EU Implements Long-Awaited “14th Round” of Sanctions Against Russia, Further Targeting Circumvention, LNG and the Transportation Sector

Overview

In response to the ongoing conflict in Ukraine and to exert further pressure on Russia, the EU enacted its 14^thsanctions package against Russia on June 24, 2024. The new package comes after months of negotiations between Member States, and follow, but in many ways expand upon, those passed by the United States and the UK last week (see Crowell’s Alert on those developments here). 

The latest series of measures expand upon previous sanctions, with a particular focus on anti-circumvention and targeting key sectors and activities to curtail Russia’s economic capabilities and military advancements.

Detailed Breakdown of the 14^thSanctions Package

Anti-Circumvention

• Requirement for EU Persons related to Non-EU Subsidiaries: The package imposes a “best efforts” obligation on EU companies to ensure that non-EU entities that they own or control do not “participate” in activities that undermine EU Russia sanctions.
  • While the EU stopped short of imposing liability on the EU parent for activities of their subsidiaries (as was purportedly in earlier drafts), this still represents a material expansion of EU jurisdiction in the Russia context, because this requirement goes further even than the U.S.’s view of jurisdiction for its Russia program.
  • The regulation does not define “best efforts” (although FAQs may be forthcoming on what constitutes reasonable diligence of operators in this respect), but the preamble mentions that it will be “all actions that are suitable and necessary” to ensure the affiliates do not undermine the EU’s sanctions, including “the implementation of appropriate policies, controls and procedures to mitigate and manage risk effectively.”
• Material Expansion of the Circumvention Prohibition: The EU has always prohibited circumvention or evasion of its sanctions programs, including its Russia program. In this most recent round, however, it materially expanded that prohibition by lowering the level and type of knowledge required to create liability.
  • Now, rather than being required to show intent to circumvent, it is prohibited for an EU person to participate in an activity that circumvents sanctions, where they are “aware that the participation may have that object or effect and accepting that possibility.” It is not necessary to show that the EU person was “deliberately seeking” that outcome.
• This means that if a company is aware of a possibility that its actions may lead to circumvention, then it may be found in breach.
• In practice, this brings the EU’s requirement much more closely in line with the U.S.’s long-standing prohibition on “facilitation” of sanctions violations and the UK’s post-Brexit addition of a similar prohibition.

Export Control Related Restrictions

The EU also took a number of steps designed to cut off the direct and indirect flow of products to Russia:

• Export Controls on New Products: A sizeable number of new goods have been added to the EU’s export-related prohibitions (including additions of some chemical and machinery-related goods to the Common High Priority List).
• Prohibiting Trade in Certain Ukrainian Cultural Goods: The EU created a new measure designed to prevent the illegal trade and export of cultural artifacts from Ukraine, especially those originating from areas affected by the conflict with Russia.
• Enhanced Controls on Shipping High Priority Items to Third Countries: The EU has implemented the following two requirements related to products on its “Common High Priority Item List” [1] regardless of the destination:
  • Risk Assessment Rule: Starting December 26, 2024, any EU person that sells, supplies, transfer, or export any item on the list to any country must (a) “take appropriate steps, proportionately to their nature and size, to identify and assess the risks of exportation to Russia and exportation for use in Russia for such goods or technology, and ensure that those risk assessments are documented and kept up-to-date,” and (b) “implement appropriate policies, controls and procedures” to mitigate those risks. There is an exception for exports to partner countries (e., Australia, Canada, Iceland, Japan, Liechtenstein, New Zealand, Norway, South Korea, Switzerland, United Kingdom, and the United States).
  • IP Restrictions: When selling, licensing, or transferring any IP rights or trade secrets (or granting associated access rights) related to common high priority items, EU persons will need to contractually prohibit (by December 26, 2024) their third-party counterparts, and require them to do the same of any further possible sublicensees of such IP rights or trade secrets, from using such IP rights, trade secrets, or other information for items intended for Russia.
• Additions to Military End User List: The EU has expanded its military end-user list to include 61 new entities alleged to have been involved in the circumvention of trade restrictions and engaged in the procurement of sensitive items used in various sectors which include production of drones and general support of Russian military operations.
  • The entities are subject to entity-specific export restrictions concerning dual use goods and technologies in a manner somewhat analogous to the restrictions imposed on certain entities on the U.S. BIS Entity List.
  • Of note, some entities are located in third countries (China, Kazakhstan, Kyrgyzstan, Türkiye, and the United Arab Emirates).
• In practice, although not using the term, this represents the EU’s version of the same type of “secondary” sanctions tool wielded by the United States and more recently by the UK. Although the EU is not imposing full asset freezing on those listed, it is imposing restrictions on entities in third countries as a result of alleged activity by those entities to divert product to Russia or otherwise support the Russian economy.

