Sanctions tracker: further UK and EU sanctions measures introduced

New Russian sanctions measures have continued to be introduced in the last few days. In this update, we summarise the UK’s new sanctions legislation in relation to Russian gold, coal and oil and the provision of services (among other things), as well as the EU’s new “maintenance and alignment” sanctions package.

UK 

New UK legislation

The Russia (Sanctions) (EU Exit) (Amendment) (No. 14) Regulations 2022 (the “Amending Regulations”) came into force on 21 July and amend the UK’s principal Russia sanctions legislation, the Russia (Sanctions) (EU Exit) Regulations 2019 (the “UK Regulations”). The Amending Regulations add a number of new prohibitions to the UK’s current sanctions regime, including the following:

• restrictions relating to “G7 dependency and further goods” (“Schedule 3E Goods”);
• restrictions on the import of Russian oil;
• restrictions on the import of Russian gold;
• restrictions on the import of Russian coal; and
• the provision of professional and business services.

We have summarised the key points in relation to each area in the following sections of this briefing.

Restrictions on Schedule 3E Goods (in force from 21 July 2022)

The Amending Regulations introduce restrictions in respect of a wide range of goods, as listed in the new Schedule 3E to the UK Regulations. The list of Schedule 3E Goods is very broad, covering products including plants, chemicals, machinery and components which may be used in a wide range of different industries and sectors. According to the Explanatory Memorandum: “these goods have been identified as items of significant importance to the Russian economy and goods for which Russia particularly depends on the UK and G7 partners. By prohibiting Russian access to certain critical intermediate and vulnerable goods that power its economy, in particular the manufacturing sector, the UK will further isolate Russia’s economy and key industries that directly or indirectly support the war in Ukraine. The list of goods is wide-ranging and includes chemicals, materials, machinery goods and electrical appliances”.

It is prohibited to export Schedule 3E Goods to, or for use in Russia. The Amending Regulations also prohibit the direct or indirect supply or delivery of such goods from a third country to a place in Russia, and the making available of Schedule 3E Goods to a person connected with Russia or for use in Russia. For the purposes of the UK Regulations, a person is connected with Russia if (in respect of entities) they are incorporated or domiciled in, or constituted under the law of, Russia. An individual is connected with Russia if they are ordinarily resident or located in Russia.

The Amending Regulations also contain related restrictions on technical assistance, financial services and brokering services.

There is an exemption in place in respect of Schedule 3E Goods necessary for diplomatic/consular purposes or which are the personal effects of diplomatic/consular staff. Licences are also available in certain circumstances, for example for humanitarian reasons.

Restrictions on Russian oil (in force from 31 December 2022) 

The Amending Regulations provide that, from 31 December 2022, it will be prohibited to: (i) import oil and oil products consigned from or originating in Russia, (ii) directly or indirectly acquire such products which originated in or are located in Russia, with the intention of those goods entering the UK, and (iii) supply or deliver oil and oil products from a place in Russia to the UK. The Amending Regulations also contain related restrictions on technical assistance, financial services and brokering services.

The list of relevant items appears in Schedule 3F to the UK Regulations.

There is an exemption in place in respect of oil and oil products originating in a country which is not Russia, which are not owned by a person connected with Russia and which are only being loaded in, departing from, or transiting through Russia.

Restrictions on Russian gold (in force from 21 July 2022)

The new restrictions introduced by the Amending Regulations prohibit the import of gold originating from Russia (where exported from Russia on or after 21 July 2022), the acquisition of gold which originated in, or is located in, Russia with the intention of the gold entering the UK, and the supply or delivery of gold from a place in Russia or from a third country to the UK. The items subject to gold restrictions are listed in Schedule 3G to the UK Regulations and comprise gold, waste and scrap gold and gold coin.

The Amending Regulations also introduce related restrictions on technical assistance, financial services and brokering services.

There is an exemption in place in respect of items necessary for diplomatic/consular purposes or which are the personal effects of diplomatic/consular staff.

Restrictions on Russian coal (in force from 10 August 2022)

The Amending Regulations also introduce restrictions relating to Russian coal and coal products with effect from 10 August 2022. They take an equivalent form to the oil and gold restrictions referred to above in that they cover the import of coal and coal products consigned from or originating in Russia, along with the acquisition, supply and delivery of such products to the UK. The Amending Regulations also contain related restrictions on technical assistance, financial services and brokering services.

The list of relevant coal products is set out in Schedule 3H to the UK Regulations.

