April 2022 Blog

Sanctions imposed on Russia and Belarus – Overview and Recommended Actions

(Updated on 31 March 2022)

Following Russia’s unlawful recognition of the Ukrainian territories calling themselves “Donetsk People’s Republic” and “Luhansk People’s Republic” and Russia’s unlawful invasion of Ukraine, sanctions were announced against Russia and Belarus first and foremost by the EU and the US, but also by many other countries as well.

The EU sanctions packages in detail

First EU sanctions package of 23 February 2022

Russia was already targeted with a first wave of sanctions when it recognised the so-called “People’s Republics” of Donetsk and Lugansk on 21 February 2021. On 23 February 2022, the EU foreign ministers adopted Implementing Regulation (EU) 2022/260 imposing sanctions on 26 individuals and entities threatening the territorial integrity of Ukraine. Through their inclusion in Annex I of Regulation (EU) No 269/2014, their assets in the EU were frozen and they are subject to a comprehensive prohibition on making funds and economic resources available. At the same time, well over 300 members of the Russian Duma who voted to recognise “statehood” for Donetsk and Lugansk were likewise sanctioned under Implementing Regulation (EU) 2022/261.

Furthermore, Regulation (EU) 2022/262 amended Regulation (EU) No 833/2014 to prevent refinancing measures for the Russian State. Among other things, this provides for a ban on directly or indirectly purchasing or selling transferable securities and money market instruments issued after 9 March 2022, on providing investment or ancillary services when issuing such instruments, or on otherwise trading in the same if they were issued by Russia, the Russian Government, the Central Bank of Russia, or on behalf of, or at the direction of, the Central Bank of Russia (new Article 5a).

In addition, Regulation (EU) 2022/263 imposed restrictions on trade in goods and technologies for use in the Ukrainian regions of Donetsk and Lugansk. Firstly, it is prohibited to import goods originating in the occupied territories into the European Union (Article 2). Moreover, exports of certain goods listed in Annex II of the Regulation into such territories are prohibited; the sectors concerned are transport, telecommunications, energy, the prospecting, exploration and production of oil, gas and mineral resources (Article 4). Secondly, it is prohibited to provide services in the form of technical assistance, brokering services and financial assistance. It is furthermore prohibited to acquire any new, or extend any existing participation in ownership of real estate, as well as to create any joint ventures, in the specified territories (Article 3). Also prohibited are services related to tourism activities in the Ukrainian regions of Donetsk and Lugansk (Article 6). The European Commission also informed in a “Notice to importers” (2002/C 87 I/01) that the necessary conditions for preferential tariff treatment are no longer fulfilled for goods produced in or exported from the non-government controlled oblasts of Donetsk and Lugansk.

Second EU sanctions package of 25 February 2022

A second sanctions package was adopted on 25 February 2022 and also entered into full force and effect on 25 February 2022. Regulation (EU) 2022/328 likewise made amendments to Regulation (EU) No 833/2014 and related to the sectors defence, energy, aviation and finance.

It is now prohibited to sell, supply, transfer or export, directly or indirectly, dual-use goods and technology, whether or not originating in the Union, to any natural or legal persons, entity or body in Russia or for use in Russia (new Article 2(1)). Likewise, restrictions on the provision of services relating to the dual-use goods are introduced (new Article 2(2)).

But not only dual-use goods are covered. A ban relating to the direct or indirect sale, supply, transfer and export of electronic components listed in Annex VII, whether or not originating in the Union, to any natural or legal persons, entity or body in Russia was also included (new Article 2a(1)). It is likewise now prohibited to sell, supply, transfer or export, directly or indirectly, certain goods and technology suited for use in oil refining, as listed in Annex X of Regulation (EU) No. 833/2014, whether or not originating in the Union, to any natural or legal person, entity or body in Russia or for use in Russia (new Article 3b(1)). In this connection also, new restrictions apply to services (new Article 3b(2)). Similar bans apply to goods and technologies suited for use in aviation or the space industry as listed in Annex XI, whether or not originating in the Union. In this regard, the prohibition on making funds and economic resources available as well as prohibitions on providing insurance services and other services also apply (new Article 3c).

