Russia – Ukraine War: Sanctions *update*

Key recent developments are detailed below but please note there may be further sanctions which impact.

US sanctions

On 21^st February, President Biden signed a new Executive Order “Blocking Property of Certain Persons and Prohibiting Certain Transactions With Respect to Continued Russian Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine”.

This Executive Order focusses on the so-called Donetsk People’s Republic and Luhansk People’s Republic Region of Ukraine (the “Covered Regions”). Full details of the Executive Order can be found here.  The EO prohibits (a) new investment in the Covered Regions (b) the import of good, services, technology from these regions to the US; (c) export of goods, services or technologies from the US or by a US person to these regions.  The US is also empowered to sanction any person operating in these regions.

Amongst the General Licenses issued:

1. General License 17 allows the wind down of certain activities involving the Covered Regions until March 23^rd.
2. General License 18 authorises the exportation or re-exportation of agricultural commodities, medicine, medical devices, replacement parts and components to the Covered Regions.

On 22^nd February, the US imposed sanctions against the Russian financial services sector, sanctioning two Russian state-owned financial institutions, imposing additional restrictions on Russian sovereign debt and making significant additions to the SDN list, including the addition of five vessels.

On 24^th February the US announced the sanctioning of Russia’s two largest banks (Sberbank and VTB Bank) and almost 90 financial institution subsidiaries.  Further, and pursuant to Directive 3 of Executive Order 14024, OFAC expanded Russia related debt and equity restrictions to additional companies critical to the Russian economy (prohibiting transactions and dealings by US persons or within the US in new debt of longer than 14 days maturity and new equity).  Further details can be found here:  U.S. Treasury Announces Unprecedented & Expansive Sanctions Against Russia, Imposing Swift and Severe Economic Costs | U.S. Department of the Treasury

On 28^th February OFAC prohibited United States persons from engaging in transactions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation.  Further Russian individuals and companies have also now been blocked as announced on 3^rd March.

Pursuant to the Executive Order of 8^th March, the US has prohibited:

• the importation into the United States of the following products of Russian Federation origin: crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products;
• new investment in the energy sector in the Russian Federation by a United States person, wherever located; and
• any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.

General License 16 provides that all transactions prohibited by the Executive Order which are ordinarily incident and necessary to the importation into the United States of crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products of Russian Federation origin pursuant to written contracts or written agreements entered prior to 8^th March 2022 are authorized through 12:01 a.m. eastern daylight time 22^nd April 2022.

On 11^th March a new round of sanctions was announced targeting Russian and Kremlin elites, oligarchs, and Russia’s political and national security leaders who have supported President Putin.  Further designations were made on 15^th March.

UK sanctions

Guidance on the UK sanctions can be found here: Russia sanctions: guidance – GOV.UK (www.gov.uk). Of particular interest to Members may be the following sanctions:

The UK sanctions announced on 22^nd February added 5 Russian banks and 3 persons to the UK sanctions lists.  The UK government also indicated that sanctions already imposed in relation to Crimea will be extended to non-government controlled territory in the so-called breakaway republics of Donetsk and Luhansk.

The package of sanctions announced on 24^th February goes further- sanctioning additional companies and financial institutions and with the additional aims of shutting off the Russian banking system from UK finance markets, banning Russian state-owned and key strategic private companies from raising finance on the UK financial markets.  New restrictions on trade and export controls against Russia’s hi-tech and strategic industries were announced and Russia’s national airline Aeroflot has been banned from UK airspace.

On 1^st March, pursuant to the Russia (Sanctions)(EU Exit) (Amendment) (No4) Regulations 2022,  Russian ships, and other ships specified by the Secretary of State, are now prohibited from entering ports in the United Kingdom.  Russian ships include:

• a ship owned, controlled, chartered or operated by a designated person
• a ship owned, controlled, chartered or operated by persons connected with Russia
• a ship registered in Russia, or
• a ship flying the flag of Russia

These sanctions do not apply to other ships originating from or destined for Russian ports; ships carrying cargo to or from Russia are not within scope of the transport sanctions unless they fall within the definition of a Russian ship or specified ship as above. Further, the sanctions do not apply to ships (that are not otherwise included in the Regulations) with Russian crews or Masters, unless they are a designated person.

EU sanctions

On 22^nd  February, EU Member States agreed a new package of sanctions targeting individuals, companies and banks and between the two breakaway regions and the EU.

On 24^th  February, EU leaders met at a special summit convened following Russia’s aggression against Ukraine.   Regulation 2022/328 sets out a wide package of measures and copy can be found here.

The measures which may be of particular interest to Members are summarised as follows:

• Prohibition on the sale, supply, transfer or export of dual-use goods and technology (that is, goods which have both a potential civil and military application, a list of which can be found in Annex I to EU Regulation 2021/821). Certain limited exemptions are permitted under authorisation from a competent EU authority, including for performance of contracts concluded before 26 February 2022 involving non-military end users provided the authorisation is sought before 1 May 2022;
• Prohibition on the sale, supply, transfer or export of goods and technology which might contribute to Russia’s military and technological enhancement, or development of the defence and security sector, as listed in Annex VII of the Regulation (noting in particular a specific category for marine-related goods in Category 8), with similar limited exemptions and authorisation procedures as above;
• Prohibition on the sale, supply, transfer or export of goods and technology suited for use in oil refining as listed in Annex X of the Regulation, with an exemption until 27 May 2022 for the performance of contracts concluded before 26 February 2022;
• Prohibition on the sale, supply, transfer or export of goods and technology suited for use the aviation and space industries as listed in Annex X of the Regulation, with an exemption until 28 March 2022 for the performance of contracts concluded before 26 February 2022;
• Prohibition on the supply of investment services to various Russian financial institutions and -more particularly for the shipping sector – on the supply of investment services connected with transferable securities and money-market instruments after 12 April 2022 as well as any new loans or credit after 26 February 2022 to, inter alia, the following entities:
• Novorossiysk Commercial Sea Port
• Sovcomflot
• United Shipbuilding Corporation

However, these measures do not appear to preclude otherwise engaging with these parties and does not, for example, prevent ships calling at ports and terminals operated by Novorossiysk Commercial Port or the payment of port dues and fees for doing so;

• Prohibition on the acceptance of any deposit from Russian nations or persons residing in Russia or legal bodies established in Russia exceeding €100,000, with certain exemptions.

