Eighth EU sanctions package
The wide range of measures introduced as part of the EU’s eighth sanctions package includes changes to Council Regulations (EU) 833/2014, 269/2014 and 2022/263, which deal with the sectoral sanctions against Russia, asset-freeze restrictions against certain Russian individuals and measures against the Russian-occupied invaded regions, respectively. We summarise these below:
A. Restrictions on Russian-origin goods and goods exported from Russia
Price Cap on crude oil and petroleum products (new Article 3n(4) onwards)
Subject to the EU Council unanimously agreeing a price cap (a “Price Cap Decision”), it shall be prohibited to transport, including through ship-to-ship transfers, to third countries crude oil (with CN code 2710) after 5 December 2022, or petroleum products (with CN code 2709 00) after 5 February 2023.
The prohibition on transportation shall not apply if the price per barrel of the transported product is at or below the Price Cap. Associated insurance, technical assistance, brokering services or financial assistance will also be permitted in relation to Price Cap compliant voyages.
Further, for a period of 90 days after each Price Cap Decision – indicating that the Price Cap may be amended from time to time – the restrictions on transportation will not apply provided that:
- The transportation is based on a cargo purchase contract concluded before the Price Cap Decision.
- The purchase price per barrel did not exceed the Price Cap on the date of conclusion of that contract.
The EU Commission has said it will develop guidance for implementing the Price Cap mechanism, but, similar to the U.S. approach discussed below, it will rely on an attestation process to allow operators in the supply chain to demonstrate that the product was purchased at or below the Price Cap.
Other amendments to Article 3n
The wind-down period for insurance, financial assistance, brokering and technical assistance for maritime transportation of Russian-origin petroleum products, and petroleum products exported from Russia, with CN code 2710 has been extended until 5 February 2023. The wind-down date for crude oil falling under CN code 2709 00 remains 5 December 2022. This aligns Article 3n with the provisions in Article 3m relating to EU bound imports of such products.
Article 3n(3) also clarifies that, provided that initial insurance coverage was permissible under Article 3n, insured parties are entitled to exercise their rights and make claims under their policies after the relevant wind-down dates.
There is also a new exception on providing piloting services necessary for reasons of maritime safety.
Iron and steel products (Article 3g)
The EU Commission has extended the list of products restricted under Article 3g at Annex XVII, which are now contained in a new ‘Part B’ to Annex XVII. Article 3g imposes, inter alia, restrictions on the import or transfer of certain iron and steel products into the EU and to third countries, as well as associated services (including insurance). A wind down for contracts concluded before 7 October 2022 until 8 January 2023 is available for the newly listed products contained in ‘Part B’. There are also import volume carve-outs for certain products as specified under new Article 3g(4).
Further, from 30 September 2023 restrictions will be imposed on the import and purchase (but seemingly not transportation or transfer) restrictions on products processed in third countries which incorporate any restricted Russian-origin iron and steel products, as listed in Annex XVII. There are carve-outs on the above restrictions until 1 October 2024 for products that fall under CN code 7207 1210 and 1 April 2024 for products that fall under CN code 7207 11.
Goods generating significant revenues for Russia (Article 3i)
The list of products restricted under Article 3i at Annex XXI has been extended to include an additional 100+ CN codes in a new ‘Part B’, with tweaks also made to products already restricted at ‘Part A’. The newly restricted products at ‘Part B’ include a wide range of products including wood pulp and paper, precious metals, certain machinery, chemical items, cigarettes, plastics and cosmetic products. Article 3i prohibits, inter alia, the purchase, import and transfer of goods and technology that generate significant revenues for Russia. A wind-down period for Part B products is available until 8 January, 2023 for contracts concluded before 7 October 2022 until 8 January 2023.
Updated FAQS relevant to Article 3g, 3i and 3j
Further to our previous client alert of 20 September 2022, the EU has updated its FAQs dealing with restrictions on certain coal, fertilizer and other Russian-origin goods under Articles 3g, 3i and 3j of Council Regulation (EU) 833/2014. The updated FAQs can be found via the European Commission.
Having reversed its position to allow the transportation of certain products to third countries, the EU has now further altered FAQ 2 of its ‘Import, Purchase & Transfer of Listed Goods’ FAQs to:
- Draw a distinction between: (i) wood/charcoal and coal products on the one hand; and (ii) fertiliser and animal feed products on the other. The transportation of to a third country is now only permitted provided that it does not involve transit through EU territory. However, the transportation of products under (ii) is permitted even when it involves transit through EU territory.
- Narrow the scope of permitted wood products, from all products with CN code 44 to fuel wood (4401) and charcoal (4402) only.
- Remove certain hydrocarbons falling under CN codes ex2901 and 2902 and cement products falling under CN codes 2523 and 6810 from the list of permitted products.
Equivalent changes to FAQ 4 dealing with associated relevant services (such as financial assistance, brokering and insurance) have also been made.
