One year on: EU and UK impose new Russia sanctions and look to strengthen enforcement on the first anniversary of the invasion of Ukraine

EU sanctions

On 24 February 2023, the European Union adopted its 10th sanctions package against Russia since February 2022.  The package contains the following key measures:

• Asset Freezes – 121 individuals and entities were added to the EU’s asset freeze list.  These include the Russian National Wealth Fund, Alfa-Bank, Rosbank and Tinkoff Bank (amongst others).
• Export bans – export bans have been imposed on additional dual-use goods and advanced technologies, including electronic components used in Russian weapons systems (drones, missiles, helicopters and other vehicles), as well as bans on specific rare earths and thermal cameras with military applications.  Further export bans have been imposed on goods that can be redirected to aid the Russian military.  In high-level terms, EU persons can no longer sell, supply, transfer or export these goods to Russian persons, nor otherwise provide associated services.
• Import bans – import bans have been imposed on goods that generate significant revenues for Russia.  Broadly speaking, these are bitumen, related materials (e.g. asphalt), and synthetic rubber.  In high-level terms, EU persons can no longer purchase, import or transfer these goods where they are of Russian origin, nor otherwise provide associated services.
• Transit prohibition – it is now generally prohibited for EU persons to transit dual-use goods and firearms through Russia.
• Critical infrastructure companies – Russian persons are now generally restricted from taking posts in governing bodies of EU critical infrastructure companies.
• Prohibition on Russian nationals and entities booking gas storage capacity in the Union (LNG excluded) – EU persons are now generally prohibited from providing gas storage capacity to Russian persons, and entities owned by Russian persons.
• Private flights – aircraft operators of non-scheduled flights between Russia and the EU, operated directly or via a third country, now have to notify all relevant information concerning their flight to relevant competent authorities prior to their operation, and at least 48 hours in advance.
• Reporting on Russian Central Bank assets – EU central securities depositories and central counterparties now have to provide certain additional information to the EU’s authorities about how they are dealing with the Russian Central Bank’s assets.  The measure is understood to help develop plans linked to the potential utilisation of such assets to help fund the reconstruction of Ukraine.
• Reporting obligations on frozen accounts – the reporting obligations for EU persons have been expanded.  In particular, there are also additional requirements to notify authorities where there were movements of funds/economic resources in the two weeks preceding an asset freeze derogation.  In addition, further prescribed disclosure requirements have been introduced.
• Media ban – two new entities have been slated to be targeted with the EU’s media-related sanctions, being RT Arabic and Sputnik Arabic.

UK sanctions

The UK’s Foreign Secretary also announced a new package of UK sanctions against Russia on 24 February 2023, with the announced package set to include:

• Export bans – export bans are to be imposed on “every item Russia has been found using on the battlefield”, including aircraft parts, radio equipment and electronic components.
• Import bans – additional import bans on 140 goods, including iron and steel products processed in third countries.
• Kherson and Zaporizhzhia – the extension of existing measures against Crimea and the non-government-controlled areas of Donetsk and Luhansk to the non-government-controlled areas of Kherson and Zaporizhzhia.  This will align the UK’s sanctions with the EU’s sanctions.

A UK asset freeze has also been imposed on 80 people and 12 Russian entities, including most of the board of PJSC Gazprom, as well as Bank St Petersburg PJSC, Bank Uralsib PJSC, Bank Zenit PJSC and MTS Bank PJSC.

2023 – year of enforcement?

After a year of imposing wide-ranging and unprecedented sanctions against Russia, regulators and governments are facing increasing pressure to ensure that such measures are actively enforced and that circumvention is countered, so that sanctions can have the maximum impact on Russia.

Further EU developments

As we discussed in our December bulletin, following on from the European Council’s earlier decision to recognise sanctions violations as an ‘EU crime’, the European Commission issued a proposal for a Directive to harmonise the criminal enforcement of sanctions across the EU. The EU has also now appointed an “International Special Envoy for the Implementation of EU Sanctions” to ensure continuous, high-level discussions with third countries to avoid the evasion or the circumvention of EU sanctions.

Most recently, the Dutch Government has published a non-paper calling for the EU to operationalise anti-circumvention measures which are enabling Russia to sustain its war efforts, most notably through the use of alternative supply chains and front companies/intermediaries which are enabling Russia to access critical Western components that are crucial to the Russian military industry.

To counter such sanctions circumvention, the non-paper proposes the following initiatives:

• Strengthening the processes for feeding back enforcement and circumvention cases at the Member State level back to EU-level policy makers to ensure that policy loopholes can be addressed.
• Introducing a platform to ensure that national authorities can safely share information about possible circumvention at the EU level to enable common analysis and research on how to counter such circumvention.
• On the basis of this common analysis, determining what form of action can be taken, on a case-by-case basis, to address specific cases of circumvention (e.g. through special envoys, letters from EU institutions and third state engagement).
• Expanding the EU sanctions toolbox beyond strict sanctions instruments.  This could include increased EU guidance on how companies can recognise and counter circumvention, issuance of official warnings, creation of watch lists for companies/sectors of specific concern and encouragement for companies to adopt contractual obligations around end-use.
• Expanding asset freeze listing capacities to address additionally those providing material support to Russia’s military and defence industrial base.

It has been reported that 12 EU Member States, including France, Germany and Italy have expressed support for the measures set out in the non-paper.

The EU already has certain tools for addressing circumvention, with a new asset freeze listing criterion being introduced last October which enables the listing of natural or legal persons, entities or bodies facilitating infringements of the EU Russian sanctions’ prohibition against circumvention.  The last round of EU sanctions did include a UAE shipping company, which, according to the accompanying press release, is suspected of helping Russia circumvent sanctions on oil exports.

It will therefore be interesting to see if the other proposals in the Dutch non-paper gain traction in Brussels.

Possible further UK developments

Sanctions enforcement is also a focus in the UK, with Spotlight on Corruption and RUSI having recently written to the UK’s Minister for Security calling for enhanced transparency around the assets held by sanctioned persons in order to counter sanctions evasion.

To this end, a pragmatic solution that has been proposed would be to require designated persons to disclose their UK assets and provide a statement of the assets they held, owned or controlled six months prior to their designation, and to criminalise a failure to disclose such assets within a prescribed period.

It remains to be seen if this measure will be introduced into the Economic Crime and Corporate Transparency Bill 2022-23 that is currently going through the UK’s Parliament.

G7 co-ordination

Finally, the G7 is set to create a new tool, called the Enforcement Coordination Mechanism, to coordinate their enforcement of sanctions against Russia.  To be chaired by the United States in the first year, it has been reported that the mechanism would aim to bolster information sharing and other actions between G7 countries, to counter firms and countries suspected of aiding Russia’s war in Ukraine.

Should you have any questions on the matters discussed in this article, please contact Matthew Townsend, Udo Olgemöller, Tim Müller, Jonathan Benson, Tom d’Ardenne, Sophie Davis or your usual contact at Allen & Overy LLP.