- Council Regulation (EU) No. 2023/2873 of 18 December 2023 amending Regulation (EU) No. 269/2014 (“Regulation No. 2873” and “Regulation No. 269”, respectively);
- Council Regulation (EU) No. 2023/2875 of 18 December 2023 implementing Regulation (EU) No. 269 (“Regulation No. 2875”); and
- Council Regulation (EU) No. 2023/2878 of 18 December 2023 amending Regulation (EU) No. 833/2014 (“Regulation No. 2878” and “Regulation No. 833”, respectively).
The main new introductions of the 12th package are summarised below.
Prohibition on imports of diamonds from Russia
The EU introduces a step-by-step prohibition on imports of Russian diamonds as well as products containing Russian diamonds. These areThe list of items subject to the prohibition is set out in Parts A, B and C of Annex XXXVIIIA to Regulation No. 833 non-industrial natural and synthetic diamonds, as well as jewellery with diamonds of Russian origin.The prohibition will enter into force in the following order:
- from 1 January 2024, the direct or indirect purchase, import, transfer of diamonds, as well as other products containing diamonds, if they originate or have been exported from Russia, as well as if they transit through the territory of Russia, will be prohibited;
- from 1 March 2024, the prohibition applies to products weighing more than 1 carat per diamond when processed (i.e. cut and/or polished) in third countriesHereinafter, “third countries” refers to states other than EU Member States and the Russian Federation; and
- from 1 September 2024, the prohibition will apply to the products weighing more than 0.5 carats or 0.1 grams per diamond.
Inclusion of no-Russia clause in contracts
Article 12g of Regulation No. 833 was introduced, which obliges EU exporters from 20 March 2024 to include a so-called “no-Russia clause” (“Clause”) in contracts for the sale, supply, transfer or export of certain goods from the EU to third countries (excluding EU partner statesThe list of EU partner states includes the USA, Japan, the UK, South Korea, Australia, Canada, New Zealand, Norway and Switzerland).The Clause should prohibit re-export to Russia or for use in Russia of the following goods or products (if applicable to the relevant contract):
- goods and technologies applicable for use in the aviation or space industry (Annex XI to Regulation No. 833);
- jet fuel and fuel additives (Annex XX to Regulation No. 833);
- firearms and other weapons (Annex XXXV to Regulation No. 833);
- high-priority goods (Annex XL to Regulation No. 833); and
- firearms and ammunition (Annex I to EU Council Regulation No. 258/2012)
The requirement is aimed at restricting the re-export of the abovementioned goods to Russia via third countries, such as member states of the Eurasian Economic Union.
However, the Clause must not be declaratory in nature, but must be accompanied by suitable reasonable remedies in the event of its breach. In addition, where exporters become aware of a breach of the Clause, they must notify the competent authority of the Member State as soon as they become aware of the breach.
For agreements concluded before 19 December 2023, the provision requiring the incorporation of the Clause will not apply until 20 December 2024 or the expiry of such agreements, whichever is earlier.
Prohibition on the transit through Russia of military goods
The EU previously imposed a prohibition on the transit through Russia of dual-use goods. This prohibition now extends to military goods.Restrictions on holding office
Article 5b of Regulation No. 833 has been amended to prohibit, as of 18 January 2024, citizens and individuals residing in Russia from directly or indirectly owning or controlling, or holding any position in the management bodies of companies in the EU engaged in the provision of crypto wallets, crypto accounts and cryptoasset services.This restriction does not apply to nationals of EU Member States, the European Economic Area and Switzerland, as well as persons holding temporary or permanent residence permits in these states.
Expansion of import and export restrictions
The EU continues to expand the list of items prohibited for import into and export from the EU.Chemicals, lithium batteries, thermostats, DC motors and servo motors for unmanned aerial vehicles (UAVs), machine tools and machine parts have been added to the list of items prohibited for export to Russia that may contribute to technological improvements in the Russian defence and security sector (Annex VII to Regulation No. 833).
The list of goods prohibited from import to the EU “which generate significant revenues for Russia” (Annex XXI to Regulation No. 833) includes pig iron, spiegel iron, copper wire, aluminium wire, foil, pipes and tubes. There is also a prohibition on imports of liquefied propane.
Prohibition on enterprise management software and industrial design and manufacturing software (eg SAP)
Article 5n of Regulation No. 833 is supplemented by clause 2b prohibiting the sale, supply, transfer and export to the Russian Government and legal persons, entities and bodies registered in Russia of software for enterprise management and for industrial design and production. SAP is an example of such software.However, until 20 March 2024, actions necessary solely for the termination of the relevant contracts entered into before 19 December 2023 or related contracts are possible.
The exemption for the ability to provide prohibited professional services in favour of Russian subsidiaries of European companies is limited until 20 June 2024
Paragraph 7 of Article 5n Regulation No. 833 limited until 20 June 2024 the exemption for the provision of professional services (prohibited by Article 5n, paragraphs 1, 2, 2a and 2b of Regulation No. 833) in favour of Russian persons owned or controlled (solely or jointly) by companies from the EU, the European Economic Area, Switzerland or EU partner states.Exceptions to import and export restrictions on goods for personal use
Regulation No. 2878 put an end to the issue of confiscation of personal belongings of Russians and cars with Russian licence plates.Therefore, the importation into the EU of items intended solely for personal use (eg clothing, personal hygiene items) is permitted.
