EU and US Sanctions and Russia's Counter-moves

As the Ukraine standoff continues, the United States and the European Union have imposed a more severe round of coordinated sanctions targeting Russia and Russian businesses. The new restrictive measures target sectoral cooperation and exchanges with Russia as well as individuals blamed for undermining Ukrainian territorial integrity and sovereignty. Russia has responded by restricting import of food and agricultural products to Russia. An overview of the various measures is set forth below.

EU Sanctions
 
I. Sectoral Sanctions
 
According to Council Regulation (EU) No.  833/2014 of 31 July 2014, the new sanctions include the following restrictions:
 

• Russian major financial institutions will have limited access to EU capital markets. EU nationals and companies may no longer buy or sell new bonds, equity or similar financial instruments with a maturity exceeding 90 days, issued by major state-owned Russian banks (including Sberbank, VTB Bank, Gazprombank, Russian Agricultural Bank (Rosselkhozbank), Vnesheconombank (VEB), their subsidiaries outside the EU and those acting on their behalf;
   
• Also prohibited is the supply of dual use goods and technology for military use in Russia or to Russian military end-users. The sale to any individual or legal person in Russia of equipment and technologies included in the EU list of dual use goods requires prior authorization by competent authorities of the exporter’s EU state of residence;
   
• The Russian oil industry is also to be restricted by sanctions. The export of certain energy-related equipment and technologies suited to deep water, arctic, or shale oil exploration and extraction in Russia (according to the list enclosed as Annex II to the document) requires prior authorization by EU officials. Restrictions will not apply to oil projects in Russia carried out under the contracts entered into before 1 August 2014.

 
II. Individuals and Entities Subject to Sanctions
 
Previously, it was decided by Council Regulation (EU) No.  269/2014 of 17 March 2014 that all funds and economic resources belonging to individuals and companies associated with undermining the sovereignty and independence of Ukraine (“sanctions targets”) should be frozen. Recently, by implementing Regulation (EU) No.  826/2014 of 30 July 2014, the list of sanctions targets has been expanded; eight more individuals (including Mr. Arkady Rotenberg, whose companies were awarded several lucrative state contracts) have been made subject to an asset freeze and a visa ban. Three more entities (JSC “Concern Almaz-Antey”, LLC “Dobrolyot” and JSC “Russian National Commercial Bank”) also came under EU sanctions.
 
III. Investment restrictions for Crimea and Sevastopol
 
The EU has also agreed on trade and investment restrictions for Crimea and Sevastopol. In addition to the prohibition of import into the EU of goods originating in Crimea or Sevastopol (including provision of related financing or financial assistance)*, Regulation (EU) No.  825/2014 of 30 July 2014 bans new investment (including granting loans, establishing joint ventures) aimed at development of infrastructure in the areas of transport, telecommunications or energy in Crimea and in relation to the exploitation of oil, gas and minerals.
 
These restrictions shall not apply before 28 October 2014 in respect of contracts concluded before 30 July 2014.
 
US Sanctions
 
Previously, the Unites States imposed a number of Ukraine-related sanctions against Russia. In particular, US-based payment systems Visa and MasterCard have been forbidden from having any dealings with those targeted by the sanctions, including JSC Bank Rossiya and JSC Sobinbank.
 
By imposing new significant restrictions that came into effect on 6 August 2014, the US Treasury Department’s Office of Foreign Assets Control expanded the Sectorial Sanctions Identifications List (“SSI List”) which prohibits US citizens and companies from providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for the persons mentioned in the list.
The following Russian companies have been added to the SSI list:
 

• JSC Bank of Moscow;
• VTB Bank;
• JSC Russian Agricultural Bank (Rosselkhozbank).

 
Furthermore, US sanctioned a shipbuilding company – “United Shipbuilding Corporation” based in St. Petersburg. This company was added to the Specially Designated National List (“SDN List”) and all its US assets have been frozen and all US transactions with the company are now prohibited.
 
On 31 July 2014, four more individuals were added in the SDN List including the CEO of Russian railway monopolist RZD billionaire Mr. Vladimir Yakunin.
 
On 1 August 2014, the US Bureau of Industry and Security announced new export rules introducing license requirement in respect of exports of certain goods, software, technology, and data for use in Russia’s oil and gas sector related to deepwater, Arctic offshore, and shale exploration. The new license requirement will also apply when the exporter, re-exporter or transferor is unable to determine whether the supplied items will be used in such projects in Russia.
 
Russia’s response
 
On 5 August 2014, Vladimir Putin ordered that retaliatory measures be taken in response to western sanctions against Russia. On 7 August 2014, import restrictions were introduced regarding food, agricultural and raw materials imports from countries that have issued or supported sanctions against Russia (Australia, EU-members, Canada, Norway and the USA).
 
The list of banned products, issued by the Russian Government, contains the following products: meat, meat products, fish, seafood, milk, milk products, cheeses, cottage cheeses, vegetables, fruits and nuts. The description of the banned products is provided according to codes of the Foreign Economic Activity Commodity Nomenclature of the Customs Union (ТН ВЭД ТС). Banned products from the above specified states cannot be imported into the Russian Federation. Baby foods are excluded from the list of banned products.

On August 14, upon the initiative of the German Chamber of Commerce in Moscow, the Deputy Prime Minister, Arkady Dvorkovich, announced that certain products would be excluded from the banned import products list. These include:

• Nutritional supplements
  (partially);
• Sports nutrition (partially);
• Diabetic products;
• Products for allergy sufferers;
• Lactose-free milk;
• Seeds (partial);
• Fry.

The list of goods which are exempted from the import ban is now being prepared by the Russian Government. The import restrictions are currently intended to apply for one year. Please see the full list of banned products (source: Association of European Businesses).
 
"The import-export restrictions imposed by either side may very well qualify as force majeure under cross-border agreements. Cross-border contracts should be reviewed carefully, particularly with respect to the scope of the party's obligations and contractual deadlines for raising force-majeure." - say our experts Thomas Mundry and Stefan Weber.
 

 
* Enforced by Regulation (EU) No.  692/2014 as of 23 June 2014