Furthermore, the financial restrictions were further expanded. This relates in particular to the access of Russian entities to the financial and capital markets (new Articles 5 ff.). Also prohibited were the acceptance of any deposits from Russian nationals, natural persons residing in Russia, or legal persons, entities or bodies established in Russia, if the total value of deposits of the natural or legal person, entity or body per credit institution exceeds EUR 100,000 (new Article 5b). By no later than 27 May 2022, credit institutions are moreover required to supply a list of deposits exceeding EUR 100,000 held by Russian nationals or natural persons residing in Russia, or by legal persons, entities or bodies established in Russia. Until further notice, institutions must comply with this duty to inform every twelve months (Article 5g(1)(a))). Additionally, Article 2e(1) provides for a ban on the provision of public funding or financial assistance for trade with or investment in Russia. Germany is, therefore, not issuing any further Hermes guarantees and German Government investment guarantees for Russia transactions

By Regulation (EU) 2022/330 further amendments were made to Regulation (EU) 269/2014. The aim of the amendments is to include further persons and entities supporting or benefiting from the Government of the Russian Federation. Furthermore, sanctions are to be imposed on persons and entities providing a substantial source of revenue for the Russian Government as well as natural or legal persons associated with them. In this regard, the scope of Regulation (EU) No 269/2014 was expanded (new Article 3). The new sanctions on individuals also extend to Russian President Vladimir Putin and Russian Foreign Minister Sergey Lavrov (no. 669 and 670 of Annex to Implementing Regulation (EU) 2022/332) who were included along with numerous other persons and entities in Annex I of Regulation (EU) 269/2014. The assets of the natural and legal persons, entities or bodies listed in Annex I to Regulation (EU) 269/2014 are frozen. They are subject to a comprehensive prohibition on making funds and economic resources available.

Third EU sanctions package between 28 February and 10 March 2022

Based on the new Regulation (EU) 2022/334 of 28 February 2022, further amendments were made to Regulation (EU) No 833/2014. From 28 February 2022, any Russian aircraft are prohibited from overflying EU airspace (new Article 3d). Moreover, transactions related to the management of reserves as well as of 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 (Article 5a new paragraph 4).

By Regulation (EU) 2022/345 of 1 March 2022, the EU once again amends Regulation (EU) 833/2014 and excludes selected Russian banks from the SWIFT system as of 13 March 2022. The following banks are affected: Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank, VNESHECONOMBANK (VEB) and VTB BANK (Article 5h). This further significantly restricts payment transactions with Russia. This is expected to result in a cessation of payments of Russian business partners holding accounts with these banks. It is further prohibited to invest, participate or otherwise contribute to projects co-financed by the Russian Direct Investment Fund, on the one hand; and to sell, supply, transfer or export euro denominated banknotes to Russia or to any natural or legal person, entity or body in Russia, on the other (Article 5i). Moreover, investments in projects co-financed by the Russian Direct Investment Fund are prohibited (Article 2e).

In addition to this the EU, by the new Regulation (EU) 2022/350 of 1 March 2022, imposed sanctions on the state-owned Russian media outlets Russia Today and Sputnik for disseminating government disinformation (Article 2f). The broadcasters and their branches are henceforth prohibited from disseminating content in the EU.

Implementing Regulation (EU) 2022/353 of 2 March 2022 supplements Annex I of Regulation (EU) 269/2014 by including high-ranking members of the Belarusian armed forces and the Belarusian Ministry of Defence who are now also subject to a strict prohibition on making funds and economic resources available. By Regulation (EU) 2022/355 of 2 March 2022, the sanctions imposed on Belarus due to its complicity in the military aggression were significantly expanded. Regulation (EG) 765/2006 is expanded to include a general ban on the provision of dual-use goods. The limitation of the ban to military end-users no longer applies. Furthermore, import banks are imposed on wood products, iron and steel products and other goods. The export of certain machinery is also prohibited; the Commission will issue implementing acts for this.

