Briefing: European Union (“EU”) imposes further sanctions against Russia in response to the ongoing crisis in Ukraine

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Briefing: European Union (“EU”) imposes further sanctions against Russia in response to the ongoing crisis in Ukraine

Briefing: European Union (“EU”) imposes further sanctions against Russia in response to the ongoing crisis in Ukraine

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March 1, 2022

Following the adoption of restrictive measures (“sanctions”) on February 21 and 23, 2022 (see our previous briefing of¹), on February 25 and 28, 2022, the Council of the EU (“Council”) has adopted further far-reaching sanctions targeting: (1) several key sectors of the Russian economy, (2) Russian policy makers, (3) Russia’s ability to conduct financial transactions with the EU and (4) travel between Russia and the EU.

The sanctions adopted on February 25 and 28, 2022 consist of:

New sanctions designations, including Russian President Putin and the Minister of Foreign Affairs, Mr Lavrov²;
Sectoral sanctions restricting certain dealings with the financial, energy, transport, and technology sectors. For nearly all of these restrictions, the EU has foreseen either a wind-down period, with durations deferring per sector, or grandfathering provisions³.
Ban on transactions relating to reserves or asset management with the Central Bank of Russia,⁴ which will have far reading consequences for the Russian currency and economy.
Ban on sale of euro denominated transferable securities;⁵
Partial suspension of certain visa regime provisions in the Agreement⁶ on the facilitation of the issuance of visas between the EU and Russia.⁷
Ban on Russian flights from landing in, taking off from or overflying the EU territory and airspace.⁸

We look at these various measures in greater detail below. At the time of issuing this update, a further set of sanctions has been approved by the Council, including banning selected Russian financial institutions from the SWIFT payment system. Such measures have not yet been published but will become binding with immediate effect as of the date of their publication, which is expected shortly. Such measures would enter into force with immediate effect as well.

New criteria for designation and additions to the EU’s designated persons list

The criteria based on which persons and entities can be designated to the EU designated persons list (“designation”) have been expanded.

We recall that being a “designated person” in the EU means that all funds and economic resources belonging to, held or controlled by a designated person are frozen. Consequently, EU persons are prohibited from making funds or economic resources available directly or indirectly, to or for the benefit of designated persons, or persons and entities owned or controlled by such designated persons. In addition, designated persons in the EU are usually subject to a travel ban.

The new designating criteria capture actions or policies that “undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, or stability or security in Ukraine, or which obstruct the work of international organizations in Ukraine".⁹

Most notably, persons and entities can be included if they are:

Natural persons responsible for, supporting or implementing actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, or stability or security in Ukraine, or which obstruct the work of international organizations in Ukraine;
Legal persons, entities or bodies supporting, materially or financially, actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine;
Legal persons, entities or bodies in Crimea or Sevastopol whose ownership has been transferred contrary to Ukrainian law, or legal persons, entities or bodies which have benefited from such a transfer;
Natural or legal persons, entities or bodies supporting, materially or financially, or benefiting from Russian decision-makers responsible for the annexation of Crimea or the destabilization of Ukraine;
Natural or legal persons, entities or bodies conducting transactions with the separatist groups in the Donbas region of Ukraine;
Natural or legal persons, entities or bodies supporting, materially or financially, or benefitting from the Government of the Russian Federation, which is responsible for the annexation of Crimea and the destabilization of Ukraine; or
Leading businesspersons or legal persons, entities or bodies involved in economic sectors providing a substantial source of revenue to the Government of the Russian Federation, which is responsible for the annexation of Crimea and the destabilization of Ukraine, and natural or legal persons, entities or bodies associated with them.

Pursuant to these seven criteria, the Council designated 98 natural persons, mostly politicians and military officers in Russia, including Vladimir Putin, the President of the Russian Federation, and Sergey Lavrov, Minister of Foreign Affairs of the Russian Federation, as well as some Belarussian individuals. Out of the newly designated persons, all except for President Putin and Foreign Minister Lavrov, are subject to a travel ban.

Further sectoral sanctions

Whereas previous sanctions targeting Russia already restricted the provision of dual-use goods where the end use was military in nature, the sanctions adopted on February25 and 28, 2022 prohibit entirely the provision of dual use goods and technology to persons in Russia or for use in Russia, and further limit the possible exemptions that could be applied for.

Other sectoral sanctions adopted on 25 and 28 of February include:

Type of prohibition	Applies from	Exceptions	Grandfathering in clause / wind down
Prohibition against providing public financing or financial assistance for trade with or investments in Russia	Immediate effect	Projects below €10million intended for the benefit of SME’s established in the EU Public financing or financial assistance for trade in food, and for agricultural, medical, or humanitarian purposes	Contracts entered into before February 26, 2022 may be completed, without requiring a license
Prohibition against selling or supplying, or financing specific goods and technology for use in oil refining	Immediate effect	Special authorizations may be applied for with Member State authorities	Contracts entered into before February 26, 2022 and ancillary contracts may be continued until May 27, 2022, without requiring a license
Prohibition against providing specifically listed goods or technology for use in aviation, or providing overhaul, repair, inspection, replacement, modification or defect rectification of an aircraft or component, with the exception of pre-flight inspection	Immediate effect	Special authorizations may be applied for with Member State authorities, and in case of emergency, transactions may proceed without authorization provided a five-day notification period is respected thereafter	Contracts entered into before February 26, 2022 and ancillary contracts may be continued until March 28, 2022, without requiring a license
Prohibition against dealing in transferable securities and money-market instruments (no maturity requirement) issued by: Designated publicly owned banks, or banks involved in supporting the government or the Central Bank. Newly designated banks are Alfa Bank, Bank Otkritie, Bank Rossiya and Promsvyazbank. Designated military equipment manufacturers or service providers Designated publicly owned petroleum companies Designated publicly owned entities wherein the Russian government or Central Bank has the right to participate in profits. these restrictions will apply as of April 12, 2022 to previously designated entities as well.⁹	April 12, 2022	N/A	N/A
Prohibition against providing loans or new credit to any entities designated under the criteria set out above.¹¹	Immediate effect	Loans with a specific and documented objective to: Provide financing for non-prohibited imports or exports of goods between the EU and third countries; Provide emergency funding to meet solvency and liquidity criteria for EU entities owned for more than 50% by financial sanctions targets	N/A (previously existing loan contracts may still be carried out), without requiring a licence
Prohibition against transactions relating to the management of reserves as well as assets of Russia’s Central Bank or any person acting on its behalf	Immediate effect	Not applicable to transactions necessary to ensure the EU’s financial stability – license requirement	N/A
Prohibition against accepting deposits from any Russian national or person residing in Russia where deposits exceed € 100,000	Immediate effect	Not applicable to: EU Member State residents Necessary for non-prohibited cross-border trade in goods and services between the EU and Russia A special authorization to pay for basic needs, legal services, diplomatic expenses, or extraordinary expenses may be granted.	N/A

As is generally the case regarding EU sanctions, EU persons are protected from liability for actions taken in accordance with the above measures, such as terminating contracts, freezing assets etc. EU persons are expected to comply immediately with the measures adopted.

Ban on transactions relating to reserve or asset management of the Central Bank of Russia

Effective immediately as of February 28, 2022, EU persons may not enter into transactions which relate to the management of reserves or assets of the Central Bank of Russia, including any person acting on its behalf or its direction. The Council has in the past¹² clarified that “acting on behalf or at the direction of” should be assessed by taking into account all relevant circumstances, such as the precise ownership/control structure, including links between natural persons; the nature and purpose of the transaction, coupled with the stated business duties of the entity that is owned or controlled; previous instances of acting on behalf or at the direction of the targeted entity; disclosure made by third parties and/or factual evidence indicating that directions were given by the targeted entity, without however any one of these being decisive in and of itself.

A license requirement applies to any transaction, which an EU Member State competent authority deems is strictly necessary to ensure the EU’s or a Member State’s financial stability, taken as a whole. Any Member State, which receives such request, must inform the Commission and other Member States.

Ban on euro denominated transferable securities

EU persons will be prohibited from selling euro denominated transferable securities issued after 12 April 2022, or units in collective investment undertakings providing exposure thereto to any Russian national, person or entity in Russia. Russian nationals having EU nationality or residence permit are excluded.

Visa Restrictions

Finally, the Council decided to partially suspend the application of the EU – Russia visa agreement.

Ban on Russian flights

Finally, the EU has imposed a blanket flight ban on Russian planes. All Russian-owned, Russian-registered or Russian-controlled aircrafts are prohibited from landing in taking off from or overflying any EU territory.

In an address to the Ukrainian people of Sunday, February 27, 2022, Charles Michel, President of the European Council confirmed provision of “emergency defensive military equipment” to Ukraine, stating also that the EU’s sanctions “will go further”. On Sunday, February 27, 2022, the EU also announced the direct provision of arms to Ukraine.

Dentons will continue to monitor and report as events unfold. Please feel free to reach out to your Dentons relationship partner if you have any questions or require assistance in sanctions compliance.

Local key contacts:

Diego Pol, Barcelona
Maria Brakalova, Berlin
Julia Pfeil, Frankfurt
Ethan Heinz, Prague

"Briefing: New package of European Union (“EU”) sanctions against Russia in response to the crisis in Ukraine," February 24, 2022
Adopted with immediate effect on 25 February 2022.
Adopted with immediate effect on 25 February 2022.
Adopted with immediate effect on 28 February 2022.
The Agreement between the European Community and the e Russian Federation on the facilitation of the issuance of visas to the citizens of the European Union and the Russian Federation.
Adopted with immediate effect on 25 February 2022 for all euro denominated transferable securities issued after 12 April 2022.
Adopted with immediate effect on 25 February 2022.
Adopted with immediate effect on 28 February 2022.
Council Regulation 2022/330 amending Regulation 269/2014 (OJ L 51, 25.02.2022, p. 1).
Previous versions of Regulation 833 (OJ L 229, 31.7.2014, p. 1), as amended already imposed such restrictions but required the securities and instruments in question to exceed a maturity of 30 days. Certain banks and oil companies, such as Gazprom Neft and Gazprom Bank were already subject to these restrictions. As of 12 April 2022, the financial restrictions applicable to these entities will therefore be strengthened.
The same comment as set out above should be taken into account. It was already restricted to provide new loans or credit with a maturity exceeding 30 days to designated entities. The newly adopted sanctions strengthen these restrictions in the sense that as of 26 February 2022, no maturity is required as regards to such loans or credit provisions, meaning that any loan or credit would be prohibited unless it falls within the exceptions.
Commission Opinion of 17.10.2019 on Article 5(1) of Council Regulation 833/2014.