By Katerina Pillakouri

On December 19, 2023, the European Union (EU) finally reached an agreement on its long-delayed 12th Russian sanctions package. The intention is to impose additional import and export bans in Russia, combat sanctions circumvention, and close existing loopholes. This comprehensive package involves the additional listing of Russian individuals and companies, along with new import and export bans, in close cooperation with other G7 members, including the United States (US) and the United Kingdom (UK).

The new measures can be summarised in six different groups.

Additional listings

The EU has expanded its list of individuals and entities under asset freezes, now encompassing more than 140 individuals and entities. This extension includes figures from the Russian military, defense, military industry companies, Private Military Companies, actors in the IT sector, and other significant economic entities.

Trade measures

The EU has imposed a series of sanctions on Russia, targeting various industries. A ban on the import of Russian diamonds, both industrial and non-industrial, aims to cut off a revenue stream estimated at €4 billion annually. G7 members will implement a direct ban on Russian diamond exports by January 1, 2024, expanding to cover diamonds polished in a third country by March 1, 2024, and including lab-grown diamonds, jewelry, and watches containing diamonds by September 1, 2024. The G7 will establish a robust traceability-based verification and certification mechanism for rough diamonds.

Russian aluminum faces import bans on wires, foil, tubes, pipes, and raw materials for steel production. Additionally, a new measure requires notification of certain funds transfers from EU entities owned by over 40% by Russians or entities in Russia.

Export controls on dual-use/advanced tech aim to weaken Russia’s military capabilities. New export bans cover EU industrial goods such as machinery, construction-related goods, processed steel, copper and aluminum goods, lasers, and batteries.

Secondary sanctions target entities involved in Russian sanctions evasion and circumvention, including locations like Singapore and Uzbekistan. There is a prohibition on providing enterprise and design-related software to the Russian government or Russian companies, further impacting Russia’s industrial sector.

Stricter Asset-freezing

The Council has established a novel listing criterion aimed at addressing the intricacies of forced ownership transfers affecting Russian subsidiaries of EU companies. This new criterion broadens the scope of individuals subject to listing, specifically incorporating those who benefit from such forced transfers. The objective is to thwart any financial gains resulting from the coerced acquisition of control over these subsidiaries by Russian owners or management. Additionally, the Council has explored the feasibility of retaining deceased individuals on asset freeze lists. This strategic move aims to safeguard against potential loopholes that might undermine the effectiveness of freezing measures. Furthermore, Member States are now under a more stringent obligation to proactively trace the assets of listed individuals. This heightened responsibility seeks to enhance the prevention and detection of any attempts to breach or circumvent sanctions, reinforcing the commitment to robust and effective measures against illicit activities.

Energy measures

Additional measures are being implemented to fortify the current enforcement mechanisms related to the Russian oil price cap. This strategic enhancement is designed to counter the surreptitious utilization of a ‘shadow fleet’ by Russia to circumvent the stipulated price cap. Simultaneously, a fresh directive includes the imposition of a ban on the import of liquified petroleum gas (LPG). This prohibition, affecting annual imports valued at over €1 billion, comes with a provision for grandfathering existing contracts for a maximum period of 12 months. These comprehensive measures aim to tighten control over economic channels and curb evasive tactics, signaling a resolute stance against practices that undermine established regulations.

Stronger anti-circumvention measures

A comprehensive set of measures has been introduced to augment the effectiveness of transit prohibitions through Russia by extending the scope to include economically critical goods intended for export to third countries. Operators now bear the obligation to incorporate contractual provisions explicitly prohibiting the re-export of specific categories of sensitive goods to Russia. This encompasses items associated with aviation, jet fuel, firearms, and those listed on the Common High Priority list. In a further step towards financial transparency, a new regulation mandates the notification of certain fund transfers out of the EU. This requirement applies to entities within the EU that are directly or indirectly owned by more than 40% by Russians or entities established in Russia.

Additional measures

New provisions enhance regulatory flexibility, allowing Member States to deprive listed individuals of funds or economic resources in the public interest. Additionally, a derogation permits compensation for damages from newly listed insurance companies, providing a nuanced financial approach. Another amendment allows for the sale of EU companies owned by listed entities, addressing complexities in ownership scenarios. Finally, a technical amendment supports maritime safety by facilitating pilot services provision. These changes reflect a commitment to adapt regulations to national priorities, financial nuances, and practical considerations.

To conclude, the EU’s adoption of the latest sanctions package represents a concerted effort to address ongoing geopolitical challenges by adopting an expansive scope of measures and regulatory enhancements to curb specific Russian activities, while strengthening the EU’s own economic and security interests. The amendments to Council Regulation 2014/145/CFSP through this 12th package underscores a commitment by the EU to adapt regulations to evolving scenarios while maintaining a firm stance against practices that undermine established norms.

Katerina Pillakouri is an Associate at Elias Neocleous & Co LLC