6 April 2018
Overview of EU Sanctions Against Russia, Taking into Account the Possibility of Making Investments There
During the month of March 2018, the UK and several other EU Member States (in solidarity with the UK) have expelled Russian diplomats over the attack on a former spy, Sergei Skripal, on UK territory. Then on 28 March 2018, it was reported that the German government’s coordinator for Russia exclaimed in a newspaper interview that despite Germany’s solidarity, the start of a new cold war with Russia must be avoided.
In this context, it may be important for some Hong Kong traders to be reminded of EU-imposed sanctions against Russia, particularly should businesses with ties to the EU be considering investing in Russia.
Since March 2014, the EU has progressively imposed different types of restrictive measures against Russia. These comprise diplomatic measures; restrictions on economic relations with Crimea and Sevastopol; economic sanctions; and restrictions on economic cooperation.
Individual restrictive measures: Firstly, under this head, 150 people and 38 entities are subject to an asset freeze and a travel ban because their actions are believed to have undermined Ukraine's territorial integrity, sovereignty and independence. The measures were introduced in March 2014. They were last extended in March 2018 until 15 September 2018. Secondly, due to what the EU believes is a blatant misappropriation of Ukrainian state funds, in March 2014, the EU Council decided to freeze the assets of individuals responsible for that misappropriation. These measures were last extended in March 2018 until 6 March 2019.
Restrictions on economic relations with Crimea and Sevastopol: The EU Council has adopted restrictive measures in response to what it holds as the illegal annexation of Crimea and Sevastopol by the Russian Federation. The measures apply to EU persons and EU based companies. They are limited to the territory of Crimea and Sevastopol. These measures include:
- an import ban on goods from Crimea and Sevastopol;
- restrictions on trade and investment related to certain economic sectors and infrastructure projects;
- a prohibition to supply tourism services in Crimea or Sevastopol;
- an export ban for certain goods and technologies.
On 19 June 2017, the Council extended these measures until 23 June 2018. The following highlights the restrictions for Crimea and Sevastopol in more detail. As part of the EU's non-recognition policy of the illegal annexation of Crimea and Sevastopol, the EU has imposed substantial restrictions on economic exchanges with the territory. These include:
- A ban on imports of goods originating in Crimea or Sevastopol unless they have Ukrainian certificates;
- A prohibition to invest in Crimea. Europeans and EU-based companies can no longer buy real estate or entities in Crimea, finance Crimean companies or supply related services. In addition, they may not invest in infrastructure projects in the following sectors: transport; telecommunications; energy and the prospection, exploration and production of oil, gas and mineral resources;
- A ban on providing tourism services in Crimea or Sevastopol. European cruise ships may not call at the following ports in the Crimean peninsula, except in case of emergency: Sevastopol, Kerch, Yalta, Feodosia, Evpatoria, Chernomorsk and Kamysh-Burun. This applies to all ships owned or controlled by a European or flying the flag of an EU Member State;
- In addition, European operators are - irrespective of the type of ship - banned from making any payments to the Port Authority of Kerch and the Port Authority of Sevastopol. This provision is part of the EU’s restrictive measures in respect of actions which it feels are undermining or threatening the territorial integrity, sovereignty and independence of Ukraine;
- Goods and technology for the transport, telecommunications and energy sectors or the exploration of oil, gas and mineral resources may not be exported to Crimean companies or for use in Crimea;
- Technical assistance, brokering, construction or engineering services related to infrastructure in the same sectors must not be provided.
To facilitate compliance with these restrictive measures and other elements of the non-recognition policy, the EU has compiled an Information Note to EU business operating and/or investing in Crimea/Sevastopol (please click on the following): Information Note to EU business
Economic sanctions targeting exchanges with Russia in specific economic sectors: In July and September 2014, the EU imposed economic sanctions targeting exchanges with Russia in specific economic sectors. The Council then extended economic sanctions until 31 July 2016. The economic sanctions were prolonged for 6 months successively on 1 July 2016, 19 December 2016, 28 June 2017, and 21 December 2017. The economic sanctions are currently extended until 31 July 2018. These restrictive measures:
- limit access to EU primary and secondary capital markets for certain Russian banks and companies;
- impose an export and import ban on trade in arms;
- establish an export ban for dual-use goods for military use or military end users in Russia;
- curtail Russian access to certain sensitive technologies and services that can be used for oil production and exploration.
Measures concerning economic cooperation: Restrictions on economic cooperation were introduced by EU leaders in July 2014:
- The European Investment Bank (EIB) was requested to suspend the signature of new financing operations in the Russian Federation.
- EU Member States agreed to coordinate their positions within the European Bank for Reconstruction and Development (EBRD) Board of Directors with a view to also suspending the financing of new operations.
- the implementation of EU bilateral and regional cooperation programmes with Russia was re-assessed and certain programmes suspended.
In sum, in order to see how the sanctions would affect investors with a European involvement in Russia, it will be necessary to evaluate the current restrictions. As the above is only an overview, for any investments that individuals or companies are planning or may wish to make in Russia, it will furthermore be necessary to carefully examine the EU Decisions and Regulations which set out the restrictions. Hong Kong businesses can see, for example, the EU measures targeting Russia on the one hand, and Ukraine on the other hand, under each of the respective countries, via the following hyperlink: European Union - Restrictive measures (sanctions) in force (updated on 4/8/2017).
To whom do the measures apply: It should also be kept in mind that the application of the restrictive measures are to be interpreted broadly. For example, both Council Regulation 692/2014 concerning restrictions on the import into the Union of goods originating in Crimea or Sevastopol, in response to the illegal annexation of Crimea and Sevastopol, and Council Regulation 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, state that they shall apply:
a) within the territory of the Union;
b) on board any aircraft or any vessel under the jurisdiction of a Member State;
c) to any person inside or outside the territory of the Union who is a national of a Member State;
d) to any legal person, entity or body, inside or outside the territory of the Union, which is incorporated or constituted under the law of a Member State;
e) to any legal person, entity or body in respect of any business done in whole or in part within the Union.”
Should any Hong Kong businesses involved with an EU base wish to make investments in Russia, it is strongly advised that they obtain legal advice before doing so, in order to ensure that they do not fall within the scope of any restrictions. Traders should also bear in mind that the EU restrictions are regularly updated.