LNG Related Prohibitions

The EU has introduced a number of targeted restrictions against the Russian LNG sector.  These fall short of a full EU import ban, but do represent a major shift in the EU’s position (which has held off targeting the LNG sector to date).  In summary:

• LNG Re-Loading Services Prohibition: EU persons are now prohibited from providing “reloading services” (and associated technical assistance, brokering services, financing or financial assistance) in the territory of the EU for the purposes of transhipment operations of LNG (falling under CN Code 2711.11.00) originating in or exported from Russia.
  • Russian gas consisted of 18% of EU imports in the first months of 2024. 20% of the Russian gas reaching Europe is being re-exported from the EU to third countries. The sanctions seek to limit this sort of activity.[2]
  • Of note, an exemption is in place until March 26, 2025 for the execution of contracts concluded before June 25, 2024.
  • Competent authorities may establish rules and guidance at the national level to ensure compliance with these prohibitions (including enhanced due diligence requirements).
  • Emergency exemptions are permitted, specifically when responding to natural disasters, mitigating events likely to have a serious significant impact on human health and safety.
• Goods and Service for completion of LNG Projects: EU persons are banned from selling, supplying, transferring or exporting any goods and technology and from providing services to any Russian person or entity when such goods, technology and services are for the completion of LNG projects, such as terminals and plants.
  • The sanctions extend to services that are crucial for LNG projects, with the EU effectively seeking to halt the advancement or completion of LNG infrastructure in Russia.
  • Prohibitions on the provision of technical assistance, brokering services, financing or financial assistance are included.
  • A wind-down period has been established until September 26, 2024 for the execution of contracts concluded before June 25, 2024.
• Import of LNG not Through Inter-Connected Natural Gas System: The EU has banned the purchase, import and/or transfer of Russian-origin or exported LNG through LNG terminals in the EU that are not connected to the interconnected natural gas system that is in place.

Vessel/Transportation Restrictions:

• Expanding the EU Flight Ban: The EU had already imposed a comprehensive flight ban targeting Russian-operated and Russian-registered aircraft. This has been extended to include any aircraft used for non-scheduled flight, and where a Russian natural or legal person, entity or body, is in a position to effectively determine the place or time for its take-off or land to reach a holiday destination or a business meeting.
  • Where reasonable grounds exist to suspect circumvention of sanctions, operators must provide any information requested by member states’ competent authorities about non-scheduled flights, including ownership of the aircraft and nationality/full names of passengers.
• Road Transport Undertakings: Existing prohibitions on Russian road transport undertakings within the EU have been expanded to include EU entities owned 25% or more by Russian persons/entities.
  • From 26 July 2024, any such road transport undertakings that were established after 8 April 2022 can no longer transport goods by road within the EU.
  • The probation does not apply where the Russian nationals are also nationals of an EU Member state or have a temporary or permanent residence permit in a Member State.
• Vessel Restrictions: The EU has introduced a new measure which enables it to designate specific ships for a wide range of reasons, including for being involved in transporting military equipment for Russia, transporting stolen Ukrainian grain, and being part of Putin’s shadow fleet.
  • Specified vessels will be denied access to EU ports and locks.
  • EU persons are not allowed to provide a range of services in relation to the vessels, including purchasing, selling, supplying (including chartering), exporting, operating or crewing, providing flag registration, or providing financing/financial assistance, brokering services, technical assistance, other services, or engaging in ship-to-ship transfers. 

Additional Designations

• New Asset Freeze Targets: An additional 69 individuals and 47 entities have been designated as new targets. The designations target businesspersons, public figures, members of the army and the judiciary and others. The entities added to the list include companies who have actively circumvented EU Sanctions, including several Russian military defense industry companies.

