12th Package of EU Sanctions against Russia – Here’s what you need to know

The 12th package of EU-Russia sanctions, adopted on 18 December 2023, adds comprehensive new measures to the existing Russia sanctions regime. Notably, these sanctions include an import prohibition on diamonds sourced from Russia, and the obligation for EU exporters of sensitive goods and technology to contractually prohibit re-exports to Russia. Additionally, a considerable number of new individuals were listed, alongside 29 additional entities restricted for their direct support to Russia’s military and related industries involved in the conflict in Ukraine. New enforcement and anti-circumvention measures have been introduced, with tighter compliance rules aimed at aiding the implementation of the price cap on crude oil and petroleum products and restricting the provision of crypto asset management services. It should also be noted that Switzerland has been designated as a partner country concerning measures related to iron and steel. Here’s what you need to know:

Operations in Russia? Strategic decoupling might be prudent.

The privilege for subsidiaries regarding the provision of business services to Russia under Article 5n is phasing out. Further, new prohibitions were introduced for the sale, supply, transfer, export or provision of enterprise management and design-related software and the provision of related services to the Government of Russia or entities in Russia. It is time for companies to evaluate ongoing business operations and adjust supply chains, business strategies, and contracts accordingly. Disassociating your Russian operations might be a prudent strategic choice.

Are you exporting common high-priority items and particularly sensitive goods and technology? You may need to revise your export contract management.

The new “No Russia Clause” in Art.12g sets a new requirement for exporters of listed goods and technology to prohibit re-exports to Russia and their use under contract. This applies to exports to third countries, except to partner countries, and companies are required to have “adequate remedies” in place, which could include the right of withdrawal, end-user statements, and the right to information access. Dealing with the vague concept of “adequate remedies” brings fresh complexity to the compliance challenge.

Are you a financial institution? You may need to fine-tune your Russia-related compliance controls.

Art. 5r, the “100’000 Euro rule”, will soon apply to EU entities if over 40% of their ownership lies with Russian individuals or residents. This  expands the measure’s reach and impact. In the context of enforcement and anti-circumvention, Russian nationals are banned from owning, controlling or holding any posts on the governing bodies of entities providing crypto wallets, accounts or custody services to Russian persons and residents.

Are you exporting to/ importing from Russia? You may need to adjust your Russia-related compliance controls and risk assessment.  

The revised and extended listings of goods and identifiers (e.g., from HS codes to positions) call for the updating of existing controls and risk assessments. A (re-)evaluation of the product portfolio and an adjustment of transactional controls (e.g., hold and release) may be required.

Are you operating in the oil & gas sector?  Consider overhauling your compliance framework for greater efficiency.

The EU is tightening its compliance rules to enforce the oil price cap and crack down on circumvention. It will ramp up information exchange to spot vessels and entities involved in circumvention.

Are you operating in the diamond sector? You will no longer be allowed to source diamonds and related products from Russia.

 A blanket ban will be imposed on non-industrial natural and synthetic diamonds, as well as diamond jewellery, from January 1, 2024. Moreover, diamonds originating from Russia even if processed in third countries and products incorporating diamonds of Russian origin will be fully banned by September 1, 2024.  

Are you an established business in the EU? It is time to refresh your screening databases.

More individuals and entities were added to the sanction list. Therefore, all sanctions-related screening databases must be updated (i.e. SPL content).

Country-specific provisions

• In recognition of the strategic significance of Paks II in Hungary—an expansive nuclear project involving a Russian contractor—Hungary has been granted an exemption.
• The Czech Republic can keep importing, buying or transferring petroleum products derived from Russian crude oil transported via pipeline to other Member States until December 5, 2024, instead of the initial date of December 5, 2023.
• Croatia can approve, under specific conditions, the buying, importing, or transferring of Russian vacuum gas oil until December 31, 2024, instead of the previous deadline of 2023.
• Switzerland and Norway now belong to the list of partner countries established to ease the import process of iron and steel products processed in third countries. Imports from these partners are exempt from the obligation to provide proof of the country of origin for the inputs upon entry into the EU.

The new package represents a considerable broadening of the EU sanctions regime and enhanced enforcement of current measures. The most consequential change affects financial institutions, all EU firms conducting operations in Russia, and companies operating in the oil and gas and diamond industries. As a result, EU and Swiss companies engaged in related industries may have additional compliance requirements and potential limitations on their business activities. Firms who export listed goods to any non-EU country, except listed partner countries, will need to adjust their contracts with clients so that they incorporate a “No Russia Clause”.  

Companies must review their internal compliance programmes to incorporate the new restrictions and requirements. This may involve strengthening due diligence processes, implementing stricter controls, and enhancing documentation and reporting mechanisms.

Companies must exercise strengthened vigilance throughout the end-to-end supply chain. Moreover, companies still active in Russia at this point should now seriously consider decoupling their operations from Russian subsidiaries.

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