B. Restrictions on exporting goods/services to Russia
Aviation (Article 3c)
The list of products restricted under Article 3c at Annex XXI has been extended to include an additional nine CN codes in a new ‘Part B’. This includes hydraulic oils, tyres and various parts for aircraft/spacecraft. A short wind-down period until 6 November 2022 for contracts concluded before 7 October 2022 is available for such products.
Products enhancing Russian industrial capacities (Article 3k)
The list of products restricted under Article 3k at Annex XXIII has been extended to include coal (2701), lignite (2702), peat (2703) and coke/semi-coke of coal, lignite or peat (2704). There are wind-down periods until 8 January 2023 for contracts concluded before 7 October 2022
Export of services ban (Article 5n)
The existing restrictions under Article 5n have been extended to include architectural and engineering services, legal advisory services and IT consultancy services. There is a wind-down period for such services until January 8, 2023 in relation to contracts concluded before 7 October 2022 until 8 January 2023.
There are a series of exceptions, including for Russian entities owned or jointly controlled by bodies incorporated in the EU, the EEA, Switzerland, the United States, Japan, the United Kingdom and/or South Korea.
C. Other restrictions
- Asset freeze restrictions: In addition to adding various individuals and entities to the asset freeze list (primarily politicians and individuals with links to the Russian military), Council Regulation (EU) 269/2014 has also been amended to add a further criterion for designation, targeting those found to be “facilitating infringements of the prohibition against circumvention” in relation to the key EU Russian sanctions legislation.
- Russian Maritime Register of Shipping (Article 5aa): The Russian Maritime Register of Shipping has, inter alia, been added to the list of entities subject to the restrictions under Article 5aa. It is therefore subject to a total transaction ban (subject to certain exceptions) and a wind-down period until 8 January 2023 for contracts concluded before 7 October 2022.
In Q&A guidance accompanying the eighth EU sanctions package, it states the new criterion has been introduced to allow the EU “to sanction persons who facilitate the circumvention of sanctions. This includes circumvention by EU citizens.”
- Port ban (Article 3ea): In addition to the existing restrictions on Russian flagged vessels, vessels certified by the Russian Maritime Register of Shipping now cannot call at EU ports after 8 April 2023.
- EU nationals holding posts in the governing bodies of state-owned entities (Article 5aa): It is prohibited from 22 October 2022 for EU nationals to hold any posts in the governing bodies of state-owned entities subject to Article 5aa restrictions.
- Donetsk, Luhansk, Zaporizhzhia and Kherson regions: The wide-ranging restrictions against the Donetsk and Luhansk regions under Regulation (EU) 2022/263 have been extended to include Kherson and Zaporizhzhia.
U.S. OFAC Price Cap guidance
On 9 September 2022, the United States issued its preliminary guidance on the contemplated “Implementation of a Maritime Services Policy and Related Price Exception for Seaborne Russia Oil.” While the formal, more detailed guidance is yet to follow, the preliminary document provides a solid background for the supply chain due diligence that will be expected once the Price Cap is in place.
Similar to the EU, a Price Cap will be determined for the trade of Russian crude oil and petroleum products, and U.S. persons will be prohibited from providing services related to maritime transportation where the oil or petroleum product was bought at a price that exceeds the set cap. It is understood the restriction will cover not only the initial purchase from Russia, but also trade through which the product is to be sold to other buyers down the chain. These restrictions also apply where there are U.S. dollars involved, even if no U.S. persons are involved.
Practically, to ensure supply chain parties do not run into potential sanctions exposure or logistical issues (such as transportation problems arising due to maritime service providers’ reluctance to perform), it will be important to follow the due diligence recommendations laid out in the guidance.
The preliminary guidance notes that recordkeeping will be key for commodity brokers and traders, so it will be crucial that they document everything that evidences the price point of the trade (e.g., through invoices or certifications) – in order to prove that it was at or below the Price Cap. In addition, OFAC recommends parties to update the terms and conditions of contracts, including invoice structures to feature an itemized price for the purchase (excluding shipping, freight and customs costs). Finally, there are recommendations for others in the supply chain, such as financial institutions, shippers, insurance brokers, P&I clubs and the like. The preliminary guidance also recommends certain risk-based measures to ensure compliance with these new restrictions, such as providing guidance to staff, updating policies, sanctions questionnaire templates, and bill of lading templates to include attestations. OFAC expects all actors in the chain to retain relevant records for five years.
As to the timeline, and in keeping with the EU’s projections, the Price Cap restriction will enter into force on 5 December 2022 for crude oil, and 5 February 2023 for petroleum products. The United States will apparently be implementing this restriction through Executive Order 14071, which only concerns U.S. persons (and U.S. dollars). However, it will be crucial for parties to monitor whether there are U.S. persons involved in the supply chain, the involvement of U.S. dollars and the price at which the subject product is being traded vis-à-vis the Price Cap to ensure there are no U.S. persons providing prohibited services. Such a scenario could still create exposure to non-U.S. persons in the chain, as it is a separate violation to “cause” a U.S. person to violate U.S. sanctions.
In-depth 2022-347