Professional and business services (in force from 21 July 2022 but subject to a wind-down period for prior contracts)

The Amending Regulations introduce a prohibition on the provision of the following services to a person connected with Russia:

• accounting services, which include:
  • accounting review services (i.e. review of annual and interim financial statements);
  • compilation of financial statement services;
  • other accounting services such as attestations, validation, preparation services of pro forma statements; and
  • bookkeeping services;
• business and management consulting services, meaning advisory, guidance and operation assistance services provided for business policy and strategy and the overall planning, structuring and control of an organisation. This includes management auditing, market management, human resources, production management and project management consulting; and
• public relations services, meaning services related to improving the image of clients and their relationship with the general public and other institutions.

The Amending Regulations contain an exemption in relation to any act done by a person (“P”): (i) in satisfaction of an obligation: (a) in respect of the provision of professional and business services by P where those services are provided in relation to the discharge or compliance with UK statutory or regulatory obligations; (b) arising under a contract concluded before 20 July provided that the relevant act is carried out within a month and with ten working days’ advance notice to the Secretary of State; and (ii) that is necessary for the official purposes of a diplomatic mission or consular post in Russia.

A person connected with Russia for these purposes is (a) an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia, (b) an individual who is, or an association or combination of individuals who are, located in Russia, (c) a person, other than an individual, which is incorporated or constituted under the law of Russia, or (d) a person, other than an individual, which is domiciled in Russia.

Other amendments

Certain of the existing licensing grounds and exemptions in the UK Regulations have been expanded to cover the new trade restrictions outlined above. The detail of the UK Regulations should be checked in each case, as not all exemptions/licensing grounds apply in all circumstances.

The Amending Regulations also introduce a number of other minor amendments to the UK Regulations, including:

• a new exemption permitting the provision of technical assistance in relation to an aircraft owned, chartered or operated by a person connected with Russia at a UK airport, provided the assistance is not for the purposes of facilitating a transfer of ownership of the aircraft or any of its component parts, or a change in the operator of the aircraft;
• the existing restrictions on energy-related goods have been expanded as follows:
  • to cover the supply of such goods to, or for use in, Russia (the previous version of the UK Regulations only referred to the supply of such goods for use in Russia);
  • to prohibit the supply or delivery of such goods from a third country to a place in Russia (as opposed to such supply needing to be “for use in Russia”);
  • to introduce a new prohibition on making energy-related goods available to a person connected with Russia;
  • to make certain minor amendments to the wording of the restrictions on technical assistance, financial services and brokering services; and
  • to expand the prohibition on providing “relevant energy services” to cover all oil or gas exploration or production projects in Russia (as opposed to only deepwater, Arctic and shale projects); and
• exemptions in relation to the restrictions on financial services and brokering activity in relation to energy-related goods in respect of:
  • the provision of insurance or reinsurance to a person not connected with Russia with regard to that person’s activities outside the energy sector in Russia; and
  • activity that is necessary for the purposes of a UK petroleum project.

New UK designations

On 26 July, the UK added 42 further entries to its asset freeze list. The related press release explains that the new targets include:

• the Prime Minster and First Deputy Chairman of the “Donetsk & Luhansk People’s Republics”;
• 29 regional governors from across Russia;
• Russia’s Minster and Deputy Minister of Justice; and
• family members of an oligarch.

The UK has also imposed sanctions on two groups of Syrian individuals: one group responsible for recruiting Syrians to fight in Ukraine and another group which supports the current Syrian regime.

EU 

Maintenance and alignment package – summary

On 21 July the Council of the EU announced its adoption of a new “maintenance and alignment” sanctions package intended to tighten existing economic sanctions against Russia, perfect their implementation and strengthen their effectiveness. The key elements of the package, as summarised in the Council’s press release, are as follows:

• restrictions on the import of Russian gold;
• extension of the list of items which may contribute to Russia’s military and technological enhancement;
• extension of existing port access ban;
• extension of prohibition on accepting deposits;
• clarifications in relation to areas including public procurement, aviation and justice;
• extension of the exemption for transactions for agricultural products and the transport of oil to third countries;
• additional asset freeze designations; and
• strengthened reporting requirements.

Legislation effecting these changes was also published on 21 July; we have summarised the key points in relation to each area in the following sections of this briefing.

Import restrictions relating to gold

The new restrictions relating to gold (along with various other elements of the new sanctions package) were introduced by Council Regulation (EU) 2022/1269 (“Regulation 2022/1269”) which amends Regulation (EU) 833/2014 (the “EU Regulation”).

