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Client Alert 01 Mar. 2022

EU and the UK Impose Further Sanctions on Russia

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Following the escalation of violence in the territory of Ukraine, the EU and UK have each adopted a further package of economic sanctions directed against the Russian Federation.

A. EU sanctions

On February 25 and February 28, the European Union published legislative packages[1] which include new restrictive measures in the financial, energy and aviation sectors, an export ban on dual-use goods and technology, visa restrictions, assets freezes and the closure of EU airspace for Russian owned, registered, operated and controlled aircraft.

The financial sector:

Prohibition of access to capital markets:
- The measures prohibit the provision of investment services for assistance in the issuance of, or any dealings with, bonds, equity, financial instruments, or transferable securities issued by the following categories of persons: 1) major Russian credit or finance development institutions with over 50% public ownership or control; 2) credit institutions having a significant role in supporting the Russian Government and Central Bank; 3) major institutions having an explicit mandate to promote competitiveness of and investment in the Russian economy; 4) entities in Russia with major activities in the conception, production, sales or export of military equipment or services, except for entities of the nuclear and space sectors; and 5) any legal person in Russia with over 50% public ownership with estimated assets of over RUB 1 trillion and 50 % of whose estimated revenues originate from the sale or transportation of crude oil or petroleum products. Provision of new loans after February 26, 2022 to the same categories of institutions and entities is also prohibited, with certain exceptions.[2]

Entities more than 50% owned by designated entities are also subject to the prohibition with certain exceptions for entities established in the EU.[3]

The measures cover new issued loans and credit but not drawdown or disbursements made under contracts concluded before February 26, 2022. Financing or financial assistance to small and medium-size enterprises (“SMEs”) for the total value of €10,000,000 per project is also exempt.

Prohibition to accept any deposits over €100,000 from Russian persons, entities and persons residing in Russia. This limit is per EU credit institution rather than per account. This is subject to certain exceptions including deposits that are necessary for trade in goods of non-prohibited items, to satisfy the basic needs, intended for the payment of professional fees, payment of legal services, for extraordinary expenses, and for official purposes of a diplomatic mission.[4] Deposits for humanitarian purposes and civil society activities that promote democracy and human rights or the rule of law in Russia may be authorized by competent authorities of each EU Member State.
Prohibition on the EU central securities depositories to provide services for transferable securities issued after April 12, 2022 to any Russian national or company or person residing in Russia except for EU nationals or permanent residents.
Prohibition to sell Euro-denominated transferable securities issued after April 12, 2022 or collective investment undertakings providing exposure to such securities, to any Russian national or company or person residing in Russia except for EU nationals or permanent residents.
The EU also prohibited the provision of financing for trade with or investment in Russia, with the exception of financing up to €10,000,000 per project to SMEs established in the EU and for trade in food, agricultural, medical or humanitarian purposes. The prohibition doesn’t apply to contracts that pre-date February 26, 2022.

Finally, on February 28, 2022, the EU imposed additional sanctions, prohibiting transactions related to the management of reserves and assets of the Central Bank of Russia and transactions with any person acting on behalf of the Central Bank of Russia.[5]

The energy and transport sectors

The measures impose an export ban on goods and technology suited for use in the oil refining, aviation and space industries, whether or not originating in the European Union, and related services, to natural or legal person in Russia or for use in Russia. Measures also include a prohibition on provision of overhaul, repair, inspection, replacement, modification or defect rectification of an aircraft or component, with certain exceptions, a ban on sale of goods and technology suited for use in the aviation or space industries, including aircrafts, spare parts and equipment for Russian airlines. The wind-down period for contracts concluded prior to February 26, 2022 is March 28, 2022.

Export ban on dual-use goods and technology :

The EU also imposed a ban on the export of any and all dual-use goods and technology (i.e. goods capable of military and civilian uses)[6] to any natural, legal person in Russia, or for use in Russia, whether manufactured inside or outside the EU, as well as technology which may be used for Russia’s military enhancement and related services. The measures prohibit sales of crucial technologies (e.g. semi-conductors) not otherwise defined as a dual-use good[7] . The trade with prohibited goods and technology is subject to an authorization by the competent national authority of an EU Member State. However, no such authorization should be issued to certain entities listed in Annex IV[8] including Russia’s major military and defense entities and institutions, including the Ministry of Defense, JSC Kalashnikov, Sukhoi Aviation JSC, Tupolev JSC and many others. Technical assistance, brokering services and financial services related to the said goods and technology are also prohibited.