By Implementing Regulation (EU) 2022/396 of 9 March 2022, Annex I of Regulation 269/2014 was extended to include 146 members of the Federation Council of the Russian Federation as well as 14 further persons. Likewise on 9 March 2022, Regulation (EU) 2022/394 amending Regulation (EU) 833/2014 was published. It introduced a new Annex XVI, which lists maritime navigation goods and technologies (navigation and radio-communication equipment), whether or not originating in the EU, for which there is a ban on selling, supplying, transferring or exporting them, directly or indirectly, to any natural or legal person, entity or body in Russia, for use in Russia, or for the placing on board of a Russian-flagged vessel (Article 3f(1)). It is also prohibited to provide services related to those goods or to the provision, manufacture, maintenance and use of those goods and technologies to any natural or legal person, entity or body in Russia or for use in Russia (Article 3f(2)). Exemptions exist for goods and technologies for non-military end-users intended for humanitarian purposes. An exception is also possible if the goods or technologies or the related technical or financial assistance are intended for maritime safety (Article 3f(4).

By Regulation (EU) 2022/398 of 9 March 2022, the sanctions imposed on Belarus were once again significantly expanded (exclusion of certain banks from SWIFT; ban on transactions with the Belarusian Central Bank; ban on exchange trading with Belarusian state-owned or partly state-owned legal persons; prohibition on making funds or economic resources available with regard to public financing or financial assistance for trade with, or investment in, Belarus; ban on accepting any deposits from Belarusian nationals or natural persons residing in Belarus, or legal entities or bodies established in Belarus, if the total value of deposits per credit institution exceeds EUR 100,000; ban on the holding of accounts of Belarusian clients by the EU central securities depositories as well as ban on the selling of euro denominated securities to Belarusian clients; ban on export or provision of euro denominated banknotes).

Implementing Regulation (EU) 2022/408 of 10 March 2022 amended the entries in Annex I of Regulation (EU) No. 269/2014 with respect to previously listed persons and entities (mainly with regard to the grounds for their listing). At the same time, the Council extended the sanctions against those persons undermining or threatening the territorial integrity, sovereignty and independence of Ukraine for another six months until 15 September 2022. The restrictive measures include travel restrictions, freezing of assets as well as the prohibition on making funds or economic resources available to the listed persons and entities.

Forth EU sanctions package of 15 March 2022

On 16 March 2022, the fourth sanctions package took effect with Regulation (EU) 2022/428of 15 March 2022. It prohibits investments in the Russian “energy sector” as defined in the new Article 1(u); pursuant to this definition activities related to fossil fuels as well as energy and power generation are covered, but not civil nuclear related activities. The ban on new investments in the Russian energy sector extends in particular to all investments, transfers of technology, technical assistance and financial services for the development of energy sources and for energy production (Article 3a(1)). However, there is a possibility of authorisation for corresponding investments that are necessary for securing critical energy supplies in the EU or the transport of fossil fuels from or through Russia to the Union, or that exclusively benefit a Russian subsidiary of an EU company (Article 3a(2)).

Moreover, the export of Annex II goods (esp. pipes) to Russia is now prohibited instead of being merely subject to an authorisation as is was the case in the past; this also applies to related services (Article 3(1) and (2)). However, exemptions apply if the supplies/services are required for the transport of fossil fuels from or through Russia into the EU or for the urgent prevention or mitigation of events likely to have a serious impact on human health and the environment (Article 3(3)); moreover, an old contract provision applies to contracts already concluded up to 17 September 2022(Article 3(4)). There is moreover a comprehensive ban on (directly or indirectly) engaging in transactions with twelve of the Russian state businesses listed in Annex XIX (OPK OBORONPROM, UNITED AIRCRAFT CORPORATION, URALVAGONZAVOD, ROSNEFT, TRANSNEFT, GAZPROM NEFT, ALMAZ-ANTEY, KAMAZ, ROSTEC (RUSSIAN TECHNOLOGIES STATE CORPORATION), JSC PO SEVMASH, SOVCOMFLOT, UNITED SHIPBUILDING CORPORATION) (Article 5aa(1)(a)). The ban also applies to legal persons, entities or bodies established outside the EU whose shares are held for more than 50% by one of these listed entities (Article 5aa(1)(b)) and to persons, entities or bodies acting on behalf or at the direction of the listed entities or their majority-owned non-EU subsidiaries(Article 5aa(1)(c)). Contracts already concluded may be fulfilled until 15 May 2022 (Article 5aa(2)); furthermore, exemptions from the ban are provided for transactions absolutely necessary for the purchase, import or transport of fossil fuels and certain metals from or through Russia to the EU (Article 5aa(3)). Furthermore, certain iron and steel products originating in Russia or exported from Russia and listed in Annex XVII of Regulation 833/2014 may no longer be imported to the EU (Article 3g(1)(a)-(c)) or services related thereto may no longer be provided (Article 3g(1)(d)); for contracts concluded before March 16, 2022, an old contract provision applies, provided they are fulfilled by June 17, 2022 (Article 3g(2)). Likewise, the export to Russia of luxury goods listed in Annex XVIII if their value as a general rule exceeds EUR 300.00 per item is restricted (Article 3h). This covers a wide range of goods, from golf clubs and wrist watches worth over EUR 750.00, to vehicles worth more than EUR 50,000.00. In addition, the provision of credit rating services to any Russian national, or natural person residing in Russia or any legal person, entity or body established in Russia by EU rating agencies is prohibited (Article 5j). Moreover, by Implementing Regulation (EU) 2022/427 of 15 March 2022, the list of sanctioned persons and entities in Regulation (EU) No 269/2014 was expanded to include a further 15 oligarchs and business elites with connections to the Kremlin as well as companies from the military and defence areas providing logistics and material support for the invasion of Ukraine, as well as further players active in the area of disinformation.

