obligations under the contract).

The definition of transferable securities has been amended so as to now include “any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities” (the underlined language being new). It is important to note that this amendment applies to all the existing sectoral sanctions restrictions, i.e. not only those newly imposed in respect of the Sectorally Sanctioned Entities. It therefore has the potential to expand the sectoral sanctions which have been in force since 2014 in respect of certain listed Russian state-owned banks and other entities, in terms of the types of derivative transactions within scope of those restrictions.

Trade and investment restrictions

The EU has introduced a ban on trade between Donetsk and Luhansk and the EU, with measures which are very similar to the ones that are in place in respect of Crimea.

These include an import ban on goods (and an ancillary restriction on financing or financial assistance, insurance or reinsurance of such imports), and a ban on the export of goods suited to the transport, telecommunications, energy or oil, gas and mineral sectors. There are certain exceptions to these restrictions to allow for the winding down of trade contracts concluded before 23 February 2022 and to allow for the import of goods made available to the Ukrainian authorities for examination.

The EU has introduced prohibitions on certain investments in Donetsk and Luhansk (in respect of the acquisition of real estate, the acquisition/extension of  ownership or control of entities in the territories, granting or being part of any arrangement to grant a loan or credit, or otherwise providing financing to an entity in Donetsk and Luhansk, creating a joint venture in these territories or with an entity in these territories, or providing investment services directly related to any of these activities).

The EU sanctions also include trade restrictions on a long list of goods set out in Annex II of Council Regulation (EU) 2022/263. These have been selected because they are suited for use in the transport, telecommunications, and energy sectors and for prospecting, exploration and production of oil, gas and mineral resources (the “Restricted Sectors”), although the restrictions will apply to their supply to Donetsk and Luhansk irrespective of their intended purpose. As with the trade restrictions in respect of Crimea, the new measures also include a ban on the provision of technical assistance or brokering services related to the goods and technology listed in Annex II, or related to the provision, manufacture, maintenance and use of such items to any natural or legal person, entity or body in the specified territories or for use in the specified territories; and financing or financial assistance in relation to the above.

Further sector-specific trade restrictions are also included:

• a prohibition on the provision of technical assistance, or brokering, construction or engineering services directly relating to infrastructure in the Restricted Sectors; and
• a prohibition on the provision of services directly related to tourism activity.

There are certain exceptions in place (including a wind down period until 24 August 2022 for any obligations arising under a contract executed before 23 February 2022) and licences may be available in respect of certain of the restrictions in limited circumstances (namely for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety, including the safety of existing infrastructure, or the environment).

Further expected developments

In a statement issued on 24 February, the Presidents of the European Council and the European Commission announced an extraordinary meeting of the European Council on Thursday (24 February) evening to discuss further restrictive measures which will “impose massive and severe consequences on Russia for its action, in close coordination with our transatlantic partners“, with a further sanctions package expected to be finalised and adopted swiftly.

UK

Our update regarding recent Ukraine-related sanctions measures imposed by the United States, the United Kingdom, the European Union, and Australia earlier this week is available here, although we note that the sanctions landscape is expected to continue to shift and we will continue to provide updates as the situation in Ukraine develops.

As mentioned in our previous briefing,  the UK has announced that it will introduce sanctions against members of the Duma and Federation Council who voted to recognise the independent of Donetsk and Luhansk and that territorial sanctions currently imposed on Crimea will be extended to cover Donetsk and Luhansk in the “coming week”, such that “no UK individual or business will be able to deal with this territory until it is returned to Ukrainian control”. As of the time of this post (Thursday, 24 February), however, no further designations have been published pursuant to the Russia (Sanctions) (EU Exit) Regulations 2019.

With developments overnight, it is expected that additional sanctions will be announced later today following an emergency meeting of the Cabinet Office Briefing Room A (COBRA). The extent of such sanctions, and when they will come into effect, is not yet clear although they are expected to contain measures that mirror the EU sanctions announced on 23 February and described above.