Regulation 2022/1269 introduces a new Article 3o into the EU Regulation, which prohibits the direct or indirect purchase, import or transfer of gold (as listed in Annex XXVI to the EU Regulation) if it originates in Russia and has been exported from Russia into the EU or any third country after 22 July 2022. The restrictions also apply to the products listed in Annex XXVII (gold jewellery and goldsmiths’ silversmiths’ wares) where they originate in Russia and have been exported from Russia into the EU after 22 July 2022.

Regulation 2022/1269 also introduces related restrictions on the provision of technical assistance, brokering services, financing and financial assistance.

Exemptions are available in respect of the official purposes of diplomatic missions etc., and to goods listed in Annex XXVII for the personal use of individuals travelling to EU where the items are owned by the individuals in question and not intended for sale. Competent authorities may also authorise the transfer or import of cultural goods which are on loan in the context of formal cultural cooperation with Russia.

The measures in Regulation 2022/1269 came into force on 22 July 2022. The Commission has published new FAQs on these restrictions.

Trade sanctions on military goods / goods which might contribute to Russia’s military and technological enhancement 

Amendments have been made to the following Annexes of the EU Regulation:

• new entities have been added to Annex IV (which lists various entities subject to restrictions relating to the supply of dual-use/military goods etc.); and
• additions and one amendment have been made to Annex VII which lists goods and technology which might contribute to Russia’s military and technological enhancement, or the development of the defence and security sector.

Regulation 2022/1269 also removes the previous exemptions allowing the transfer of dual-use and military goods intended for ensuring cyber security and information security (previously found in Articles 2(3)(f) and 2a(3)(f) of the Russia Regulation) and replaced this with a licensing ground (in Articles 2(4)(h) and 2a(4)(h)).

Ports ban

Regulation 2022/1269 extends the existing restrictions access to ports for vessels which are Russian-flagged, or were Russian flagged as at 24 February 2022, to also cover locks in the territory of the EU (see Article 3ea(1) of the Russia Regulation). These measures take effect after 29 July 2022.

Member States may authorise port or lock access to any vessel that has changed its Russia flag/registration to that of another state if the change was required by contract and access is necessary for the unloading of (non-restricted) goods strictly necessary for the completion of renewable energy projects in the EU.

Deposit restrictions

The existing restrictions on the acceptance of deposits (in Article 5b of the EU Regulation) have been extended to cover deposits from any non-EU entity directly or indirectly owned as to more than 50% by Russian nationals or residents. This is an important change, clarifying the position after two rounds of different Commission FAQs on the applicability of the deposit restrictions to non-Russian non-EU companies owned by Russian persons.

The equivalent restrictions on the provision of cryptoasset wallet, account or custody services have not been amended and therefore appear to continue to only apply to Russian nationals/residents and Russia-incorporated entities (but subject to the potential application of the circumvention restrictions, which has been flagged in the FAQs).

Regulation 2022/1269 has also removed the exception which previously covered the acceptance of deposits necessary for non-prohibited cross-border trade in goods and services between the EU and Russia (former Article 5b(4)), and instead introduced an additional licensing ground to the same effect.

Clarifications: public procurement, aviation and justice, agricultural transactions, transport of oil to third countries, and other amendments to the EU Regulation

Regulation 2022/1269 makes various minor amendments to the list of public procurement contracts which fall within scope of the prohibitions in Article 5k of the EU Regulation.

Regulation 2022/1269 also makes a number of other minor amendments/clarifications, including as set out below.

• A new exemption has been added to the existing restrictions on the supply to Russia of aviation and space goods, in respect of the exchange of information aimed at establishing technical standards in the framework of the International Civil Aviation Organisation (Article 3c(9)).
• The existing luxury goods restrictions are now subject to an exemption relating to the personal use of individuals travelling from the EU (Article 3h(3a)).
• The restrictions relating to goods listed in Annex XXIII of the EU Regulation (goods which could contribute to the enhancement of Russian industrial capacities) are subject to a licensing ground relating to medical/pharmaceutical/humanitarian purposes or the fulfilment of Member State maintenance obligations in areas under a long term lease agreement with Russia (Article 3k(5)).
• Regulation 200/1269 makes various amendments to the exemptions and licensing grounds applicable to the prohibition on transactions with the Russian entities listed in Annex XIX of the EU Regulation (Article 5aa(3)). These include transactions which are necessary for the purposes of justice (i.e. to ensure access to judicial, administrative or arbitral proceedings in a Member State) and transactions for agricultural products and the transport of oil to third countries.
• The exemption for nationals or residents of the EU has been extended to nationals and residents of the EEA or Switzerland for the purposes of Article 5e of the EU Regulation (which prohibits the provision by central securities depositories of certain services relating to transferable securities to Russian persons).
• The prohibitions relating to the provision of credit rating services have been amended to apply to the provision of services “to or on” (emphasis added) Russian persons (Article 5j).
• Regulation 2022/1269 expands the exemption in the trust services restrictions in Article 5m (described in our previous blogpost) to cover trustors or beneficiaries who are nationals/residents of the EEA or Switzerland (in addition to the EU, as originally drafted). An equivalent amendment has also been made to the accounting services restrictions in Article 5n.
• New (largely reordered/reformatted) versions of Annexes X (goods and technology suited for use in oil refining and liquefaction of natural gas) and XXIII (goods which could contribute in particular to the enhancement of Russian industrial capacities) have been added to Regulation 833/2014.

