The EU and UK intensify their sanctions in response to Russia’s action in Ukraine

EU Sanctions

In reaction to the events in Ukraine, the EU has been announcing new sanctions packages in rapid intervals:

• the first EU sanctions package was published on Wednesday, 23 February 2022;
• the second EU sanctions package followed on Friday, 25 February 2022; and
• the third EU sanctions package was agreed on Sunday, 27 February 2022.

The first EU sanctions package

As reported earlier, the first package provides for:

• asset-freezing restrictions against 336 members of the Russian State Duma (the Russian Parliament’s lower house) and against another 26 individuals and entities (including financial institutions Bank Rossiya, Promsvyabank (PSB) and VEB.RF);
• sectoral sanctions on the ability of the Russian state and government to access the EU’s capital and financial markets and services, now applicable, inter alia, to the Russian government and the Central Bank of Russia; and
• broadly scoped trade and investment restrictions in respect of the non-Ukrainian government controlled areas of Donetsk and Luhansk by enacting a new Council Regulation (EU) 2022/263.

The second EU sanctions package

The second EU sanctions package further tightens the EU sanctions already imposed on Russia under Regulation (EU) 833/2014. New sanctions include:

• Financial sector: The listing and provision of services in relation to shares of Russian state-owned entities on EU trading venues are now prohibited. New measures have been implemented which significantly limit financial inflows from Russia to the EU by prohibiting the acceptance of deposits exceeding certain values from Russian nationals or residents, the holding of accounts of Russian clients by the Union central securities depositories as well as the selling of euro-denominated securities to Russian clients. Further, the regimes applicable to transferrable securities and money market instruments, as well as the regime applicable to new loans and credits, have been tightened by removing the 30-day grace period with effect from 12 April 2022 and 26 February 2022, respectively.
• Trade Finance: Public financing and financial assistance for trade with Russia has been prohibited. A grandfathering provision applies to binding commitments established prior to 26 February 2022. Small and medium sized enterprises (SMEs) as well as companies in the food, agriculture or medical sectors (including those with humanitarian purposes) may be able to rely on these additional exemptions.
• Energy: The second EU sanctions package also prohibits the sale, supply, transfer and export to Russia of specific goods and technologies for use in oil refining, together with restrictions on the provision of related services. Until 27 May 2022, the execution of contracts concluded before 26 February 2022 and ancillary contracts shall remain permitted. Further exemptions shall only be granted if necessary for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment.
• Defence: Restrictions on the export of dual-use goods and technology have been tightened. Exports are now principally prohibited irrespective of whether intended for civil or military use. Exemptions can only be granted for legitimate and pre-determined purposes, such as humanitarian purposes or in relation to the international space programmes.
• Technology Sector: Export restrictions have been enacted on electronic goods like microcomputers and batteries, semiconductors and waivers, specific (high-tech) computers, specific software, telecommunications equipment, information security, sensors and lasers, and navigation and aviation technology, including maritime and space technology. However, there are a number of exemptions that may allow for the continued export of such goods depending on the circumstances and their intended use.
• Aviation: The second EU sanctions package further introduces an export ban on goods and technology suited for use in aviation and the space industry and prohibits the provision of insurance and reinsurance and maintenance services in relation to those goods and technology. This explicitly prohibits the sale of “aircraft, spacecraft, and parts thereof”. It also prohibits the provision of technical assistance and other related services as well as financing and financial assistance in relation to the goods and technology subject to this prohibition. Exemptions shall only apply until 28 March 2022 in respect of the execution of contracts concluded before 26 February 2022.
• International collaboration: As never before seen, the second EU sanctions package provides for rules on international collaboration with partner countries, particularly the U.S., in respect of the monitoring and enforcement of imposed sanctions.

In addition, the second EU sanctions package extends the asset freezes imposed under Council Regulation (EU) No 269/2014 to almost 100 further individuals considered to play critical roles in this conflict.