Likewise on 15 March 2022, the EU, together with other members of the World Trade Organization (WTO), agreed to deny Russian products and services most-favoured nation status on the EU markets. This move had already been announced by the G7 countries (Germany, France, Italy, Japan, Canada, UK, US) on 11 March 2022. What is referred to as most-favoured nation treatment is a key principle of the WTO and essentially states that a country is to be granted the same trade advantages as other trading partners. Denying Russia most-favoured nation treatment enables trading partners to impose higher duties on imports from Russia. This is possible by invoking the national security exception (Article XXI(b) GATT) under which WTO members may take measures which in their view are “necessary for the protection of [their] essential security interests”, e.g. “in times of war or other emergency in international relations”.

US and other third country sanctions

The US decided to impose new sanctions already before 24 February 2022. On 21 February 2022, President Biden signed a new Executive Order banning investments as well as imports and exports to the so-called People’s Republics of Donetsk and Lugansk. Pursuant to Sec. 2 of the Executive Order, the sanctions are of extraterritorial character (“secondary sanctions”).

As in the EU, the US is seeking to exclude Russia from the financial markets. By amended Directive 1A under Executive Order14024, the Central Bank of the Russian Federation, the Russian State Fund and the Russian Ministry of Finance were sanctioned on 22 February 2022. As of 1 March 2022, US financial institutions are prohibited from participating on the secondary market in bonds/debt securities issued by the aforementioned institutions. Given the broad definition of the term “US financial institution”, this also covers branches, subsidiaries and affiliates of US financial institutions, which may be located outside the United States. On 23 February 2021 on the basis of Executive Order 14039, Nord Stream 2 AG and its managing director were added to the “Specially Designated Nationals and Blocked Persons” list. Their assets are thus frozen.

Based on Executive Order 14024, sanctions were imposed on the ten most important Russian financial institutions by the Office of Foreign Assets Control (OFAC). These affect, among others, Russia’s largest two banks, Public Joint Stock Company Sberbank of Russia (Sberbank) and VTB Bank Public Joint Stock Company (VTB Bank). The measures also extend to their respective subsidiaries. US financial institutions are prohibited by Directive 2 under Executive Order 14024 of 24 February 2022 from opening or maintaining correspondent or payable-through accounts. Existing accounts of Sberbank are to be closed within 30 days. Payments that Sberbank attempts to process in US dollars for its clients – with examples ranging from technology to transportation – will be rejected in future. The assets of VTB Bank are completely frozen.

Moreover, Russia-related debt and equity restrictions were expanded to other key areas of the Russian economy. For this purpose, the OFAC issued Directive 3 under Executive Order 14024 on 24 February 2022. It covers restrictions on all transactions in new debt of longer than 14 days maturity and new equity, where such new debt or equity is issued after 25 March 2022 by thirteen of the Russian state-owned companies and entities listed in the Annex to Directive  3.

