Quarterly Sanctions Update | Q3 2024

Russia Sanctions

G7 Level

• G7 Guidance: The G7 group published joint guidance for industry on preventing evasion of Russia sanctions. The guidance contains: (i) a list of items which pose a heightened risk of being diverted to Russia, (ii) updated red flag indicators of potential export control and/or sanctions evasion, (iii) best practices for industry to address red flags, and (iv) screening tools and resources to assist with due diligence. See the full text here.

European Union

• New sanctions package: On October 8, 2014, the European Council agreed to establish a new sanctions regime aimed at tackling Russia’s hybrid operations on EU territory, expected to be released in the coming weeks. Interestingly, new sanctions will be published as a new regulation (separate to EU Regulations 833/2014 and 269/2014) which will target specific individuals or entities for their actions world-wide (noting that the existing regulations only cover Ukraine-related activity). As explained by the Council, the new sanctions package will focus on addressing a variety of hybrid threats, such as: (i) the undermining electoral processes and the functioning of democratic institutions, (ii) threats against and sabotage of economic activities, services of public interest or critical infrastructure, (iii) the use of coordinated disinformation, foreign information manipulation and interference (FIMI), as well as (iv) malicious cyber activities, the instrumentalization of migrants, and other destabilizing activities. For further details, see here.
• Updates to EU Best Practices: In July 2024, the EU Council updated the EU Best Practices for the effective implementation of restrictive measures against Russia, providing guidance on the criteria of “ownership” and “control”. Specifically:
  • The minimum threshold for assessing whether the “ownership” criterion is satisfied has been changed from holding “more than 50%” of an entity’s proprietary rights to “50% or more”, aligning the European Union with the US sanctions regime; and
  • A number of factors which should be taken into consideration when assessing the “control” criterion have been listed. These include: new “indicators” of potential red flags, including majority shareholdings by designated individuals, buyback options, share transfers just prior to designation, the use of front individuals and the involvement of trusts and shell companies.

  See the updated EU Best Practices here.

• Updates to Frequently Asked Questions (FAQ): A number of updates to the FAQ were published. Specifically:
  • “No re-export to Russia” clause: The European Commission provided further details on the rationale for, and the correct implementation of, the “no re-export to Russia” clause. The Commission has emphasized that exporters should not sell their products to any non-EU operator unwilling to incorporate a “no re-export to Russia” clause in contracts falling under the scope of Article 12g of EU Regulation 833/2014. For further details, see the FAQ here.
  • Chemicals: The European Commission clarified that registrants owning the relevant data must refrain from entering into data sharing negotiations and granting letters of access to any potential registrants who are sanctioned by the European Union or are owned/controlled by a sanctioned person, as any such action would amount to “making economic resources available” to sanctioned persons which is prohibited under EU sanctions. Furthermore, the Commission confirmed that it is for the data communication platform to ensure compliance with the asset freeze obligations, taking into account business operations and existing agreements. For further details, see the FAQ here.
• New case law: The CJEU issued several judgments clarifying numerous provisions of EU sanctions. Specifically:
  • Legal services: The CJEU confirmed that the prohibition on legal advisory services to Russian entities does not violate the Charter of Fundamental Rights of the European Union, as it does not concern legal advisory services provided in connection with judicial, administrative or arbitral proceedings and applies only to legal advice that has no link with judicial proceedings. Read the press release here.
  • Brokering services: The CJEU upheld the legality of confiscating the proceeds from brokering services relating to military equipment manufactured in Russia and sold from Ukraine to India, without entering the European Union. Read our summary here.
  • Notary services: Contrary to the interpretation provided by the European Commission in its FAQ, the CJEU held that notary services do not constitute legal advisory services. Read the press release here.
  • Transferring shares: An Italian court requested that the CJEU clarify the assessment of ownership and control of assets in the context of discretionary trusts. Read our summary here.
• Enforcement: Enforcement efforts across all EU Member States has significantly increased. For example:
  • France: The French customs authority conducted raids on a company based near Paris which has been allegedly involved in brokerage of exports of restricted goods to Russia. Read more here.
  • Germany: Approximately 100 officers of the Central Office for Sanctions Enforcement (Zentralstelle für Sanktionsdurchsetzung) raided offices of logistic companies in Berlin. It has also been reported that at least 1988 sanctions-related investigations have been opened by German authorities since February 2022. Read more here, here and here.
• First Transfer of Profits from the Russian Central Bank’s Frozen Assets Sent to Ukraine: Following the imposition of EU sanctions on the Russian Central Banks, its financial reserves held at Euroclear in Belgium have been frozen, together with any net profits from such reserves. On May 21, 2024, EU Regulation 833/2014 has been amended to allow Euroclear to transfer these profits to the European Commission, and enabling the Commission to further transfer them to the European Peace Facility (in 90%) and the Ukraine Facility (10%), both established to support Ukraine’s military and reconstruction needs. On July 26, 2024, the European Commission made a first transfer under this regime sending EUR 1.5 billion to the European Peace Facility and the Ukraine Facility. Read more on this topic here.

