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Fifth round of EU sanctions over Putin’s regime in the Ukrainian crisis

11.04.2022

Following the actrocities of Bucha and other areas recently liberated from the Russian troops, the EU agreed on a fifth package of measures with the aim to further weaken Russian’s financial and economic system, also targeting for the first time energy exports.

This latest package amends Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine and Regulation (EC) No 765/2006 concerning restrictive measures in view of the situation in Belarus and the involvement of Belarus in the Russian aggression against Ukraine consists the following six pillars:

Restrictions on certain fossil fuels

First, the EU no longer shies away completely from restrictions on fossil fuels. Thus, as from August 2022, it will be prohibited to directly or indirectly purchase, import or transfer coal and other solid fossil fuels into the EU if they originate in Russia or are exported from there, for an estimated value of 8 billion euros a year in lost revenues for Russia, art. 3j and Annex XXII of newly amended Regulation (EU) No 833/2014.

A full transaction ban on four key Russian banks that had previously been de-SWIFT-ed

Second, the EU has significantly strengthened it financial sanctions against Russia in a way that is expected to have real impacts on payments to and from Russia. Thus, the EU has now imposed a full transaction ban on four key Russian banks, namely Bank Otkritie, Novikombank, Sovcombank and VTB, i.e., the second largest Russian bank, art. 2 (2) and Annex I of newly amended Regulation (EU) No 269/2014. The four banks, which had previously been de-SWIFT-ed, represent 23% of market share in the sector.

Note, however, that the competent authorities of a Member State may authorise the release of certain frozen funds or economic resources to the following entities: Bank Rossiya, Promsvyazbank, VEB.RF (a.k.a. Vnesheconombank - VEB) if necessary for the termination, by 24 August 2022, of operations, contracts, or other agreements, including correspondent banking relations, concluded with those entities before 23 February 2022, art. 6b (1) of newly amended Regulation (EU) No 269/2014.

The same derogation applies for the following entities: Otkritie FC Bank (formerly known as NOMOS Bank), Novikombank, Sovcombank (formerly known as Buycombank), VTB Bank, if necessary for the termination, by 9 October 2022, of operations, contracts or other agreements, including correspondent banking relations concluded before 8 April 2022. By way of derogation, the competent authorities of a Member State may authorise the release of certain frozen funds or economic resources to a natural or legal person or entity if those are necessary for the sale and transfer, by 9 October 2022, of proprietary rights, art. 6b (2) of newly amended Regulation (EU) No 269/2014 Deutsche Bundesbank stated that VTB Bank (Europe) SE is not a controlled entity and Bundesanstalt für Finanzdienstleistungsaufsicht denied PJSC VTB Bank the exercise of voting rights in VTB Bank (Europe) SE.

Far-reaching closure of European ports and restrictions on transit rights – with numerous exceptions

Third, the EU has imposed a prohibition from accessing European ports for vessels registered under the Russian flag, with the exemption of certain goods such as energy, agricultural and food products, humanitarian aid, art. 3ea of newly amended Regulation (EU) No 833/2014; together with a ban on Russian (art. 3l of newly amended Regulation (EU) No 833/2014) and Belarusian (art. 1zc of newly amended Regulation (EC) No 765/2006) road transport operators to transit within the EU, with the exemption of products such as natural gas and oil, titanium, aluminium, copper, nickel, palladium, iron ore, pharmaceutical, medial, agricultural and food products and for humanitarian purposes.

Targeted export rights

Fourth, the EU has imposed targeted export bans in particularly sensitive areas, such as advanced semiconductors, quantum computing, high-end electronics, software, jet fuel, machinery and apparatuses, transportation equipment and various raw materials and manufactured goods for an estimated value of 10 billion euros, art. 2a with newly expanded Annex VII, art. 3c with Annex XX and art. 3k with Annex XXIII of newly amended Regulation (EU) No 833/2014.

Specific new import bans

Fifth, the EU has imposed specific new import bans on products such as wood, cement, rubber products, spirits, liquor and high-end seafood for an estimated value of 5.5 billion euros a year in lost revenues for Russia, art. 3i and Annex XXI of newly amended Regulation (EU) no 833/2014.

Targeted measures concerning, inter alia, public procurement and Russian public bodies

Sixth, the EU has taken a number of additional, targeted, measures such as a general ban on participation of Russian companies in EU public procurement contracts, art. 5k of newly amended Regulation (EU) No 833/2014 and an exclusion of all European or national financial support to Russian public bodies, art. 5l of newly amended Regulation (EU) No 833/2014, an extended prohibition on deposits to crypto-wallets with regard to Russia and on the sale of banknotes and transferrable securities denominated in any official currencies of EU Member States to Russia (art. 5b, 5f, 5i of newly amended Regulation (EU) No 833/2014) and Belarus (art. 1y and 1za of newly amended Regulation (EC) No 765/2006).

In addition: list of sanctioned individuals and entities getting longer

The EU has also undertaken further listings of individuals and companies who have played a role in the invasion, supporting, materially or financially, or benefitting from it, such as leading businesspeople, high-ranking officials and family members of already sanctioned people. Ministers and members of the People’s Council of the “Donetsk People’s Republic” and “Luhansk People’s Republic” are also subject to restrictive measures. As a result, 216 individuals and 18 entities have been added to the list of persons, entities and bodies subject to restrictive measures set out in Annex I to Regulation (EU) No 269/2014. Altogether, EU restrictive measures (asset freeze and travel ban) apply now to a total of 1091 individuals and 80 entities.

Outlook

With this fifth round of sanctions, the EU has significantly tightened its economic and financial sanctions against Russia – and has further increased the extreme complexity of its sanction’s regime. While each detail of the new measures deserves full attention in its own right, two aspects are particularly noteworthy when looking ahead.

First and foremost, the EU no longer shies away completely from restrictions on fossil fuels and has for the first time directly targeted Russia’s energy exports. Additional, far-reaching restrictions in this area, are an increasingly likely option. The European Commission and the European External Action Service are already working on new proposals for possible additional sanctions, including on oil imports.

Second, the fact that the EU has decided to impose outright transaction bans on four banks in a way that is expected to have real and major impacts on payments to and from Russia, indicates that additional financial sanctions may follow.


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