The third EU sanctions package

By way of a “Joint Statement on further restrictive economic measures” published by the leaders of the European Commission, France, Germany, Italy, the United Kingdom, Canada and the United States on Saturday, 26 February 2022, the leaders committed to undertake the following measures:

• the removal of selected Russian banks from the SWIFT messaging system;
• the imposition of asset freezes on international reserves of the Russian Central Bank;
• additional visa and immigration restrictions applicable to people and entities who are deemed to facilitate the events in Ukraine;
• the establishment of a transatlantic task force to ensure the effective enforcement of international sanctions; and
• enhanced efforts to fight disinformation and other forms of hybrid warfare.

During the course of Sunday, 27 February 2022, the European Commission announced plans aimed at banning Russian airplanes from the European airspace.

Parts of the above sanctions package have been enacted with immediate legal effect on Monday, 28 February 2022:

• It is prohibited for any aircraft operated by Russian air carriers, including marketing carriers in code-sharing or blocked-space arrangements, or for any Russian registered aircraft, and any non-Russian-registered aircraft which is owned or chartered, or otherwise controlled by, any Russian natural or legal person, entity or body, to land in, take off from or overfly the territory of the EU. Exemptions may apply to emergency landings, emergency overflights and landings, take-offs or overflights required for humanitarian purposes or for any other purpose consistent with the objectives of the EU Russia/Ukraine sanctions.
• Transactions relating to management of the reserves as well as the assets of the Central Bank of Russia, including transactions with any legal person, entity or body acting on behalf of, or at the direction of, the Central Bank of Russia, are prohibited. Member States may authorise a transaction provided that it is strictly necessary to ensure the financial stability of the EU as a whole or of the Member State concerned.

The EU has also announced that it will tighten its sanctions regime vis-à-vis Belarus as well. This follows on from additional Belarusian asset freeze targets which were introduced last week.

UK Sanctions

As reported in our last update, following an initial tranche of asset-freezing restrictions last week against Russian individuals and entities, last Thursday, 24 February 2022, the UK Prime Minister announced a second package of UK sanctions, including:

• 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;
• the placing of limitations on wealthy Russian nationals’ access to their UK bank accounts;
• the bringing forward of 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.

Following the Prime Minister’s statement, 11 persons and entities were designated as asset freeze targets, including VTB Bank. On Friday, the UK Government issued a general licence which authorised the winding down of certain transactions involving VTB Bank and its UK subsidiaries, including the closing out of any positions.

Since Thursday’s announcement, there have been the following key UK sanctions developments:

• the Air Navigation (Restriction of Flying) (Russian Aircraft) Regulations 2022 were enacted, which provide that no aircraft on a scheduled service which is owned, chartered or operated by a person connected with Russia, or which is registered in Russia, shall fly in United Kingdom airspace, including in the airspace above the UK’s territorial sea;
• President Vladimir Putin and Foreign Minister Sergey Lavrov were targeted by UK asset freezes;
• the UK released the “Joint Statement on further restrictive economic measures” alongside the European Commission, France, Germany, Italy, Canada and the United States (as outlined above); and
• in a press release on Monday morning, the UK Government announced further planned sanctions to be imposed on Russia, including:
  • restrictions to prohibit UK persons from undertaking financial transactions involving the Central Bank of the Russian Federation, the Russian National Wealth Fund, and the Ministry of Finance of the Russian Federation;
  • restrictions against Russian financial institutions;
  • measures to prevent Russian companies from issuing transferable securities and money market instruments in the UK. This will form a sweeping addition to existing financial restrictions (and is in addition to the previously-announced prohibition on the Russian state raising sovereign debt in the UK);
  • a power to prevent designated banks from accessing Sterling and clearing payments through the UK. This is said to match the power the U.S. already has and banks subject to this measure will be unable to process any payments through the UK or have access to UK financial markets;
  • a set of measures to significantly strengthen trade restrictions against Russia. This will include a prohibition on the export of a range of high-end and critical technical equipment and components in sectors including electronics, telecommunications, and aerospace; and
  • the previously announced extension of financial and trade measures applying to Crimea to the Donetsk and Luhansk regions.

Further developments

EU and UK sanctions against Russia remain fluid and the situation is developing at speed. 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.