Summary of the 11th package of EU restrictive measures

On 23 June 2023, legal acts formalising the 11th package of European Union (“EU”) restrictive measures were published and entered into force, including:

Council Regulation (EU) No. 2023/1214 of 23 June 2023 amending Regulation (EU) No. 833/2014 (“Regulation No. 1214” and “Regulation No. 833” respectively);
Council Regulation (EU) No. 2023/1215 of 23 June 2023 amending Regulation (EU) No. 269/2014 (“Regulation No. 1215” and “Regulation No. 269” respectively); and
Council Implementing Regulation (EU) No. 2023/1216 of 23 June 2023 implementing Regulation (EU) No. 269/2014 (“Regulation No. 1216”).

The key innovations of the 11th package are summarised below.

Measures to counter the circumvention of EU sanctions

A comprehensive mechanism has been put in place to ensure compliance with EU sanctions by third-state persons which includes the following:

strengthening bilateral and multilateral cooperation between the EU and third countries (primarily, EEC states and other countries which have significantly increased their trade turnover with Russia);
if such cooperation does not yield the intended result (ie the enforcement of EU sanctions), the EU may designate third country individuals who have provided assistance in circumventing EU sanctions;
after that, the EU will re-engage in a dialogue with the third country in question; and
if there is substantial and systemic circumvention of EU sanctions despite the abovementioned step, the EU Council may restrict the sale, supply, transfer or export of certain goods and technology to the third country concerned.

The Preamble to Regulation No. 1215 sets out possible indications of frustration of EU restrictive measures by third country “operators” (primarily companies) (“Operator”):

the Operator’s main activity consists of purchasing restricted goods in the EU that subsequently reach Russia;
the involvement of Russian persons or entities in the Operator’s activities at any stage;
the recent creation of the Operator for purposes related to restricted goods reaching Russia; or
a drastic increase in the Operator’s turnover.

Further criteria for asset freeze designation

Further criteria include the designation of persons “otherwise substantially frustrating such restrictive measures” against Russia and not only “facilitating the circumvention of sanctions” (as was previously provided under the 8th sanctions package).

In addition, sanctions can now be imposed against legal persons, entities or bodies operating in the Russian IT-sector with a license administered by the Federal Security Service of the Russian Federation (FSB) Centre for Licensing, Certification, and Protection of State Secrets or a “weapons and military equipment” license administered by the Russian Ministry of Industry and Trade. Simultaneously, there have been new listings under this designation criterion: Positive Group PJSC, Iteranet LLC, Okenit JSC etc.

List of EU listed persons extended

The EU Council added 87 new companies to the list of entities directly supporting Russia’s military and industrial complex. New listings include entities from China, Uzbekistan, the UAE, Syria and Armenia. This means that such entities will be subject to tighter export restrictions regarding dual-use goods and technology.

In addition, the list of persons subject to the EU asset freeze has been extended to include journalists, war correspondents, judges and some companies, particularly, operating in the IT-sector.

It will be remembered that asset freezing restrictive measures impose the following obligations on EU Persons1) Any natural and legal persons within the territory of the EU regardless of nationality;
2) nationals of EU member states irrespective of their whereabouts;
3) EU legal persons incorporated in the EU and their branches;
4) any persons on board any aircraft or vessel under the jurisdiction of an EU member state (“EU Persons”):

to freeze (block) assets of Designated Persons; and
not to make funds and economic resources available to Designated Persons (in the absence of prior authorisation in the form of a licence).

Restrictive measures also apply to legal entities that are (directly or indirectly) owned or controlled (“more than 50%”, including jointly with other blocked persons) by Designated Persons.

Extension of the list of goods prohibited for export

The EU Council amended Annex VII to Regulation (EU) No 833/2014, Article 2a, which contains a list of goods and technology restricted for sale, supply, transfer and export to Russia that might contribute to the enhancement of Russia’s military or technological capacities or to the development of Russia’s defence and security sector.

The updated list includes, in particular, new and used motor cars with engine displacement above a certain level, electric and hybrid cars, electronic components, semiconductor materials, manufacturing and testing equipment for electronic integrated circuits and printed circuit boards, precursors to energetic materials and precursors to chemical weapons, optical components, navigational instruments, metals used in the defence sector and marine equipment, etc.

Changes in the regulation of luxury goods

Regulation 1214 not only prohibits the sale, supply, transfer or export of luxury goods but also the provision of related technical assistance, brokering services, financial services and assistance.

Licensing of the sale/supply of certain marine vessels and associated services

Until 31 December 2023, the competent authorities of the EU Member States may authorise the sale and supply of marine vessels falling under CN code 8901 10 00 or 8901 90 00 or the provision of related services under the following conditions:

the vessel is physically located in Russia on 24 June 2023 and for use in Russia;
the vessel has flown the Russian Federation flag under a bareboat charter registration initially effected prior to 24 February 2022;
the purchaser is not a military end user and will not use the vessel for military purposes;
the sale or supply is not for the benefit of a Designated Person.