Cars with diplomatic licence plates are also allowed to enter the EU.
However, entry into the EU by a car with Russian licence plates requires a special permit, which can be obtained by citizens of EU Member States and their close relatives, provided that the car is intended for personal use.
Ensuring compliance with the oil price ceiling
In order to enforce the oil price ceiling set by the EU’s 8th package of sanctions, the European Commission and EU Member States will periodically exchange information to identify vessels and entities “of concern carrying out one or more deceptive practices while transporting Russian crude oil and petroleum products.” (Article 3na of Regulation No. 833).Article 3q of Regulation No. 833 prohibits EU persons from selling or otherwise transferring ownership, directly or indirectly, of crude oil or petroleum product tankers (TN VED code ex 8901 20) to any person in Russia or for use in Russia. The prohibition applies both to tankers manufactured in the EU and outside the EU.
However, the sale or transfer of ownership of such tankers to third country counterparties is permitted subject to notification to the competent authorities of an EU Member State.
Notifications of the abovementioned transactions made after 5 December 2022 and before 19 December 2023 must be submitted by 20 February 2024.
Reporting obligations on payments outside the EU
Under new Article 5r of Regulation No. 833, the EU has introduced reporting obligations for European companies owned by Russian persons.From 1 May 2024, any company incorporated in a Member State and owned (directly or indirectly) more than 40% by a Russian entity or personRussian persons are defined as (1) legal persons, entities and bodies established in Russia, (2) Russian citizens, as well as (3) individuals residing in Russia will be required to report to the competent authority of the Member State, within two weeks of the end of each quarter, any transfer of funds outside the EU exceeding EUR100,000 (in one or more transactions in aggregate).
The reporting obligations will also apply to European credit and financial institutions processing the relevant payments, but the reporting period set for them is two weeks after the end of each six-month period.
The text of the article refers to the notification of “any transfer out of the Union.” This could be interpreted as extending this requirement to payments only from the accounts of European subsidiaries of Russian persons from their accounts in the EU.
However, an expansive interpretation of the rule cannot be ruled out, in particular, its application to payments from accounts in other jurisdictions (for example, in Russia or “friendly countries”). The approach will depend on the interpretation of Article 5r by the European Commission. The relevant clarifications have not yet been adopted and should be expected in the future.
New ground for the imposition of sanctions
Article 3 of Regulation No. 269 is supplemented by a new criterion for the imposition of sanctions: “(j) entities established in Russia, previously owned or controlled by entities established in the Union, ownership or control of which has been compulsorily transferred by the Government of the Russian Federation through laws, regulations, other legislative instruments or other action of a Russian public authority, or natural or legal persons, entities or bodies that have benefitted from such a transfer, and natural persons who have been appointed to the governing bodies of such entities in Russia without the consent of the Union entities which previously owned or controlled them” (“New Criterion”).Such measure was introduced in response to Presidential Decree No. 302 “On Temporary Management of Certain Property” (as amended), on the temporary management by Rosimushchestvo of assets of foreign persons associated with “unfriendly states”, more details of which we wrote about earlier.
Effect of sanctions after the death of designated persons
Regulation No. 2873 provided for the right of the EU Council not to remove a designated person from Annex I to Regulation No. 269 after his or her death if it is likely that the assets of the deceased person will be used by heirs of such person or other persons contrary to the objectives of the EU sanctions.Unfreezing of assets in the event of a confiscation decision
Regulation No. 2873 introduced a provision allowing competent authorities of EU Member States to unfreeze funds or economic resources of a designated person following a decision by a court or administrative authority of an EU Member State to confiscate, in the public interest, the frozen assets of a person, subject to the payment of compensation.In addition, the assets of persons designated under the New Criterion may be unfrozen if this is necessary for the payment of an amount of funds agreed by the parties, determined by the courts, administrative bodies or established by law as part of an enforced transfer of ownership or control by a decision of the Russian Government. This provision does not apply to central securities depositories.
Expansion of the list of designated persons
Blocking sanctions were introduced against more than 140 individuals and legal entities.The 12th package introduces for the first time sanctions on the ground that was presented by the 11th package — “otherwise significantly frustrating the provisions” of Regulations against Russia.
Among such persons are:
- Gabriel Temin, director of logistics companies from Finland that the EU Council believes are involved in exporting EU-prohibited goods to Russia; and
- Mayak LLC, a wholesale company that the EU Council alleges is importing sanctioned goods into Russia as part of “parallel imports.”
Paks-2 NPP outside of sanctions
In a number of provisionsSee, for example, para. (u) of article 1, para. © of article 2(4), para. © of article 2a(4), para. (d) of article 3ea(5) etc of Regulation No. 833, which authorise cooperation in the field of nuclear energy, a direct reference was added to the possibility of carrying out transactions or the possibility for the competent authorities of EU Member States to authorise transactions with Paks-2 NPP, which is being built by Rosatom Group of companies in Hungary.Practical implications and the next package of EU restrictive measures
In general, the 12th package turned out to be more compromise than the initial proposals of the European Commission. Therefore, a number of prohibitions were relaxed, for example, in terms of notification of any payments outside the EU or the extension of the Clause to a wider range of dual-use goods.Nevertheless, the 13th package of EU sanctions is expected already in February 2024.
