Thursday, January 22, 2015

Ukraine Conflict – A Summary of EU Sanctions on Russia

Since last summer, the EU is refining its sanctions on Russia. The sanctions intend to “increase the costs of Russia’s actions to undermine Ukraine’s territorial integrity, sovereignty, and independence and to promote a peaceful settlement of the crisis”.

Here is a brief of what is forbidden:

Imagine you have a son. He is 25 years old and working as a plumber. Unfortunately, he is smoking 50 cigarettes a day. You want him to quit smoking. How can you do that? The most obvious tactic is to stop giving him cigarettes. Second, you will stop awarding him money to avoid him spending it on cigarettes. But what if your son doesn’t need your money? After all, he is working as a plumber. That is why you could try to forbid him working as a plumber, thus restricting his money making capacity.

EU sanctions do basically the same with Russia: To avoid Russia using its military capacity in Ukraine, they want to weaken Russia’s military and financial capacity. The financial capacity is targeted directly through disconnecting the Russian financial sector and, indirectly, through targeting Russia’s main source of revenues, its energy industry.

EU entities cannot sell dual-use goods and technology which are or may be intended for military use or for a military end-user. (Art. 2 of EU Regulation 833-2014)

Dual use items can be used for both civil and military objectives. They are detailed on almost 300 pages in EU Regulation 428/2009 and include categories such as nuclear, electronics, computers, telecommunication, marine, and aerospace.

EU member states’ authorities can grant exceptions and allow for execution of obligations under a contract concluded before August 1, 2014.

EU entities cannot sell (or provide technical, brokering, and financial assistance related to) dual-use goods and technology to nine Russian entities (Art. 2a of EU Regulation 833-2014)

The target companies are

  • JSC Sirius,
  • OJSC Stankoinstrument,
  • OAO JSC Chemcomposite,
  • JSC Kalashnikov,
  • JSC Tula Arms Plant,
  • NPK Technologii Maschinostrojenija,
  • OAO Wysokototschnye Kompleksi,
  • OAO Almaz Antey, and
  • OAO NPO Bazalt.

EU entities need official authorization to sell (or provide technical or financial assistance related to) certain oil & gas technologies either to Russian buyers or for use in Russia (Art. 3 and Art. 4.3 of EU Regulation 833-2014)

Annex II of EU Regulation 833-2014 specifies the technologies at hand.

The EU has limited national authorities’ discretion to some extend:

  • First, authorization shall not be granted if the material pertains to deep water, Arctic, or shale oil exploration or production.
  • Second, authorization shall be granted for exports executing contracts concluded before August 1, 2014.

EU companies cannot provide services for deep water, arctic, or shale oil exploration in Russia (Art. 3a of EU Regulation 833-2014)

This ban is generic and, as opposed to the above, not limited to oil & gas technologies. However, the restriction does not apply to contracts concluded before September 12, 2014.

EU firms cannot deliver technical or financial assistance to Russian entities related to military technology and equipment on the Common Military List of the EU (Art. 4 of EU Regulation 833-2014)

You better glance at the Common Military List to get an idea of what material we are talking about.

Contracts passed prior to August 1, 2014, are exonerated.

EU firms cannot provide investment banking services to some Russian credit institutions, aircraft- and defense groups, and energy firms (Art. 5 of EU Regulation 833-2014)

  • Credit institutions: Sberbank, VTB Bank, Gazprombank, Vnesheconombank, and Rosselkhozbank (Annex III of EU Regulation 833-2014)
  • Aircraft and defense groups: OPK Oboronprom, United Aircraft Corporation, and Uralvagonzavod (Annex V of EU Regulation 833-2014)
  • Energy firms: Rosneft, Transneft, and Gazprom Neft (Annex VI of EU Regulation 833-2014)