Securities issued after 6 August 2023 prohibited for sale to Russian persons

Article 5f has been supplemented by a provision that it shall be prohibited for US Persons to sell transferable securities (eg shares) denominated in any currency (other than the currencies of EU Member States) and issued after 6 August 2023. Such sale is prohibited to any Russian national or natural person residing in Russia or any legal person, entity or body established in Russia.

Previously, this prohibition only applied to transferable securities denominated in any currency of EU Member States and issued after 12 April 2022, or units in collective investment undertakings providing exposure to such securities.

Tighter restrictions on the importation of iron and steel products into the EU

Article 3g of Regulation No. 833 requires that importers of iron and steel products processed in a third country that are subject to restrictive measures shall provide evidence of the country of origin of the iron and steel inputs.

Prohibition of the sale, licensing and transfer of intellectual property rights and trade secrets related to goods and technology subject to restrictive measures

EU Persons are now prohibited to sell, license or transfer in any other way intellectual property rights or trade secrets as well as grant rights to access or re-use any material or information protected by means of intellectual property rights or constituting trade secrets related to certain goods and technology (dual-use goods and technology; or goods and technology that might contribute to the enhancement of Russia’s military and technological capacities or to the development of Russia’s defence and security sector; or luxury goods, etc).

Prohibition of the transit via the territory of Russia of certain goods

The EU Council has prohibited the transit via the territory of Russia of:

goods and technology which might contribute to Russia’s military and technological enhancement or to the development of its defence and security sector; and
goods and technology suited for use in aviation or space industry and jet fuel and fuel additives.

This measure is intended to counter the circumvention of sanctions as there have been media reports that goods exported from the EU to third countries via Russia “disappeared” in the Russian Federation and did not reach the point of destination.

Limitation of road transport

The EU extends the prohibition on the transport of goods by road in the EU from Russia by trailers and semi-trailers registered in Russia.

Restriction of access to EU Ports

Regulation No. 833 includes new articles 3eb and 3ec which, with effect from 24 July 2023, prohibit access to ports and locks in the territory of the EU by vessels:

engaged in ship-to-ship transfers where the competent authorities of EU member states have reasonable cause to suspect that a vessel:

is in breach of the ban on importing seaborne Russian crude oil and petroleum products into the EU; or
is transporting Russian crude oil or petroleum products purchased above the price cap;

that do not notify the competent authority of an EU member state at least 48 hours in advance about a ship-to-ship transfer occurring within the Exclusive Economic Zone of an EU member state or within 12 nautical miles from the baseline of that EU Member State’s coast; or
that interfere with or switch off or otherwise disable its shipborne automatic identification system (AIS) when transporting Russian crude oil and petroleum products falling under the abovementioned EU restrictions.

Such prohibitions do not apply in a number of circumstances, in particular, for maritime safety, for saving life at sea and for humanitarian purposes.

Restrictive measures in the energy sector

The temporary derogation previously granted to Germany and Poland for the supply of crude oil from Russia through the northern section of the Druzhba oil pipeline should end.

At the same time, oil which originates in Kazakhstan or another third country may be transited through Russia and imported into the EU via the Druzhba oil pipeline. Article 5q of Regulation No. 833 provides a number of exemptions to ensure the operation of the Caspian Pipeline Consortium.

The exemption provided for in relation to oil of the Sakhalin-2 Project, located in Russia, should be extended until 31 March 2024 to ensure Japan’s energy security needs.

Ban on the broadcasting of Russian media outlets

The EU Council has extended the suspension of the broadcasting licences of five media outlets that are, in the opinion of the EU, under the permanent control of the Russian leadership (RT Balkan, Oriental Review, Tsargrad, New Eastern Outlook and Katehon). It is separately noted that the suspension of the broadcasting licence does not prevent the media outlets from carrying out activities other than broadcasting, such as research and interviews.

Exemptions from EU sanctions

The 11th Package provides for a number of instances where EU restrictive measures do not apply. Many of them are temporary in nature and are intended to terminate relationships with Russian persons or wind down business activities in Russia. In particular, the competent authorities of EU member states may authorise, subject to a number of conditions:

the release of certain frozen funds or economic resources belonging to (the former or current) European subsidiaries of VTB and NSD, on condition that the assets are disposed of by 31 December 2023:
the release of certain frozen funds or economic resources owned by A.A. Mordashov and the making available of certain funds or economic resources to him for the wind-down, by 31 August 2023, of the Russian joint venture with them;
the release of frozen funds and economic resources belonging to a Designated Person and the making available to such person of funds or economic resources for the removal of the Designated Person’s control over a European legal person, entity or body;
the conversion by 25 December 2023 of Russian depositary receipts held with NSD for the purposes of selling the underlying securities; and
the release of frozen funds and economic resources belonging directly to the listed Designated Persons (Bank Russia, Promsvyazbank, VEB.RF, VTB, Sberbank, etc) and the making available to them of funds and economic resources for the purchase, import or transport of agricultural and food products, including wheat and fertilisers.

In addition, Regulation No. 1215 indicates that the demand to freeze funds and economic resources and the ban to make them available to Designated Persons shall not apply to funds or economic resources that are needed for the provision of pilot services to vessels in innocent passage.