The EU in consultation with the UK, US and Canada have also requested SWIFT, the financial messaging system, to disconnect certain Russian banks from using its system, in response to Russia’s unprovoked military aggression against Ukraine.  On 2 March 2022 the EU formally implemented sanctions (Council Decision (CFSP) 2022/346 & Council Regulation (EU) 2022/345) whereby it shall be prohibited from 12 March 2022 to provide SWIFT services to the following seven Russian banks:

• VTB Bank, Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank, and VEB

or

• to any entity established in Russia and owned (directly or indirectly) by more than 50% by one of the above entities

It will mean that the above banks will be completely prohibited from using SWIFT to send payment messages to any other bank or institution connected to it anywhere in the world. The EU has warned that they are prepared to add further Russian banks to this list at short notice.  The ban excludes Sberbank and Gazprombank. They were exempted because they handle payments related to oil and gas exports on which the EU heavily relies.

It is also prohibited for anyone subject to the jurisdiction of the EU:

• to sell, supply, transfer or export euro banknotes to Russia or to any person/entity in Russia (including the Russian government), or for use in Russia. There are exceptions related to personal use for people travelling to Russia or for official purposes (diplomatic missions).
• to invest, participate or otherwise contribute to projects co-financed by the Russian Direct Investment Fund, except where these activities are due under contracts concluded before 2 March 2022.

On 15^th  March 2022 the EU adopted a fourth package of sanctions.

• The EU designated 15 individuals including Russian oligarchs and 9 entities operating in the Russian aviation, military, shipbuilding and machine building sectors, to the EU sanctions list (Council Implementing Regulation (EU) 2022/427).  The designated entities include: Rosneft Aero; JSC Rosoboronexport; JSC NPO High Precision Systems; JSC Kurganmashzavod; JSC Russian Helicopters; PJSC United Aircraft Corporation; JSC United Shipbuilding Corporation; JSC Research and Production Corporation Uralvagonzavod, and JSC Zelenodolsk Shipyard (A. M. Gorky Zelenodolsk Plant).

Members should be aware that where an individual is listed,  an ownership and control analysis should be undertaken to establish any impact on a linked company with which they are transacting.  The Commission Opinion of 8th June 2021 is helpful in identifying the factors to take into account and the approach to be taken.

The other measures (Council Regulation (EU) 2022/428 amending EU Regulation no. 833/2014) include:

• Prohibition on the sale, supply, transfer or export of equipment or technology (whether or not originating in the EU) which is listed in Annex II to a person or entity in Russia or for use in Russia. Annex II includes certain goods and technology suited to certain categories of exploration and production projects. It is also prohibited to provide technical assistance or financial assistance (which is defined to include insurance or reinsurance) in respect of these activities. However, this ban does not apply to the transport of fossil fuels, in particular coal, oil and natural gas from or through Russia into the EU. There is an exemption until 17 September 2022 for the performance of contracts concluded before 16 March 2022 provided that the competent authority of the EU member state has been given five working days prior notice.
• Ban on new investments in the Russian energy sector, which includes creating any new joint venture with an entity incorporated or constituted under Russian law or any other third country.
• Ban on the import or transport of iron and steel products listed in Annex XVII into the EU if they originate in Russia or have been exported from Russia. This includes a ban on providing insurance or reinsurance. However, there is an exemption until 17 June 2022 for the performance of contracts concluded before 16 March 2022.
• Prohibition on transactions with certain state-owned Russian companies listed in Annex XIX. There is an exemption until 15 May 2022 for performance of contracts concluded before 16 March 2022. This ban does not apply to:
• transactions which are strictly necessary for the purchase, import or transport of fossil fuels, in particular, coal, oil and natural gas, as well as titanium, aluminium, copper, nickel, palladium and iron ore from or through Russia into the EU; or to
• transactions related to energy projects outside Russia in which the companies listed in Annex XIX is a minority shareholder.
• Prohibition from 15 April 2022 on the provision of credit rating services or providing access to any subscription services in relation to credit rating activities to Russian clients.
• Prohibition on the sale, supply, transfer or export directly or indirectly of luxury goods as listed in Annex XVIII from the EU to Russia.

Members should note that some of the EU measures include prohibitions against the provision of insurance and reinsurance for the listed activities. As a consequence, even if a Member is not directly impacted by the Regulation (because, for example, they are domiciled outside the EU), the Club may not be able to provide cover for engaging in these activities. Members are strongly encouraged to contact the Club accordingly before engaging in any of these trades.

Members are also reminded that EU sanctions apply in the following circumstances: within the territory of the Union, including its airspace; on board any aircraft or any vessel under the jurisdiction of a Member State; to any person inside or outside the territory of the Union who is a national of a Member State; to any legal person, entity or body, inside or outside the territory of the Union, which is incorporated or constituted under the law of a Member State; to any legal person, entity or body in respect of any business done in whole or in part within the Union.

Members are advised to contact a member of North’s Sanctions Advice Team for further guidance.