EU and UK sanctions in response to Russia’s actions in Ukraine

In this bulletin, we set out an overview of the EU and UK’s initial sanctions packages, along with an overview of the UK’s anticipated further sanctions. For an overview of the US sanctions against Russia up to 23 February, please see our separate bulletins which can be found here and here. Further US sanctions were also imposed on 24 February. We will be providing further details on the further UK and EU sanctions once available.

UK sanctions

On 22 February 2022, the UK Government introduced a new tranche of economic sanctions against Russia.  Pursuant to the designation powers contained in the Russia (Sanctions) (EU Exit) Regulations 2019 (the UK Russia Regulations), the UK introduced asset freezing restrictions and travel bans on the following three Russian individuals:

• Gennady Timchenko;
• Boris Rotenberg; and
• Igor Rotenberg.

In addition, asset freezing restrictions have been introduced in respect of the following five Russian banks:

• Bank Rossiya, the personal bank of senior officials of the Russian Federation;
• Black Sea Bank for Development and Reconstruction;
• Joint Stock Company Genbank;
• IS Bank; and
• Promsvyazbank (PSB), a Russian state-owned financial institution that services the Russian defence sector and Russian military. 

The broad effect of the asset freezing restrictions is that UK persons are unable to deal with funds or economic resources owned, held or controlled by the designated persons or entities, or otherwise make (directly or indirectly) funds or economic benefits available to, or for the benefit of, such persons or entities. The restrictions took immediate effect with no wind down licence in the way seen in a number of US sanctions measures.

The UK Government made the designations following amendments to the UK Russia Regulations on 10 February 2022, which enabled the UK Government to designate a broad range of individuals and entities, including those involved in “obtaining a benefit from or supporting the Government of Russia”. As a result, the UK Government has been able to act swiftly in response to developments in Ukraine.

EU sanctions

On 23 February 2022, the European Council agreed on a package of measures to respond to the decision of the Russian Federation to recognise the non-government controlled areas of Donetsk and Luhansk oblasts of Eastern Ukraine.

The agreed package includes:

• asset freezing restrictions against 336 members of the Russian State Duma (the Russian Parliament’s lower house) and against another 26 individuals and entities;
• sectoral sanctions on the ability of the Russian state and government to access the EU’s capital and financial markets and services; and
• trade and investment restrictions in respect of the non-Ukrainian government controlled areas of Donetsk and Luhansk.

The European Council’s package of sanctions follows Germany’s decision on 22 February 2022 to halt the certification of the Nord Stream 2 pipeline so that it cannot go into operation.

Asset freezing restrictions

The European Council has introduced asset freezing restrictions and travel bans on 336 members of the Russian State Duma due to their vote in favour of a resolution to ask Russian President Vladimir Putin to recognise the separatist-claimed parts of eastern Ukraine as independent states.

A further 22 people – including members of government, senior military personnel, people working for ‘pro-Russian’ media and businesspeople – have been subjected to asset freeze restrictions and travel bans. Designated people include:

• Andrei Leonidovich Kostin, the president-chairman of Vneshtorbank (VTB), one of the leading state-owned banks in Russia;
• Denis Aleksandrovich Bortnikov, deputy President and Chairman of VTB Bank Management Board; and
• Igor Shuvalov, chairman of State Development Corporation VEB.RF and a member of the Council of the Eurasian Economic Commission.

Asset freezing restrictions have also been introduced in respect of the following 4 entities:

• Internet Research Agency, a Russian company that the EU considers to be engaged in online influence operations;
• Bank Rossiya;
• PSB; and
• VEB.RF, an important Russian financial development institution. 

The broad effect of the asset freezing restrictions is that all funds and economic resources belonging to, owned, held or controlled by the designated persons or entities are frozen. EU persons are also unable to make funds or economic resources available (directly or indirectly) to or for the benefit of the designated persons or entities.

In respect of Bank Rossiya, PSB and VEB.RF, a derogation mechanism has been introduced which provides that the competent authorities of EU Member States may authorise the release of certain frozen funds or economic resources belonging to such entities, or the making available of certain funds or economic resources to those entities, under such conditions that the competent authorities deem appropriate and after having determined that such funds or economic resources are necessary for the termination by 24 August 2022 of operations, contracts, or other agreements, including correspondent banking relations, concluded with those entities before 23 February 2022.

