Over the weekend, the EU, the US and other countries have imposed sweeping restrictive measures in response to the decision by Russian President Putin to invade Ukraine. The new sanctions follow a first round of measures that were announced on 23 February 2022 and which we covered in our previous news update. The most recent round of sanctions covers a wider scope of industries and sectors, ranging from trade restrictions on dual-use items and the transport and energy sector, to broad financial sanctions targeting Russian banks and Russia’s access to global financial markets.
1. European Union
Following a first package of sanctions adopted on 23 February 2022, the European Council adopted a second package of restrictive measures on 25 February to respond to the military invasion. The sanctions adopted by the EU include the following measures:
- Asset freeze: An asset freeze on various individuals, including Russia’s President Vladimir Putin and Minister of Foreign Affairs Sergey Lavrov. In addition, the EU has frozen the assets of members of the National Security Council Russia and the remaining members of the Russian State Duma who supported Russia’s recognition of the self-proclaimed Donetsk and Luhansk ”republics”. A total of 654 individuals and 52 entities are subject to an asset freeze and a travel ban for their involvement in Ukraine. The list can be accessed here.
- Dual-use goods and technology: Under the new EU sanctions regime it is prohibited to sell, supply, transfer or export, directly or indirectly, dual-use goods and technology listed in Annex I to Regulation 2021/821 to any natural or legal person, entity or body in Russia or for use in Russia. In addition, it is prohibited to provide technical assistance, brokering services or financing or financial assistance related to dual-use goods and technology. In essence, this boils down to a blanked export ban on dual-use items and related services, notwithstanding certain exceptions in Article 3(3-5) of Regulation 833/2014.
- Energy sector: Pursuant to the new sanction regime, it shall be prohibited to sell, supply, transfer or export, directly or indirectly, goods and technology “suited for use in oil refining”, as listed in Annex X to Regulation 833/2014. Hydrogen generation technology, aromatic hydrocarbon production units and delayed cokers are amongst the goods and technologies listed in Annex X.
- Aviation and space industry: The Council has decided to prohibit the export of goods and technology and associated services suited for the use in the aviation and space industry as listed in Annex XI to Regulation 833/2014. Annex XI includes all items listed in Chapter 88 of the Combined Nomenclature tariff codes. The prohibited associated services include restrictions on brokering services, financing services, technical assistance and services related to overhaul, repair, inspection, replacement, modification or defect rectification of an aircraft or component, with the exception of pre-flight inspection.
Furthermore, the Council imposed various financial sanctions aimed at limiting the ability of the Russian state and government to access the EU’s capital and financial markets and services. These measures, amongst others, include:
- Capital market: Pursuant to Regulation 833/2014, it is, for example, prohibited to deal with “transferable securities” and “money-market instruments” issued after 12 April 2022 by Russian entities listed in Annex III, V, VI, XII and XIII. The measure alters that scope of existing capital restrictions in place against Russian entities to the extent that the new provision includes no minimum maturity period below which loans and credit are unrestricted. Listed entities include amongst others Alfa Bank, Bank Otkriti, Bank Rossiya, and Promsvyazbank.
- Loans and credit: In addition to the capital restrictions mentioned above, the adopted sanctions also include a prohibition to directly or indirectly make or be part of any arrangement to make any new loans or credit to any party listed in Annex III, V, VI, XII and XIII such as Promsvyazbank.
- Deposit restrictions: Pursuant to Article 5b of Regulation 833/2014, it shall be prohibited to accept any deposits from Russian nationals or natural persons residing in Russia, or parties established in Russia, if the total value of deposits per credit institution exceeds EUR 100.000,-.
2. The United States
Washington has also adopted far-reaching measures to respond Russia’s act of aggression. According to the White House, the US has by now targeted all ten of Russia’s largest financial institutions, including the imposition of full blocking and correspondent and payable-through account sanctions, on institutions holding nearly 80% of Russian banking sector assets. On 24 February 2022, the following measures have, amongst others, been enacted and announced:
- Corresponded and payable-through account restrictions: The Office of Foreign Assets Control (“OFAC“) has imposed correspondent and payable-through account sanctions on Sberbank pursuant to Directive 2 under E.O. 14024 (the so-called “Russia-related CAPTA Directive”) This directive prohibits US financial institutions from: (i) the opening or maintaining of a correspondent account or payable-through account for or on behalf of Sberbank; and (ii) the processing of transactions involving any Sberbank.
- Asset freeze on Russian banks and individuals: OFAC has added the VTB Bank, Bank Otkritie, Sovcombank OJSC, Novikombank and 54 subsidiaries to the (Specially Designated Nationals and Blocked Persons (“SDN”) List pursuant to E.O. 14024. Like the EU, the US has frozen the assets of Russian President Putin, Minister of Foreign Affairs Lavrov, members of Russia’s Security Council, and other individuals. These blocking sanctions freeze any assets touching the US financial system and prohibit US persons from dealing with the listed entities and any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons.
- Trade and technology restrictions: The US has announced a Russia-wide denial of exports of sensitive technology, primarily targeting the Russian defence, aviation, and maritime sectors. In addition. the US will impose Russia-wide restrictions on sensitive US technologies produced in foreign countries using US-origin software, technology, or equipment. This includes restrictions on semiconductors, telecommunication, encryption security, lasers, sensors, navigation, avionics and maritime technologies. The restrictive trade measures are scheduled for publication on 3 March 2022 and will, amongst others, add new license requirements for all Export Control Classification Numbers in Categories 3-9 of the Commerce Control List.
- Restriction on military end-use and end-users: The US will furthermore expand the existing Russia ‘military end use’ and ‘military end user’ control scope to all items subject to the Export Administration Regulations. Washington has also announced measures against military end-users, including the Russian Ministry of Defence. Exports of nearly all US items and items produced in foreign countries using certain US-origin software, technology, or equipment will be restricted to targeted military end users. These comprehensive restrictions apply, for example, to the Russian Ministry of Defence, including the Armed Forces of Russia, wherever located.
3. More sanctions to follow
On 26 February 2022, the leaders of the European Commission, France, Germany, Italy, the UK, Canada, and the US published a press release stating that several additional sanctions will be prepared and implemented. These include:
- Selective exclusion from Swift: The leaders agreed on the removal of selected Russian banks from the SWIFT messaging system. According to the European Commission, this action will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally.
- Russian Central Bank: Restrictive measures have been proposed to prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of sanctions. In this regard, the Council has adopted Regulation 2022/334, prohibiting transactions related to the management of reserves as well as of assets of the Central Bank of Russia which entered into force on 28 February 2022.
As the situation in Ukraine and the response by the EU and the US are continuously developing, further restrictive measures can be anticipated. BenninkAmar Advocaten is closely monitoring the developments regarding the situation in Ukraine.
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