Freeze of assets

The new designations made by the European Union are expansive and include not only state-owned corporations, state officials of Russia and Belarus, but also the Russian President, Vladimir Putin and the Russian Minister of Foreign Affairs, Sergei Lavrov.[9]

On February 28, 2022, the EU published additional designations of Russia’s senior State officials and businessmen, including Igor Sechin, Alisher Usmanov, Petr Aven, Mikhail Fridman, Gennady Timchenko, Alexey Mordashev, the press secretary of the President Vladimir Putin, Dmitry Peskov, and many others. A gas industry insurance company JSC SOGAZ was also designated.

The full maintained list of designated individuals and entities is available here.[10]

New designation criteria

The measures expand listing criteria which now include, natural and legal persons, entities and bodies: (i) implementing actions or policies which undermine the sovereignty and independence of Ukraine; (ii) providing material assistance to destabilize the situation in Ukraine; (iii) legal persons, entities or bodies in Crimea or Sevastopol whose ownership has been transferred contrary to Ukrainian law, (iv) benefitting from the Government of Russia or decision-makers responsible for the annexation of Crimea region; (v) conducting transactions with the separatist groups in the Donbas region, (vi) leading businesspersons or entities involved in economic sectors providing a substantial source of revenue to the Government of the Russian Federation.[11].

Visa policy:

The EU partially suspended the application of the Agreement between the EU and Russia on visa facilitation.[12] Russian diplomats and related groups will no longer have privileged access to the European Union for a short-stay visa.[13] In addition, the EU prohibited entry into or transit through its territory to natural persons supporting the implementing actions or policies which undermine the sovereignty and independence of Ukraine.[14]

Closure of airspace

On February 28, 2022, the EU prohibited for any aircraft operated by Russian air carriers, Russian-registered aircrafts or non-Russian registered aircrafts which are owned or chartered by a Russian person to take off, land in or overflight the territory of the EU, except for emergency landing or overflight.

B. UK sanctions

The UK’s newest sanctions against Russia and Belarus were published on 28 February 2022 and 1 March 2022 and came into effect on 1 March.[15] They contain a wide range of measures which we summarise below:

Access to UK credit and capital markets

Since the Russian annexation of Crimea in 2014 a defined list of Russian state-owned banks, energy companies and defence companies have been excluded from raising finance of more than 30 days’ maturity in the UK.[16] This prohibition did not extend to subsidiaries in the UK. That has now changed. Under the new sanctions UK subsidiaries of these state-owned entities are now similarly prevented from accessing credit of more than 30 days’ maturity.[17]

In addition similar prohibitions on accessing credit are now imposed on all persons and entities not previously listed, which are “connected with Russia” other than entities domiciled outside Russia or their subsidiaries and branches. The term “connected with Russia” simply means incorporated in or constituted under the law of Russia. Accordingly, under the new sanctions no Russian company can obtain credit in the UK of more than 30 days’ maturity unless it is domiciled outside Russia.

Thirdly, the same prohibition has also now been extended to loan “by or on behalf of the Government of Russia”. This term covers all ministries, the Presidency, the Central Bank, and “any other public body or agency of the Russian Federation”.[18]

The sanctions contain a wide range of limited exceptions to these prohibitions. These are mainly for humanitarian measures, food, medical goods and services and diplomatic missions.

Correspondent banking relationships and processing of sterling

The new UK sanctions create a prohibition on a UK credit or financial institution establishing or continuing a correspondent banking relationship with:

A designated person; or
A credit or financial institution (whether in the UK or elsewhere) which is owned or controlled directly or indirectly by a designated person.[19]

As more and more Russian banks become designated this prohibition will come to have a broader and broader impact and will prevent UK credit and financial institutions from undertaking transactions with designated banks even when the transactions involved assets of the clients of those banks.

To the same end, the new sanctions also contain a prohibition against a UK credit or financial institution processing any sterling payments to, from or via the same categories of persons.

