14th sanctions package against Russia: anti-circumvention measures and LNG export ban

On 24 June 2024, the Council of the EU adopted its 14th package of sanctions against Russia, which is mainly designed to target certain high-value sectors like trade, finance and energy and to clamp down on circumvention of sanctions through increased liability and compliance requirements.

14th sanctions package: sanctions enforcement and first ever Russian LNG restrictions

The 14th package of sanctions consisting of Regulation (EU) 2024/1745 and Regulation (EU) 2024/1739 which amend Regulation (EU) No 833/2014 and Regulation (EU) No 269/2014, respectively, introduces a series of new sanctions elements, while also reinforcing sectoral and financial sanctions and existing import/export restrictions.

Anti-circumvention measures

A key feature of this new package is its anti-circumvention and enforcement focus.

The new Art. 8a of Regulation (EU) No 833/2014 makes EU persons potentially liable if they fail to undertake "best efforts" to prevent any non-EU legal entities they "own or control" from participating in activities that undermine the sanctions measures in Regulation (EU) No 833/2014.

The preamble to Regulation (EU) No 2024/1745 defines "ownership" as "being in possession of 50 % or more of the proprietary rights of" a legal entity "or having a majority interest therein". Sanctions compliance practitioners will note that this is not aligned to the "ownership" test under the EU asset freezing measures which come into play if there is "more than 50%" ownership.¹  An EU person may be deemed to "control" a non-EU legal entity if the EU person:

• has the right or the power to appoint or remove a majority of the members of the administrative, management or supervisory body of the non-EU legal entity; 
• has the right to use all or part of the assets of the non-EU legal entity;
• manages the business of the non-EU legal entity on a unified basis, while publishing consolidated accounts; or
• has the right to exercise a dominant influence over the non-EU legal entity.

In turn, "best efforts" comprise "all actions that are suitable and necessary to achieve the result of preventing the undermining of" the sanctions measures in Regulation (EU) No 833/2014. EU persons are expected to calibrate their best efforts taking into account their practical ability to influence the conduct of the non-EU legal entity and their relative size and risk profile. Best efforts can include, for example, the implementation of appropriate policies, controls and procedures to mitigate and manage risk effectively, considering the risks posed by the non-EU legal entity, including the country of establishment and nature of business. 

Relatedly, the new article 12gb of Regulation (EU) No 833/2014 requires EU persons who sell, supply, transfer or export Common High Priority items to third countries to take certain proactive compliance measures to mitigate the risk of such items being diverted to Russia. Specifically, these EU persons must conduct a documented risk assessment of potential diversion of items to Russia and mitigate such risks by implementing appropriate policies, procedures and controls. They will also have to ensure that any non-EU legal entities that they own or control and which also trade in Common High Priority Items implement these measures.

In addition, the new Art. 12ga of Regulation (EU) No 833/2014 requires EU persons, from 26 December 2024 onwards, to include a "No Russia" clause when selling, licensing or transferring intellectual property rights related to Common High Priority items. This reinforces the already existing obligation to include a "No Russia" clause when selling, transferring or exporting the Common High Priority items to third countries.

In relation to the already existing "No Russia" clause obligation under Art. 12g Regulation (EU) No 833/2014, a few changes have been made to reduce the administrative burden on EU persons. For example, for contracts concluded before the adoption of the 12th package (19 December 2023) the deadline to ensure compliance was extended to 1 January 2025, and Liechtenstein and Iceland were included in the list of partner countries. The European Commission will further monitor the impact of the clause in order to determine whether non-EU subsidiaries of EU legal entities should also use the "No Russia" clause.

Trade related measures

The 14th sanctions package especially extends its export restrictions regarding dual-use and advanced technology goods. For example, Annex VII of Regulation (EU) No 833/2014 has been updated notably to include certain machine tools such as all-terrain vehicles, microwave and aerial amplifiers, and digital flight data recorders. Annex XXIII of Regulation (EU) No 833/2014 extends its items subject to export bans to include chemicals (manganese ores and compounds of rare-earths), plastics, excavating machinery, monitors and electrical equipment.

The package similarly adds 61 newly designated Russian and third-country entities to the list of entities in Annex IV of Regulation (EU) No 833/2014 associated to Russia's military-industrial complex and subject to stronger export restrictions.

The package also introduces an import ban on helium, a key component for the semiconductor and health industries. However, a wind-down exemption allows for the execution of contracts concluded before 25 June 2024, until 26 September 2024.

Financial and capital market measures

As of 25 June 2024, EU legal entities operating outside Russia are prohibited from using the Financial Messaging System of the Central Bank of Russia (SPFS), the Russian equivalent of SWIFT, or other equivalent specialised financial messaging services set up by the Central Bank of Russia (Art. 5ac Regulation (EU) No 833/2014).

