On 18 December 2023 the EU adopted further economic sanctions against Russia in response to the ongoing Russian war of aggression against Ukraine. The twelfth sanctions package tightens the existing sanctions from the previous packages, most recently from 23 June 2023 (article of 28 June 2023).
The latest package aims to weaken Russia’s ability to wage war by depriving it of further important sources of income. It also aims to make it even harder for companies and individuals to skirt existing sanctions. One measure that has garnered particular media attention is the G7’s import ban on Russian diamonds. The import of a range of further goods (in particular copper and aluminium) is now also prohibited. Export restrictions and punitive measures against individuals and organisations that support the Russian war of aggression against Ukraine have been introduced for other goods as well. In addition, the EU is tightening the price cap mechanism for Russian oil exports to third countries, which has had little practical effect to date. It has also introduced an entirely new obligation to use contractual re-exportation clauses.
The EU’s twelfth sanctions package (Regulation (EU) 2023/2878, Regulation (EU) 2023/2873 and Implementing Regulation (EU) 2023/2875) further tightens and adapts its existing sanctions against Russia. The measures affect in particular the trade-related sanctions in Regulation (EU) 833/2014 and the personal sanctions in Regulation (EU) 269/2014.
I. Import ban on diamonds
Trade with Russia has already been severely restricted, especially in the areas of oil and gas as well as iron and steel, but efforts are now being made to gradually shut down another important source of income for Russia: In early December 2023, the G7 countries agreed on a ban on the import of “Russian” diamonds. This will be implemented in the new Article 3p of Regulation (EU) 833/2014.
Article 3p covers the diamonds listed in Annex XXXVIII Parts A, B and C that originate in or are exported from Russia. Mere transit through Russia is also expressly prohibited. Beginning on 1 January 2024, sanctions will be progressively phased in for diamonds exported from or transiting Russia. From 1 March 2024 and 1 September 2024, respectively, the ban will extend to certain diamond products processed in a third country using Russian diamonds of a certain minimum weight. The import ban on diamonds provided for under the new Article 3p Regulation (EU) 833/2014 (unlike the other import bans contained in the twelfth sanctions package) thus follows the familiar pattern of Article 3g Regulation (EU) 833/2014 regarding the import of certain steel and iron products: Restrictions are imposed not only on the direct or indirect import of listed diamond products from Russia, but also on the import of diamond products from third countries, where these contain Russian “inputs” as specified in greater detail. As with Article 3g Regulation (EU) 833/2014, the importer must submit a corresponding guarantee of origin when importing the diamond products in question into the EU. From 1 September 2024, this proof must include a certificate stating that the diamonds were not mined, processed or manufactured in Russia. Companies affected by this should take the necessary steps as soon as possible.
The diamonds listed in Annex XXXVIII Parts A, B and C include, in particular, rough diamonds. In the case of natural diamonds, so-called industrial diamonds are expressly excluded from the import ban. These are used, among other things, to manufacture machines and tools. However, in the case of synthetic diamonds (“lab grown diamonds”) – which are also generally covered by the ban – no such exemption applies to the import of industrial diamonds.
The import ban on diamonds is complemented by bans on direct or indirect technical assistance, brokering services or certain other services (see Article 3p(5) Regulation (EU) 833/2014).
II. Import restrictions for other goods (in particular copper and aluminium)
The sanctions package introduces further import restrictions for goods that have generated considerable income for the Russian economy in the past. These include, in particular, copper and aluminium wires as well as pig iron and spiegeleisen, but also liquefied propane gas.
Article 3i Regulation (EU) 833/2014 and the associated Annex XXI have been amended accordingly, with Article 3i(3ca), (3cb), (3cc) and (3cd) stipulating various transition periods and clauses for existing contracts.
Unlike the import ban on diamonds and iron and steel products, the import restrictions described above only cover listed goods that originate in Russia or are exported from Russia, i.e. not goods that are manufactured or processed in a third country.
III. Expansion of export restrictions
The twelfth sanctions package also further expands the lists of goods in the annexes relevant for export-related sanctions, adding additional chemicals, lithium batteries, thermostats, direct current (DC) motors and servomotors for unmanned aerial vehicles, machine tools and machinery parts.
IV. Obligation to use re-exportation clauses
The obligation for EU companies to use re-exportation clauses (sometimes also referred to as “No Russia clauses”) in purchase and/or supply contracts contained in Article 12g Regulation (EU) 833/2014 is completely new and its practical impact should not be underestimated. It will generally enter into force on 20 March 2024.
Exporters must contractually prohibit the re-exportation of certain sensitive goods and technologies (including those listed in Annexes XI, XX and XXXV of Regulation (EU) 833/2014, i.e. essentially goods for the aerospace industry, aviation turbine fuels and certain weapons) to Russia or for use in Russia, i.e. they must include a so-called re-exportation clause or “No Russia clause”.
According to Article 12g(1) Regulation (EU) 833/2014, this does not apply to trade with partner countries listed in Annex VIII, i.e. currently the US, Japan, the United Kingdom, South Korea, Australia, Canada, New Zealand, Norway and Switzerland. Article 12g(2) provides for an exception for the fulfilment of existing contracts.
V. Prohibition of services expanded
The existing prohibition of services in Article 5n Regulation (EU) 833/2014 has been extended to the provision of software for business management and for industrial design and production described in more detail in the new Annex XXXIX. This includes, in particular, Enterprise Resource Planning (“ERP”) software and systems that map or control customer relationships or supply chains. The (partially amended) exemptions of Article 5n Regulation (EU) 833/2014 and a wind-down period for existing contracts until 20 March 2024 also apply here. Businesses may also apply for authorisation, for example under Article 5n(9b) Regulation (EU) 833/2014, if this is strictly necessary for the implementation of international open-source projects.