PSB and VEB.RF have been targeted by US blocking sanctions imposed on 22 February 2022 (with Bank Rossiya already being the target of US sanctions). As outlined above, the UK has also introduced asset freezing restrictions in respect of PSB and Bank Rossiya (although is yet to target VEB). Accordingly, we are seeing alignment between the restrictions being imposed by the US, EU and the UK during this initial tranche of sanctions.

Widening of sectoral sanctions

The European Council has amended Council Regulation (EU) 833/2014 (Regulation 833) to widen restrictions on the access to the EU’s capital and financial markets and services (with restrictions having previously applied to eleven Russian institutions and certain of their related entities under Article 5 of Regulation 833).

Pursuant to a new Article 5a, Regulation 833 now restricts EU persons from directly or indirectly purchasing, selling, providing investment services for or assisting in the issuance of, or otherwise dealing with, “transferable securities” and/or “money-market instruments” issued after 9 March 2022 by:

• Russia and its government;
• the Central Bank of Russia; and
• a legal person, entity or body acting on behalf or at the direction of the Central Bank of Russia, collectively the Article 5a Targets.

In addition, it is prohibited for EU persons to directly or indirectly make or be part of any arrangement to make any new “loans” or “credit” to any Article 5a Targets after 23 February 2022.

The Article 5a restrictions are subject to certain conditions and, as with the Article 5 restrictions, include a trade finance exemption, such that loans and credit that have a specific and documented objective to provide financing for non-prohibited imports or exports of goods and non-financial services between the EU and any third state are not prohibited.

The definition of “transferable securities” has also been amended. In addition to including shares and other securities in companies, bonds or other forms of securitised debt and any other securities giving the right to acquire or sell any such transferable securities, the definition now captures any other securities giving rise to a cash settlement determined by reference to transferable securities.

Trade and investment restrictions on Donetsk and Luhansk

Finally, the Commission has introduced new territorial sanctions in respect of the non-Ukrainian government controlled areas of Donetsk and Luhansk (the specified territories) by way of Council Decision (CFSP) 2022/266 and Council Regulation (EU) 2022/263. Similar to the territorial sanctions that apply in respect of Crimea, the restrictions provide for (amongst other things):

• an import ban on goods from the specified territories;
• a prohibition on certain investment in the specified territories;
• an export ban for goods and technologies suited to the transport, telecommunications, energy or the prospecting, exploration and production of oil, gas and mineral resources; and
• a prohibition on the supply of tourism services.

Further developments – 24 February 2022

In light of events in Ukraine, Western allies have announced that they will be imposing new and more extensive sanctions on Russia.

UK Prime Minister Boris Johnson yesterday announced a second package of Russia sanctions. According to his Statement in the House of Commons, the package will include: 

• asset freezes on all major Russian banks;
• new legislation to prohibit Russian state and private companies from raising finance on UK markets and to prevent Russia raising sovereign debt on UK markets;
• asset freezes on over 100 individuals and entities;
• a ban on Aeroflot landing in the UK;
• placing limitations on wealthy Russian nationals’ access to their UK bank accounts;
• bringing forward new legislation to prohibit the export of dual-use items to Russia, including high end and critical technical equipment suited to the electronics, telecommunications and aerospace sectors; and
• sanctions on Belarus for its role in events in Ukraine.

Immediately following his statement, eleven persons and entities were designated as asset freeze targets, including VTB Bank. It is possible that general licences authorising certain transactions with VTB Bank will be introduced by the UK Government shortly.

EU leaders were convening on Thursday night to agree on the EU’s further package of sanctions, with European Commission President Ursula von der Leyen earlier saying that the planned measures would include “financial sanctions that harshly limit Russia’s access to the capital markets”.

Allen & Overy’s Global Sanctions Group is tracking these developments closely. We will provide updates on further UK and EU sanctions, as well as actions taken by the United States, the Russian Federation and other key players, as this fast-moving situation evolves.

Please contact the authors or your usual contact within our Global Sanctions Group for further information.