Asset freezes extended

In line with public pronouncements by the British government, the UK is continually adding new individuals and entities to the list of those subject to a UK asset freeze. In the days since Russia’s recognition of Donetsk and Luhansk and then the invasion of Ukraine, the following have been added to the UK’s list:

22 February 2022:
- Gennadiy Nikolayevich Timchenko
- Boris Romanovich Rotenberg
- Igor Arkadyevich Rotenberg
- Bank Rossiya
- Black Sea Bank for Development And Reconstruction
- Joint Stock Company Genbank
- IS Bank
- Public Joint Stock Company Promsvyazbank

24 February 2022:
- Denis Bortnikov
- Petr Fradkov
- Elena Georgieva
- Kirill Shamalov
- Yury Slyusar
- JSC Research and Production Corporation Uralvagonzavod
- JSC United Shipbuilding Corporation
- JSC United Aircraft Corporation
- Rostec
- JSC Tactical Missiles Corporation
- VTB Bank
25 February 2022:
- Vladimir Putin
- Sergei Lavrov
28 February 2022:
- VEB Bank
- PJSC Bank Otkritie Financial Corporation
- PJSC Sovocombank
1 March 2022:
- Kirill Dmitriev
- Russian Direct Investment Fund

In addition the UK has started to impose asset freezes on Belarussian individuals and entities for facilitating the invasion. Such listings are being included in the Russian sanctions lists maintained by HM Treasury rather than the Belarus lists. Those designated so far are:

Andrei Burdyko
Victor Gulevich
Sergei Simonenko
Andrey Zhuk
JSC 558 Aircraft Repair Plant
JSC Integral

It is likely that further additions will be made in the coming days. The maintained and consolidated list of designated persons under the UK legislation is available here.

Dual use goods

The pre-existing prohibition on the export of military goods to Russia has now been extended to include all dual-use goods – i.e. goods which have civilian as well as military applications.[20] Transitional provisions are included by way of a sunset clause for pre-existing export licences.

Other export restrictions

In addition to dual-use goods, the UK’s sanctions extend export prohibitions to other classes of goods. The Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2022 contain a very extensive list of products now subject to restrictions. These are focussed on technology, computing, telecommunications, sensors, lasers, navigation equipment, marine and aerospace technology. There are exceptions for consumer and personal goods that would otherwise fall within the prohibitions.

Closure of Airspace and Ports

On 25 February, the UK imposed a prohibition from entering UK space (including over the UK’s territorial sea) to any aircraft on a scheduled service “which is owned, chartered or operated by a person connected with Russia, or which is registered in Russia”.[21] The ban includes Russian airlines such as Aeroflot, as well as privately-owned aircraft.

The third regulation published on 1 March is The Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2022 which are focused on the announced restrictions against Russian shipping but go significantly further.

Under this regulation a ship owned, controlled, chartered or operated, by a person subject to an asset freeze, or by a person “connected with Russia” (as explained earlier in this alert), or a ship flying the Russian flag, registered in Russia, or a specifically designated ship will be barred from UK ports with it being an offence to breach this prohibition.

In addition, the Secretary of State is now empowered to issue a “detention directive” to all such categories of ship other than a ship registered in Russia.

In addition the regulation bars the registration in the UK of a ship owned, controlled, chartered or operated by a designated person or a person connected with Russia, and empowers the Secretary of State to direct the termination of the registration of any such vessels.

The Russian Central Bank, Ministry of Finance and National Wealth Fund

The fourth regulation published on 1 March 2022 is the by-now predictably named The Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations 2022. These prohibit a UK individual or entity from providing financial services for the purpose of foreign exchange reserve and asset management to the Russian Central Bank, Ministry of Finance and the National Wealth Fund of the Russian Federation, as well as to those directly or indirectly owned or controlled by the these entities, or those acting on behalf of these entities.

The UK’s Offshore jurisdictions

The UK’s sanctions regulations are normally adopted, in time, by the various offshore financial centres such as Jersey, Guernsey, the Isle of Man, the Cayman Islands, Gibraltar, Bermuda and the British Virgin Islands. In the current climate we anticipate that the full suite of the UK’s sanctions will be applied in all of these jurisdictions.

Economic Crime (Transparency and Enforcement) Bill

As indicated in our previous alert, the British government has brought forward a planned Economic Crime (Transparency and Enforcement) Bill which is intended to target the any improper assets held by or for Russian nationals in the UK. The bill has now been published and will be the subject of a separate alert.[22]

Attorney advertising. The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice. No legal or business decision should be based on its contents.

