EU’s new sanctions against Russia employ anti-circumvention tool

They sanctions are aimed at fulfilling three key objectives: degrade Russia’s military capability to wage its war of aggression against Ukraine, deprive the Kremlin from the revenues it is financing the war with, and impose costs on Russia’s economy. The 11^th package has these key elements according to the EU:

Trade measures

• New anti-circumvention tool: this will allow the EU to restrict the sale, supply, transfer or export of specified sanctioned goods and technology to certain third countries whose jurisdictions are considered to be at continued and particularly high risk of circumvention. This new “anti-circumvention” tool will be an exceptional and last resort measure when other individual measures and outreach by the EU to concerned third countries have been insufficient to prevent circumvention.
• Extension of the transit prohibition for certain sensitive goods (e.g. advanced technology, aviation-related materials) exported from the EU to third countries, via Russia. This will also reduce the risk of circumvention.
• Addition of 87 new entities to the list of those directly supporting Russia’s military and industrial complex in its war of aggression against Ukraine. They are subject to tighter export restrictions for dual-use and advanced technology items. In addition to the Russian and Iranian entities already listed, this now also covers entities registered in China, Uzbekistan, the United Arab Emirates, Syria and Armenia.
• Restriction on the exports of further 15 technological items found on the battlefield in Ukraine or equipment needed to produce such items. The EU is working in close coordination with partners and are adding Switzerland to the list of our partner countries.
• Tightening restrictions on imports of iron and steel goods by requiring importers of sanctioned iron and steel goods that have been processed in a third country to prove that the inputs used do not come from Russia.
• Prohibition to sell, license, transfer or refer intellectual property rights and trade secrets used in connection with restricted goods to prevent the sanctioned goods from simply being manufactured outside the EU.
• Extension of the ban on export of luxury cars to all new and second-hand cars above a certain engine size (> 1.900 cm³), and all electric and hybrid vehicles.
• A full ban on certain types of machinery components.
• Simplifying the structure of the industrial goods annex, by listing products subject to restrictions in one single section and with broader product definitions, to better identify goods subject to export bans and reduce circumvention of sanctions by misclassification.

Transport measures

• A full ban on trucks with Russian trailers and semi-trailers from transporting goods to the EU. This will clamp down on the circumvention of the prohibition for Russian freight road operator to carry goods in the EU.
• Prohibition to access EU ports for vessels that engage in ship-to-ship transfers suspected to be in breach of the Russian oil import ban or G7 Coalition price cap.
• Prohibition to access EU ports for vessels if a vessel does not notify the competent authority at least 48 hours in advance about a ship-to-ship transfer occurring within the Exclusive Economic Zone of a Member State or within 12 nautical miles from the baseline of that Member State’s coast.
• Prohibition to access EU ports for vessels which manipulate or turn off their navigation tracking system when transporting Russian oil subject to the oil import ban or G7 price cap.

Energy measures

• End of the possibility to import Russian oil by pipeline for Germany and Poland.
• Insertions of strict and very targeted derogations to the existing export bans to enable the maintenance of the CPC (Caspian Pipeline Consortium) pipeline which transports Kazakh oil to the EU through Russia.
• Extension of the exception to the oil price cap for Sakhalin oil for Japan (until 31 March 2024).

Additional clarifications

• Revision of the listing criterion for individuals/entities engaged in circumventing EU sanctions, including those significantly frustrating EU sanctions.
• Addition of a new listing criterion to allow the designation of persons and entities operating in the Russian IT sector with a license from Federal Security Service of the Russian Federation (FSB) or the Russian Ministry of Industry and Trade.
• Insertion of a derogation allowing the sale of proprietary rights in a Russian joint venture co-owned with a listed person.
• Insertion of a derogation allowing the disposal of certain types of securities held with specified listed entities.
• Insertion of certain clarifications in the provision on information sharing between competent authorities and regarding the respect of the confidentiality of the communications between lawyers and their clients in the context of reporting obligations.
• Insertion of a derogation allowing the provision of services required for the establishment of a firewall removing the control by a listed person over the assets of an EU entity.
• Insertion of an exemption for the provision of pilot services in specific circumstances.

At the heart of this latest package is the attempt to target attempts to circumvent the existing sanctions measures, in particular the G7 Price Cap initiative. Many questions have already been raised in relation to the interpretation of certain provisions, in particular, the new Articles 3eb and 3ec which empower EU Member State authorities to refuse vessels’ access to ports and locks in certain instances.

..said Ray-Shio Ho, energy lawyer at global law firm Reed Smith.

“It should also be noted that the lists of restricted goods have been reformulated and widened to some extent by removing CN code references to specific goods at a 6 to 8 digit level, and consolidating some of them to a 4 digit CN Code level. In other words, all goods under that 4 digit CN Code heading would now be caught by the relevant restrictions. It is therefore crucial for market participants to revisit their sanctions checks to ensure that the new lists do not impact existing (or future) trade”, added.