United Kingdom

• Office of Trade Sanctions Implementation (OTSI): On September 12, 2024, the UK government published the regulatory framework outlining the scope and powers of OTSI, the authority responsible for the implementation and enforcement of certain trade sanctions in the United Kingdom. OTSI will have the authority to impose monetary penalties on a ‘strict liability’ basis, and will be allowed to publicly disclose information about trade sanctions breaches. For further details, see the regulatory framework here.
• Updated guidance on ownership and control: The UK government clarified, amongst other things, that control can be established through ownership of more than 50% of shares, the right to appoint a majority of directors, or the ability to influence an entity’s operations. Read the updated guidance here.
• Changes to the legal advisory prohibition & revocation of the General Licence: On September 5, 2024, the United Kingdom modified the prohibition on legal advisory services set out in Regulation 54D of the Russia (Sanctions) (EU Exit) Regulations 2019 (“UK Russia Regulations”), expressly permitting legal advisory services related to compliance with all UK or non-UK sanctions, Russian countermeasures, and criminal legislation from any jurisdiction. As a result, the General Licence, which previously allowed said activity, became defunct, and was revoked on September 6, 2024. Read more here.
• Changes to the business services prohibition in the context of Russian subsidiaries: From October 31, 2014, UK parent companies intending to provide professional and business services to their Russian subsidiaries will not be able to rely on an intra-group services licencing group, but will have to demonstrate that the services fall within the scope of any of the remaining exemptions (i.e., those covering humanitarian activity or divestments from Russia). Read more here.
• Enforcement: The UK authorities have published the outcomes of their sanctions-related investigations. Specifically:
  • GBP 15 thousand penalty for breach of licence reporting obligations: On August 29, 2024, the UK Office of Financial Sanctions Implementation imposed a penalty against a UK company specialised in concierge services for breaching reporting requirements under the Gas and Electricity General Licence. Read the press release here.
  • GBP 29 million penalty for sanctions compliance failings: On October 10, 2024, the UK Financial Conduct Authority imposed a penalty against a UK bank for failings in financial sanctions screening systems, calling the controls “shockingly lax”. Read the press release here.

Other Sanctions

• New sanctions against Iran: On September 10, 2024, Germany, France, the United Kingdom and others condemned Iran for allegedly supplying ballistic missiles to Russia for use in the war in Ukraine, and announced new sanctions targeting air transport, bilateral air services agreements, and Iran Air airlines.

European Union

• New sanctions against Hamas: The EU has sanctioned several persons and entities under sanctions against Hamas and the Palestinian Islamic Jihad introduced on January 19, 2024. For further details, see Decision (CFSP) 2024/385 here.

United Kingdom

• Restriction on the sale of arms to Israel: On September 2, 2024, the UK Foreign Secretary announced the suspension of 30 export licenses to Israel. These include components for fighter aircraft (F-16s), parts for Unmanned Aerial Vehicles (UAVs or drones), naval systems, and targeting equipment.

*Trainee Marine Bahaderian also contributed to this update.

Explore Further Insights

• Vilnius Arbitration Day 2024: Partner, Raminta Dereskeviciute participated in the 2024 Vilnius Arbitration Days and had the opportunity to discuss sanctions and export control matters with fellow lawyers and regulators. A number of panels related to sanctions and export controls, specifically: ‘National Security in Investment and Commercial Arbitrations’, ‘Compensation of Damages to Investors Caused by Russia’s Military Action in Ukraine’, and ‘Sanctioned Parties and Awards: Cause for Concern?’ and ‘Are Energy and Infrastructure Disputed Forerunners of Turbulence?’.
• Association of Certified Sanctions Specialists, Le French Chapter: Associate Michal Chajdukowski participated in the conference on ‘The Latest in Global Enforcement Trends’ in Paris and had the opportunity of discussing with officials from the US Office of Foreign Assets Control and the French Treasury and Customs.

Recent sanctions-related posts on our Regulatory and International Trade Blog:

• EU Member States Implement Additional Measures to Regulate Export of Non-Listed Dual-Use Items
• In Brief: Product Recall Requirements in Germany
• BIOSECURE Act: US to Target Chinese Biotechnology Companies
• EU Court of Justice Upholds Confiscation of Proceeds from Brokering Services Relating to Russian Goods
• Would the Transfer of a Sanctioned Entity’s Shares to a Trust be Effective Enough to Ensure an EU Company’s Shares are No Longer Under the Control of, or Related to, a Sanctioned Shareholder?