Additional asset freeze designations

EU asset freezing measures were imposed on a further 54 individuals and ten entities in connection with the new sanctions package. The listed individuals include senior members of the political or cultural establishment along with military leaders, businesspeople and members of the Nightwolves (a nationalist motorcycle club). As set out in the Council’s press release, the sanctioned entities include Sberbank, the Nightwolves, companies operating in military or shipbuilding, companies involved in the stealing of Ukrainian grain and entities involved in the dissemination of propaganda. The EU has also listed six individuals and one entity said to have been involved in the recruitment of Syrian mercenaries to fight in Ukraine.

The full list of additions can be found in the Annexes to Council Implementing Regulation (EU) 2022/1270 and Council Implementing Regulation (EU) 2022/1274.

Council Regulation (EU) 2022/1273 (discussed further below) has also introduced new licensing grounds specifically relating to Sberbank. Specifically, under amended Article 6(b) of Regulation 269/2014, competent authorities may authorise the release of frozen funds or economic resources belonging to Sberbank or the making available of funds or economic resources to Sberbank in the following circumstances:

• where necessary for the termination by 22 August 2023 of pre-21 July operations; or
• where necessary for the completion, by 31 October 2022 of an ongoing sale and transfer of proprietary rights directly or indirectly owned by Sberbank in an EU entity.

The EU’s asset freeze now applies to a total of 1212 individuals and 108 entities. A further four individuals and one entity have also been added to the EU’s separate Syria asset freeze list in connection with the recruitment of Syrian mercenaries.

Reporting requirements and other amendments to asset freeze (in force from 21 July)

Council Regulation (EU) 2022/1273 (“Regulation 2022/1273”) was published on 21 July and amends Regulation (EU) No. 269/2014 (the “Asset Freeze Regulation”).

Regulation 2022/1273 amends the information provisions in Article 8 of the Asset Freeze Regulation. The previous iteration of this provision provided that “without prejudice to the applicable rules concerning reporting, confidentiality and professional secrecy” individuals and entities are required to supply information to Member State competent authorities which would facilitate compliance with the Asset Freeze Regulation. Article 8 is now expressed as applying “notwithstanding” the applicable rules mentioned above (i.e. it seeks to override such rules).

Article 8 has also been extended to cover information about funds and economic resources within the EU which belong to or are owned, held or controlled by designated persons and have not been treated as frozen by persons who were required to freeze them, thereby effectively imposing an obligation to report suspected breaches of the Russia asset freeze. Regulation 2022/1273 also introduces new provisions relating to the sharing of information between competent authorities and enforcement agencies.

Regulation 2022/1273 also introduces a new reporting obligation for designated persons. The new Article 9 of the Asset Freeze Regulation states that designated persons are required to report funds or economic resources belonging to, owned, held or controlled by them to the competent authority of the Member State where those funds/economic resources are located. Designated persons are also required to cooperate with any verification of such information. The reports must be made before 1 September 2022, or within six weeks of their date of designation, whichever is the latest. However, the obligation will not apply until 1 January 2023 with regard to funds or economic resources located in a Member State that had laid down a similar reporting obligation under national law before 21 July 2022.

Failure to comply with the reporting obligation will be considered as a circumvention of the asset freeze.

Regulation 2022/1273 also introduces various new licensing grounds into the Asset Freeze Regulation, in relation to the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment. The existing licensing ground relating to the sale and transfer of proprietary rights in an EU entity directly or indirectly owned by a designated person (discussed in our previous blogpost) has also been expanded to apply to transfers taking place by the later of 31 December 2022 or six months after the relevant entity’s designation (having previously been applicable sales/transfers taking place by 9 October 2022).