Further amendments address the circumvention of this prohibition in connection with crypto wallets, crypto accounts or crypto custody services for Russian nationals and residents.
VI. Enforcement of the oil price cap
The twelfth sanctions package introduces stricter compliance rules to enforce the price cap mechanism for Russian oil. To further facilitate the implementation of and compliance with the price cap while increasing the barriers to the falsification of attestations, the new rules have introduced a requirement that itemised price information on ancillary costs, such as insurance and freight, be shared upon request throughout the supply chain of Russian oil trade. An enhanced information exchange mechanism will be created to better identify vessels and organisations that engage in misleading practices in the transportation of Russian crude oil or petroleum products, such as ship-to-ship transfers to disguise the origin or destination of cargo or manipulation of the automated vessel identification system. In addition, reporting obligations will be introduced for the sale of tankers to third countries to make their sale and export more transparent, especially in the case of second-hand tankers that could be used to circumvent the import ban on Russian crude oil.
VII. Reporting obligations of EU companies with a Russian “owner”
The new Article 5r Regulation (EU) 833/2014 introduces reporting obligations for money transfers of more than EUR 100,000 to countries outside the EU. These apply to all legal persons, entities or bodies established in the EU whose proprietary rights are owned for more than 40% by a Russian company, a Russian national or a natural person residing in Russia.
VIII. Expanded import restrictions for iron and steel products
In our articles on the tenth sanctions package (1 March 2023) and eleventh sanctions package (28 June 2023), we already reported on the import restrictions on iron and steel products processed in a third country using iron and steel products listed in Annex XVII of Regulation (EU) 833/2014 originating in Russia, which were introduced with the tenth sanctions package but only came into force on 30 September 2023. The EU has since clarified the practical implementation of this import restriction by providing FAQs on Articles 3g, 3i and 3o of Regulation (EU) 833/2014, thereby creating more certainty for the companies affected.
The EU has, in particular, made it clear that a so-called Mill Test Certificate (MTC) is sufficient to comply with the obligation introduced by the eleventh sanctions package to provide proof of the country of origin of the iron and steel pre-products used to process the product in a third country. However, national authorities are free to accept other documents as proof of origin. The German customs authorities have since announced that they will also accept invoices, delivery notes, quality certificates, long-term supplier declarations, calculation and production documents, customs documents of the exporting country, business correspondence, production descriptions, manufacturer’s declarations or exclusion clauses in purchase contracts that show the non-Russian origin of the primary products.
Under the twelfth sanctions package, such proof is not required if products are imported from one of the partner countries listed in Annex XXXVI (currently Switzerland and Norway).
IX. Personal sanctions
The EU has added another 61 individuals and 86 entities to the list of personal sanctions. Regulation (EU) 269/2014 freezes funds and economic resources belonging to, owned or held by the persons listed in Annex I; it also prohibits the provision (including indirect provision) of funds or economic resources to sanctioned individuals or entities (see our articles of 7 March 2022, 12 April 2022 and 9 June 2022). The scope of application of personal sanctions has also been expanded under the twelfth sanctions package:
- The name of a natural person may now remain on the sanctions list in Annex I of Regulation (EU) 269/2014 even after their death if the objectives of the EU’s restrictive measures would be jeopardised by the removal of this person from the list, i.e. the assets would otherwise probably be used to finance the Russian war of aggression against Ukraine.
- It also includes further exemptions from the asset freeze aimed at enabling the sale or use of shares in or assets of an entity established in Russia if a EU entity’s ownership of such an entity is affected by a forced transfer by the Russian government, and enabling the termination of contracts concluded with a newly listed organisation.
In response to the EU’s eleventh sanctions package, Russia has adopted further measures aimed, among other things, at making it more difficult for Western companies to withdraw from the Russian market and protecting its capital market. For example, a government declaration was issued in July 2023 introducing new requirements for the existing authorisation obligations affecting foreign investors. This concerns the sale of shares in Russian companies by a foreign person and the distribution of dividends from Russian companies to foreign persons.
A recently published presidential decree also tightens the previously established procedure for authorising transactions between Russian residents and foreign persons from “unfriendly states” (including all EU Member States). This will also apply to certain transactions involving intellectual property, which will then require authorisation from the Government Commission for the Control of Foreign Investment in Russia. This can be seen as a response to the EU’s intellectual property-related sanctions introduced with the eleventh package.
The twelfth sanctions package introduces yet another range of new measures that companies must implement. This applies in particular to the newly created obligation to use re-exportation clauses prohibiting buyers from transferring certain goods to Russia. This is likely to be of particular relevance, as it must also be met by those companies that do not (or no longer) have direct business with Russia and (with the exception of a few partner countries) applies to all third-country transactions.
The exemption of industrial diamonds from the scope of the import ban on natural diamonds will certainly make it easier for the industry to deal with the new ban on diamond imports. For the remaining new import bans (e.g. copper and aluminium wire), the EU has refrained from restricting the import of products processed in third countries.
As with the previous sanctions packages, the EU is ramping up its efforts to prevent circumvention of the sanctions and increase their effectiveness – extending transit bans, in particular, and adapting the oil price cap rules.
Companies must therefore continue to closely monitor developments at EU level to keep track of the complicated web of EU and US sanctions as well as Russian countersanctions and to adapt their business operations accordingly. The ongoing Russian war of aggression means that there is currently no end in sight to the sanctions, and further sanctions packages and thus further changes to the legal situation are to be expected.