[2] Exceptions to this prohibition include loans and credits that have a documented objective to provide financing for non-prohibited imports or exports of goods and non-financial services and loans to provide emergency funding for legal persons established in the EU whose proprietary rights are owned for more than 50% by any entity referred to in Annex III to Council Regulation (EU) 2022/328, OJ L49, 25.2.2022, p.1,

[3] For example, with the exception of the prohibition to purchase, sell, provide investment services for or deal with transferable securities and money-market instruments issued after April 12, 2022.

[4] Council Decision (CFSP) 2022/327 of 25 February 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine, OJ L 48, 25.2.2022, p. 1–16, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.048.01.0001.01.ENG&toc=OJ%3AL%3A2022%3A048%3ATOC. See also Council Regulation 2022/328 of 25 February 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022R0328&from=EN.

[5] Council Regulation (EU) 2022/334 available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.057.01.0001.01.ENG&toc=OJ%3AL%3A2022%3A057%3ATOC

[6] Such goods are listed in Regulation (EU) 2021/821 of the European Parliament and of the Council of 20 May 2021 setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items, OJ L 206 11.6.2021, p. 1.

[7] A complete list is included in Annex VI of Council Regulation 2022/328.

[8] Annex IV to Council Regulation (EU) 2022/328 of 25 February 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine, OJEU L49 of February 25, 2022, at p.1.

[9] The designations are included in Council Decision (CFSP) 2022/331 of 25 February 2022 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, OJ L 52, 25.2.2022, p. 1–44, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.052.01.0001.01.ENG&toc=OJ%3AL%3A2022%3A052%3ATOC. See also: Council Implementing Regulation (EU) 2022/332 of 25 February 2022 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, OJ L 53, 25.2.2022, p. 1–44, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.053.01.0001.01.ENG&toc=OJ%3AL%3A2022%3A053%3ATOC.

[10]The consolidated list can be accessed through: https://eeas.europa.eu/headquarters/headquarters-homepage_en/8442/Consolidated%20list%20of%20sanctions

[11] Idem. Article 1 (2). See also: Council Regulation (EU) 2022/330 of 25 February 2022 amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, OJ L 51, 25.2.2022, p. 1–2, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.051.01.0001.01.ENG&toc=OJ%3AL%3A2022%3A051%3ATOC.

[12] Council Decision (EU) 2022/333 of 25 February 2022 on the partial suspension of the application of the Agreement between the European Community and the Russian Federation on the facilitation of the issuance of visas to the citizens of the European Union and the Russian Federation, OJ L 54, 25.2.2022, p. 1–3, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.054.01.0001.01.ENG&toc=OJ%3AL%3A2022%3A054%3ATOC.

[13]Idem.

[14] Council Decision (CFSP) 2022/329 of 25 February 2022 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, OJ L 50, 25.2.2022, p. 1–3, available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2022.050.01.0001.01.ENG&toc=OJ%3AL%3A2022%3A050%3ATOC.

[15] The measure are contained in The Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2022, The Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2022, The Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2022, and The Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations 2022.

[16] See The Russia (Sanctions) (EU Exit) Regulations 2019, regulation 16, and the list of such entities included in Schedule 2. The entities are: Sberbank, VTB bank, Gazprombank, Vnesheconombank, Rosselkhozbank, OPK Oboronprom, United Aircraft Corporation, Uralvagonzavod, Rosneft, Transneft, and Gazprom Neft,

[17] The Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2022, regulation 5(a).

[18] The definition can be found in The Russia (Sanctions) (EU Exit) (Amendment) (No. 1) Regulations 2022, reg. 3(7).

[19] The Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2022, reg. 7. The meaning of owned and controlled is found in regulation 7 of the The Russia (Sanctions) (EU Exit) Regulations 2019 and applies when a person has more than 50% of the shares or voting rights or board rights of an entity.

[20] The Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2022.

[21] See B0487/22 NOTAMR amending the earlier NOTAMR B0473/22, available at: https://moonjet.aero/blog/ops-updates/2022-02-28/several-countries-shutting-airspace-to-russian-aircraft/

[22] Available at https://www.gov.uk/government/publications/economic-crime-transparency-and-enforcement-bill-2022-overarching-documents