New embargo situation for the region Russia, Ukraine, Belarus

NEW GOODS-RELATED PROHIBITIONS IN THE RUSSIA-EMBARGO-VO (REGULATION (EU) NO. 833/2014)

The new EU sanctions measures introduced comprehensive prohibitions on the sale, supply, transfer and export of the goods and technology listed below, as well as on technical assistance, brokering services and "other services", and on the provision of financing or financial assistance related to these goods and technology:

• Goods and technology covered by Annex I of the EU Dual-Use Regulation, now completely independent of any specific purpose or recipient.
• Goods and technologies that could contribute to Russia's military and technological strengthening or to the development of the defense and security sector. The new Annex VII of the Russia Embargo Regulation lists a wide variety of goods and technologies related to general electronics, computers, information security, sensors and lasers, navigation and avionics, marine and naval technology, aviation, space, and propulsion. These goods and technologies are often below the coverage threshold of similar goods already listed in Annex I of the EU Dual-Use Regulation.
• Goods and technology that can be used for oil refining, listed in the new Annex X of the Russia Embargo Regulation.
• Goods and technologies for use in the aerospace industry, listed in the new Annex XI of the Russia Embargo Regulation. This includes aircraft and parts thereof. The provision of some specifically listed technical services from the aviation sector for the benefit of Russian companies or persons or in Russia is also explicitly prohibited. 

These prohibitions are subject to only a few very narrow and specific exceptions or limited exemptions (approval reservations) for certain old contracts. Annex II of the Russia Embargo Regulation, which has been in force since 2014 (licensing requirement for oil exploration and production goods), should also not be forgotten.

All of the aforementioned restrictions also apply to so-called indirect/indirect business activities with other third countries, other EU member states or within Germany, if a (final) use or (final) destination in Russia is known or identifiable.

CAPITAL MARKET RESTRICTIONS, PROVISIONING PROHIBITIONS AND OTHER MEASURES

Part of the newly adopted EU sanctions are also the following measures:

• Sectoral ban on financing Russia, the Russian government and the Russian Central Bank.
• Ban on transactions related to the management of reserves and assets of the Central Bank of Russia.
• Restriction of access of certain Russian organizations to capital markets, prohibition of listing and provision of services related to shares of state-owned Russian companies on Union trading venues.
• Prohibition on taking deposits from Russian citizens or residents in excess of certain values, account maintenance and sale of euro-denominated securities to Russian customers.
• Expansion of the list of names in Annex I to Regulation (EU) No. 269/2014 by 351 members of the Russian State Duma, initially 27 other individuals and four organizations (including the following banks: Bank Rossiya, PROMSVYAZBANK, VEB.RF), and then by another 98 natural persons, including Russian President Vladimir Putin, which means that there is now a ban on providing funds and economic resources to these individuals and organizations, among others.
• Import bans on goods from non-government-controlled "specified areas" in Ukraine's Donetsk and Luhansk regions, broad export and investment bans on certain sectors of the economy, and a ban on the provision of tourist services. These measures regarding the "specified areas" are similar in scope to those regarding Crimea and Sevastopol under Regulation (EU) No. 692/2014.
• Ban on landing and overflight concerning the territory of the EU for aircraft with Russian operator, owner, charterer and/or Russian registration or under Russian control.
• Exclusion of certain Russian banks from the SWIFT international payment system.

Further sanctions packages announced or in prospect in response to the Russian invasion

Currently, further EU "sanctions packages" have already been announced or are in prospect, but are not yet in force.

According to announcements by the press and associations, this could take the form of further personal measures in the form of prohibitions on the provision of services to persons, organisations or institutions, as well as sectoral restrictions on energy imports or the export of luxury goods. In addition, it has been announced that further sanctions measures will also be imposed in relation to Belarus due to the Belarusian government's support for the Russian invasion.

New restrictions against further Russian-controlled areas in the territory of Ukraine are also possible.

US measures

The US has also already adopted and enacted various measures related to the invasion of Ukraine by forces of Russia.

These include, for example:

• Licensing requirement for all EAR goods in categories 3 to 9 of the Commerce Control List (some EAR general licences apply)
• Amendment of the de minimis rule for Russia
• Strong extension of the Military End Use(r) rule (MEU) for Russia
• Introduction of two additional "Foreign Direct Product Rules" (FDPR)
• Financial sanctions against Russian banks

For information on the scope and background of the US measures, we recommend the newsletter of the US law firm Nixon Peabody LLP.

Further notes

The newly adopted capital market restrictions in connection with the provision of funds to Russia, the Russian government and the Central Bank are not a ban on all payment transactions with Russia, but a ban on directly or indirectly buying, selling, providing investment services or assistance in issuing or otherwise dealing in transferable securities and money market instruments of Russia, the Russian government and the Central Bank. It should be noted, however, that some Russian banks or financial institutions, including the Central Bank of Russia, are now on sanctions lists and are therefore affected by a direct and indirect ban on the provision of funds and economic resources anyway.

It should also be noted that the processing of payments in connection with Russia has been significantly restricted in practice due to the exclusion of several Russian banks from SWIFT. The consequence of the SWIFT exclusion of several Russian banks could be that payment transactions with Russia effectively come to a standstill.

Furthermore, it should be borne in mind that even without explicit restrictions in the EU sanctions measures, European banks could completely turn away from doing business in Russia for other compliance reasons.  

In view of the new embargo measures, particular caution is required in all aspects of foreign trade related to Russia, Ukraine and Belarus. In particular, it is necessary to subject every activity in a known or recognisable connection with Russia, Ukraine and/or Belarus to an individual examination with a view to being affected by embargo measures.

In order to react effectively and uniformly to the embargo measures, coordinated action within the company should be ensured. It is advisable to centrally bundle the competences for the procedure in connection with the new embargo measures, for example with the person responsible for exports or with the export control staff unit or the export control officer.

It is the responsibility of each individual company to check whether business relationships exist with listed persons, organisations or entities. It is recommended to conduct an up-to-date sanctions list check for all business contacts from all relevant departments. In doing so, it should be noted that due to the indirect prohibition of provision, indirect business with persons, organisations or institutions subject to sanctions is also generally prohibited. It must therefore always also be clarified whether a business partner is, for example, a subsidiary of a listed parent company or is controlled by a listed natural person.

It must be carefully checked whether a transaction with an identified connection to Russia, Ukraine and/or Belarus is permissible under the respective current sanctions regulations. Until this check has been completed, all activities relating to this business (deliveries, payments, conclusion of contracts, etc.) should be stopped immediately and in full. To the extent that, after a thorough review, it cannot be safely ruled out that a business related to Russia, Ukraine and/or Belarus is affected by the (new) sanctions measures, legal advice should be sought in order to have the potential impact of the sanctions on your company or your planned transaction comprehensively assessed. It should be noted again that even for transactions related to Russia, which should not be subject to immediate restrictions, there is a risk of non-payment due to the significant restriction on the free movement of payments. 

Finally, a restrictive decision-making practice by the BAFA as well as close-meshed controls by the German customs administration in the context of the export of goods to Russia must be taken into account in the event of any continuation of permissible activities and/or activities requiring authorisation. The legal and political situation in connection with the Russian invasion of Ukraine is extremely volatile. It is possible or even likely that the sanction measures already adopted or announced will be followed by further sanction measures by the EU, the USA and other states.