The EU has maintained sanctions against Russia since 2014, but those sanctions have been expanded enormously in recent weeks in response to Russia’s invasion of Ukraine, including political, personal and economic sanctions. The legal basis for the sanctions is Council Regulation (EU) No. 833/2014 of 31 July 2014, which has been amended e.g. by Regulation (EU) No. 2022/328 of 25 February 2022.
Given the fast pace of developments and the consequences of violating the sanctions, there is an acute need for affected companies to take action (details can be found in the fact sheet we have prepared).
The EU sanctions and their impact
The sanctions have had an impact and carry consequences not only for Russia, but worldwide. Even private individuals are feeling their impact, whether in the form of higher energy prices in Europe, greater difficulty in accessing funds in Russia or restrictions on personal travel, particularly air travel.
But the sanctions have fallen hardest on companies, many of which are suspending (recently launched) operations in Russia or withdrawing from joint ventures with Russian partners. This sweeping response was triggered by the need for nearly every sector to adapt to the new sanctions, due in part to the large number of products which fall into the categories specified in Annex VII of the amended Regulation (EU) 833/2014, and which are now subject to sanctions. Among these categories are e.g. “electronics” and “telecommunications,” including products such as microprocessors, software and gateways, as well as cameras. Unlike before, it is no longer necessary for the product to have a military purpose.
The question as to whether and to what extent a product falls under the sanctioned goods and technologies will have to be determined on a case-by-case basis, and may depend on the customer’s individual specifications.
(No) escape in sight?
The prohibitions recognize few exceptions or grandfather clauses. In certain cases, the distribution of goods may be authorized by the competent authority if the contract on whose basis the affected company is to “provide” the product was concluded prior to 26 February 2022. Companies have until 1 May 2022 to request such authorization. Exceptions may also be made e.g. for goods and technologies for humanitarian or medical purposes.
Recommended actions and outlook
Violations of EU sanctions may represent criminal or administrative offenses with severe penalties (e.g. §§ 18, 19 of the Foreign Trade Act). Each company is responsible for ensuring that its operations conform to the sanctions, but even if they do not face the risk of direct sanctions, companies should still pay attention to what their customers are doing or tolerating within the supply chain, as well as analyzing whether they have contractual obligations towards Russian partners and how those relationships can be ended or (in cases covered by the exceptional rules) continued.
Additional sanctions have already been announced and are in the pipeline according to statements made following the informal meeting of EU heads of state and government on 10/11 March. One possibility which has alarmed automotive manufacturers is a package of sanctions which would not only prohibit the importation of iron and steel but would also prohibit the export of luxury goods to Russia, a category which may include passenger vehicles priced € 50,000 or higher. How things develop in this area remains to be seen and is being watched closely.back