Sanctions update 4/ 2023

New EU sanctions and criminalization of sanctions breaches

We refer to our previous sanctions updates which can be found here.

EU’s 11th sanctions package

On 23rd June, EU issued its 11th sanctions package against Russia which includes the following:

  • 104 new additions to the asset freeze list (including some Russian IT companies) which now totals 1572 entities and 244 individuals
  • A possibility to prohibit export of sanctioned products to third countries acting as transit countries for the transport of such products to Russia
  • Expansion of categories of persons that may be subject to an asset freeze to include persons and entities facilitating infringements of the prohibition against circumvention, as well as those that are “significantly frustrating” the EU sanctions
  • Transit of certain goods via Russia is prohibited
  • 87 new listings of companies subject to restrictions of certain goods and technology of which 10 companies are located in third countries
  • Additions of products subject to export ban (predominantly electronics, technical instruments and certain materials)
  • Prohibition as to the sale, license or transfer of intellectual property rights and trade secrets
  • Obligation to show a certificate when importing steel products from third countries containing steel from Russia
  • Prohibition as to certain services pertaining to luxury goods
  • Denied access to EU ports for any vessel suspected to having been involved in unlawful trading of Russian oil
  • Suspension of broadcasting licenses to certain media outlets
  • Extension of the road transport ban
  • Extension of the ban on transferable securities

The legislative text of the 11th sanctions package can be found here.

Various activities and products remain unsanctioned, but the compliance challenges for companies are significant. Any business transaction which has a Russian nexus entails sanctions risks even if the traded product in itself is not subject to sanctions. The lack of a prohibition may in that case only create an illusion of lawfulness. In addition, any trade with Russia entails reputational risks and companies run the risk of being black listed by customers and other stake holders.

A proposal to streamline sanctions enforcement within EU

On 9th June the EU Council announced a proposal for a Directive to ensure effective and homogeneous sanctions enforcement amongst Member States. The proposal includes the following:

  • Criminalization of sanctions breaches with minimum prison sentence of five years in certain cases (already criminalized in Sweden)
  • Companies, in addition to natural persons, can be held liable for sanctions breaches (presently not the case in Sweden)
  • Punishment may be directed towards a company's business e.g. withdrawal of licenses and even judicial winding up and closure of establishment
  • Breach can also result in a corporate fine up to 5% of the company’s worldwide turnover
  • Lack of internal supervision and control by a person having a “leading position” within a company can be punishable

The text of the proposal can be found here.

Clearly, EU as well as US and UK, focus on the enforcement of sanctions generally and combat of sanctions circumvention specifically. Notably, “circumvention” in a sanctions context means to knowingly and intentionally participate in activities the object or effect of which is to circumvent prohibitions.


Three sanctions risks to be aware of

The opaque sanctions environment gives rise to, in particular, the following sanctions risks of which companies should be aware:

Transactions with a listed entity
Considering the great number of sanctioned persons and entities, including Russian oligarchs having business interests all over the world, it is necessary for companies to have risk based procedures in place in order to ensure that the company is not involved in any transaction with a listed entity, or an entity owned or controlled by a listed entity.

Participation in a circumvention scheme
Russian companies make significant efforts to get hold of sanctioned products. Companies involved in the export of products subject to sanctions need to adopt risk based procedures in order to minimise the risk that those products are re-exported to Russia via third countries such as China, UAE or Turkey.

Breach of warranties in loan agreements
It is not uncommon for loan agreements to contain warranties to the effect that the borrower undertakes not have any direct or indirect association with “sanctioned counties”. Companies should ensure that not only its own operations but also the operations of any subsidiaries comply with any such warranty.