The new Art. 5ad targets any non-EU credit or financial institutions or crypto assets providers that are involved in transactions that facilitate, directly or indirectly, Russia's procurement of dual-use items, advanced technology items, Common High Priority items and certain other EU-sanctioned items that may support its defence-industrial base. Such non-EU credit or financial institutions or crypto assets providers will be listed in Annex XLV, and EU persons will be prohibited from directly or indirectly engaging in any transactions with them. While no legal entity has, to date, been targeted with these sanctions, the new measures create an EU secondary sanctions risk for any third-country credit or financial institutions or crypto assets providers that continue to engage in transactions that may support Russia's defence-industrial base, similar to the existing US secondary sanctions risks, under the Executive Order 14114, for non-US financial institutions that have engaged in certain transactions involving Russia's military-industrial base. 

Energy-related measures

For the first time, the EU targets the Russian LNG sector.

In particular, it is prohibited to provide reloading services in the EU for the purposes of transshipment operations of Russian LNG and other related services such as technical and financial assistance.

This prohibition is complemented by the new prohibition on providing goods, technology or services to LNG projects under construction in Russia.

Imports of Russian LNG into specific terminals which are not connected to the EU gas pipeline network are also prohibited.

Imports of LNG in the EU and for the EU market will still be allowed, even if, as of 26 July 2024, it will become mandatory to submit monthly reports on all unloading transactions and imports into the EU.

Transport measures

New transport restrictions have also been introduced.

For the first time, the EU has adopted a measure targeting specific vessels contributing to Russia’s warfare against Ukraine, which are subject to a port access ban and ban on provision of services.

Moreover, the EU flight ban is being extended to non-scheduled flights if a Russian person decides the origin or destination (regardless of ownership and control over the aircraft).

Finally, the prohibition on the transport of goods by road within the territory of the EU, including in transit, is broadened so as to cover EU persons which are owned 25% or more by a Russian natural or legal person.

Measures protecting Intellectual Property Rights

According to the new Art. 5s Regulation (EU) No. 833/2014, intellectual property offices must from now on refuse applications for registration of, among others, new trademarks and patents requested by Russian persons and persons resident in Russia.

Additional measures

Political parties and foundations, non-governmental organisations, including think tanks, or media service providers in the EU, will no longer be allowed to accept funding from the Russian state.

Moreover, new Art. 11a of Regulation (EU) No 833/2014 provides a legal basis for EU persons to claim compensation in the EU for damages incurred as a consequence of claims lodged with courts and by persons in jurisdictions outside the EU in connection with the EU person not performing a contract due to EU sanctions. Art. 11b Regulation (EU) No 833/2014 also entitles EU persons to claim compensation in the EU for losses arising from the Russian government's temporary management measures imposed on certain EU persons' assets in Russia. Each of these measures will enable EU legal entities to recover such damages from Russian persons' possible assets in the EU. Relatedly, new Art. 5ab Regulation (EU) No 833/2014 also prohibits transactions with persons who have lodged proceedings before Russian courts in reliance on a 2020 Russian law which permitted the avoidance of jurisdiction and arbitration clauses requiring disputes to be heard outside Russia. 

The existing prohibition to provide any public support, including financing to publicly owned entities in Russia, is now broadened to all entities established in Russia.

Additional listings

Finally, the package contains 116 additional listings: 69 individuals and 47 entities will now be subject to asset freeze measures and travel bans.

These new listings concern the military and defence industries, and chemical, energy and space engineering companies. Certain entities were also seen to be involved in the circumvention of the EU sanctions, including a company from the Democratic People's Republic of Korea, active in the shipment of weapons and ammunition in Russia.

So far, EU restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine apply to over 2200 individuals and entities.

Conclusions and what to expect for the near future

The 14th sanctions package particularly aims to render circumvention of EU sanctions against Russia more difficult, in particular, by zooming in on non-EU legal entities owned or controlled by EU persons. The new measures create a risk of liability for EU-based corporations, banks or investors that have (direct or indirect) subsidiaries, joint ventures or portfolio companies in third countries and which continue to engage in dealings with Russia that may "undermine" the EU-Russia sanctions. Compliance teams may want to consider the scope and applicability of their existing compliance policies, procedures and controls to ensure that they adequately mitigate the risks arising from these new measures.

Moreover, for the first time, the new package threatens sanctions on third-country credit or financial institutions or crypto asset providers that continue to facilitate, directly or indirectly, Russia's procurement of various items sanctioned by the EU, and introduces several sweeping new targeted sanctions such as against the Russian LNG sector or vessels supporting Russian warfare.

The package was adopted four months after the previous package and only a month after the Council agreed on the use of net profits stemming from unexpected and extraordinary revenues accruing to central securities depositories in the EU. Meanwhile new listings and asset freezes were also decided in relation to the death of opposition leader Alexei Navalny. 

It should finally be noted that, regarding a possible new package of sanctions, as of July the Presidency of the Council of the EU goes to Hungary, a country with a controversial relationship with Russia.

^{1. See para 62: https://data.consilium.europa.eu/doc/document/ST-10572-2022-INIT/en/pdf.}