Under Directive 4 under Executive Order 14024 of 28 February 2022, US persons are prohibited from engaging into any transactions involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.

The US also imposed further sanctions on individuals. On the basis of Executive Order 14024, further individuals close to Putin were sanctioned. They include family members and senior executives of state banks. Their assets are frozen and they are banned from traveling to the US. The US also took measures against 24 Belarusian individuals and entities – including two important Belarusian state banks, new defence companies and seven persons associated with the regime. Lastly, the OFAC also imposed sanctions on Russian Federation President Putin and Russian Minister of Foreign Affairs Lavrov.

Meanwhile, to make the sanctions more targeted, several General Licenses were published enabling US persons to do business with the Russian Federation in very limited areas.

The Bureau of Industry and Security (BIS) furthermore made comprehensive amendments to the Export Administration Regulations (EAR) to restrict trade with Russia (Sec. 746.8 EAR). These restrictions relate to US items and foreign-made items produced using US equipment, software and construction plans and which may support Russia’s Ministry of Defence, military and secret services. These goods include, but are not limited to, semi-conductors, computers, telecommunications, information security equipment, lasers and sensors.

The US has also issued further sanctions. By Executive Order 14066of 8 March 2022, the US banned in particular the import of Russian oil, liquefied natural gas and coal to the US as well as investments by US investors in the Russian energy sector. By Executive Order (E.O.) of 8 March 2022, the US imposed an import ban in the energy sector relating to crude oil, petroleum, petroleum fuels and oils, including products of their distillation, as well as liquefied natural gas and coal products originating in Russia. The ban also covers any new investment in Russia’s energy sector by US persons. Lastly, any approvals, financings, facilitations or guarantees for transactions provided by a US person to a foreign person are prohibited if the transaction would be prohibited under the provisions of the EU if performed by a US person or within the US. Under General License No. 16 of 8 March 2022, the imports prohibited by the EO of 8 March 2022 pursuant to written contracts or written agreements entered prior to 8 March 2022 are authorised through 12:01 a.m. eastern daylight time, 22 April 2022; the same applies to new investments which are in line with normal business practice and are required for importing the aforementioned products.

The Executive Order on Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression (Executive Order 14068) of 11 March 2022 prohibits among other things the import of fish, seafood, alcoholic beverages and non-industrial diamonds of Russian origin as well as the export, re-export, sale or supply of luxury goods to Russia. The US Bureau of Industry and Security has added a new section to Part 746 – Sec. 746.10 and Supplement No. 5 – to implement the ban on the export and sale of luxury goods.

Besides the above sanctions of the EU and the US, several other countries, in particular Australia, Japan, Canada and the UK have also imposed sanctions on the Russian Federation. Businesses with such links are advised to inform themselves on these matters.

Recommendations for action

All companies with business links to Russia have to review their contracts and supply chains. Exporters should review the extensive lists of goods and technologies in recast Regulation (EU) 833/214 as well as in Regulation (EC) 765/2006. Fulfilment of existing contracts is very largely impermissible.  To the extent that authorizations may be granted in exceptional cases, given the current situation, businesses cannot, however, expect to obtain permits quickly.

In view of the significant financial sanctions, payment defaults are also likely. There is also the risk of businesses no longer being able to meet their own payment obligations. Before making any payments, it is advisable to first review their legal and actual feasibility.

Given the significantly expanded sanctions lists, business partners – even outside Russia – should be reviewed at short intervals where possible. Most software providers have updated their lists. However, it is advisable to carry out further background checks.

There are still considerable uncertainties with regard to the concrete interpretation of a large number of sanctions provisions. In the meantime, the first FAQs have been published by the European Commission, the Federal Office for Economic Affairs and Export Control (Bundesamtes für Wirtschaft und Ausfuhrkontrolle – BAFA) and the German Federal Bank (Deutsche Bundesbank). However, many questions remain unanswered. Therefore, in view of the far-reaching consequences under criminal and/or administrative law that a violation of the sanction regulations entails, great caution is advised for transactions with a connection to Russia.

Furthermore, since the scope of the sanctions may change daily, it is important to continue observing them carefully on a daily basis. Companies must make sure they are ready and able to respond to changing sanctions regimes, if necessary also on very short notice.

(Updated on 31 March 2022)

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