Firms urged to check compliance as EU increases sanctions against Russia

Out-Law News | 30 Jul 2014 | 2:26 pm | 2 min. read

Companies have been urged to check that they do not fall foul of a new package of European Union sanctions against Russia, which include limiting access to EU capital markets for Russian state-owned financial institutions.

The sanctions announced on 29 July, which are due to enter into force when published as EU regulations on 31 July, include curtailing Russian access to “sensitive technologies” particularly in the oil sector.

Legal expert Tom Stocker of Pinsent Masons, the law firm behind, said the sanctions will apply to all EU companies and persons operating anywhere in the world and to any overseas company and person when doing business within the EU.

Stocker urged companies to check the terms of any financing documentation “as it is common for lenders to require EU and non-EU companies to agree to comply with sanctions regimes globally, including EU sanctions”.

As breaching sanctions is a criminal offence, Stocker said businesses needed to proceed carefully and to “take specific legal advice if there is any doubt about whether or not the sanctions apply”.

Stocker said the new sanctions will prohibit EU nationals and companies from buying or selling new bonds, equity or similar financial instruments with a maturity exceeding 90 days issued by major state-owned Russian banks, development banks, their subsidiaries and those acting on their behalf. Services related to the issuing of such financial instruments, such as brokering, will also be prohibited.

Exports of certain energy-related equipment and technology to Russia will be subject to prior authorisation by competent authorities of EU member states, Stocker said. “Export licenses will be denied if the equipment is provided under a contractual obligation which post-dates the European Council's announcement of 29 July and the products are destined for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia,” he said.

“The sanctions will, in the main, apply to new contracts and it is anticipated that the provision of financing, products and related services required under pre-existing contractual obligations will be allowed, at least for a limited period,” he said.

According to Stocker, the import and export of arms and related material covering all items on the EU common military list will also be prohibited, although there will be an exemption for orders under pre-existing contracts. The sanctions also cover exports of dual use goods and technology for military use in Russia or to Russian military end-users, Stocker said. All items on the EU list of dual use goods (269-page / 4.3MB PDF) are included, although there will be an exemption for orders under pre-existing contracts.

The sanctions also include a ban on new investment in infrastructure projects in the transport, telecommunications and energy sectors in Crimea and Sevastopol and in relation to the exploitation of oil, gas and minerals. Key equipment for the same six sectors may not be exported to Crimea and Sevastopol and finance and insurance services related to such transactions must not be provided.

UK laws to implement the EU regulations will make it an offence to deliberately do anything which has the object or effect of circumventing the prohibitions.

“Supplies of products into Russia via non-EU subsidiaries may be caught if title to the products is in the hands of the EU parent company, which is often required for financing reasons, or an EU company or where EU-based directors need to approve the contract or supply in accordance with the company's pre-existing governance arrangements," Stocker said.

“Companies should check the scope of their pre-existing contracts with Russian businesses or which relate to the provision of financing and relevant products and services for use in Russia. If there is a pre-existing contractual obligation under which the supply is required to proceed, it may be exempt from the scope of the EU regulations. However, the exemption is unlikely to cover supplies under framework agreements where there is no obligation to supply or to orders under contracts which were extended after 29 July 2014," he said.