Finance Restrictions

• SPFS Restrictions: It is now prohibited for EU entities operating outside of Russia to directly connect to Russia’ version of SWIFT (System for Transfer of Financial Messages (SPFS)) or equivalent specialised financial messaging services set up by the Russian Central Bank.
  • There is also authorization for the EU to designate other entities outside of Russia that use the SPFS (or equivalent) – if designated, EU persons are prohibited from engaging in any transactions with the designated entity. No entities are currently designated. 
• Credit/Crypto Designation Power: The EU has created a new power to designate non-EU credit or financial institutions or crypto services providers which facilitate, directly or indirectly, the export, sale, supply, transfer or transport to Russia of various controlled goods. Once designated, no EU persons can directly or indirectly engage in a transaction with the designated entity.  No entities are currently designated. 

Additional Measures

• Extension of Wind-Down for Partner Country “Parent Company” Services: The EU has extended the wind-down period for the provision of business services to Russian subsidiaries of EU or partner country parent companies until September 30, 2024. This had initially expired on June 20, 2024.
• Intellectual Property Rights: New restrictions on EU IP offices and institutions from accepting Russian trademarks and other IP filings.
• Ban on Political Donations: EU political parties, foundations, NGOs and media service providers are banned from accepting any donations, economic benefits or support from the Russian Government or a publicly owned Russian entity.

Claims

• Transaction Ban: There is a new mechanism to implement a transaction ban on entities that have been bringing claims in Russian courts in connection with contracts or transactions implicated by EU sanctions. No entities are currently listed. 
• Compensation for Damages: There is a new avenue for EU persons to recover damages incurred by them as a consequence of claims bought by Russian individuals and companies in third countries due to sanctions implementation, and as a result of expropriation of assets (in both cases where the EU person does not have effective access to remedies in the relevant jurisdiction).  

Next Steps for Companies

In the light of the comprehensive nature of the 14^thsanctions package, we recommend taking proactive steps to ensure compliance and establish risk mitigation evidence.

1. Re-Analyze Known Russian Exposure: For any entities with continuing Russian exposure, re-evaluate all aspects of any operations that may be affected by the new sanctions, including supply chains, financial transactions, and contractual obligations to ensure compliance by the end of the various wind-down periods set in the 14^thsanctions package.
   
   
2. Enhance Policies for EU Parented Companies: Revise your existing compliance programs to reflect the new regulatory requirements and ensure robust internal controls are in place. For EU-parented organizations, there is, for the first time, an obligation to implement policies and procedures that apply to entities they own or control to be able to show “best efforts” are being taken to prevent undermining EU sanctions.
   
   
3. Conduct a Risk Assessment for High Priority Items: EU persons that are engaged in the manufacture, export, or distribution, or “high priority items” will now need to conduct—and document—a risk assessment of their Russia-related evasion risks, even if they have no known Russia-related exposure.
   
   
4. Rescreen Counterparties: All EU persons should rescreen their counterparties against each of the new EU lists. This includes not just those added to the EU asset freezing lists, but also the material expansion of the “Military end-user” list (which results in entity-specific export control related restrictions) and, for those involved directly or indirectly in shipping, against the newly listed vessels.  For companies using screening service providers, this may require discussions with your providers to verify how, if at all, those providers are capturing the new lists beyond the asset freezing restrictions in a similar way to how U.S. companies are now grappling with BIS’s recent new list of persons involved in potential Russian diversion (see our alert from last week).
   
   
5. Monitor and Adapt to Ongoing Developments: This is a material expansion of the EU sanctions that ran more than 650 pages in total. It will be some time before its full impact is understood and new issues will continue to emerge over the course of the next few days and weeks as companies seek to implement the myriad of new provisions.  Therefore, companies need to continue to closely monitor additional information as it comes out, whether in the form of EU guidance (e.g., FAQs), industry guidance from associations, guidance by national sanctions’ implementing authorities or from firms and counterparties.

Relevant Resources

• Council Regulation (EU) 2024/1739 – Sets out the amendments to Council Regulation (EU) 269/2014 (the EU’s Russia asset freezing regulation).
• Council Implementing Regulation (EU) 2024/1746 – Sets out a list of the new Russia asset freeze targets.
• Council Regulation (EU) 2024/1745 - Introduces the changes to the sector/activity sanctions in Regulation (EU) 833/2014.