Sanctions Newsletter (Issue 3, 2015)

–02.07.2015

Western Sanctions and Russian Responses to Continue into 2016

European Union extends 2014 sanctions

In June 2014 the European Union adopted several resolutions imposing sanctions against Russia. These were extended last month.

The first of the sanctions resolutions was EU Council Decision No. 2014/386/CFSP Concerning Restrictions on Goods Originating in Crimea or Sevastopol in Response to the Illegal Annexation of Crimea and Sevastopol (23 June 2014). This decision introduced a ban on:

the importation into the EU of products produced in Crimea and Sevastopol;
investment in Crimea and Sevastopol by EU individuals and entities; and
the export to Crimea of certain goods and technology, particularly in sectors such as transport, telecommunications, and energy.

On 31 July 2014, the EU Council adopted Council Decision 2014/512/CFSP and Council Regulation No. 833/2014, both captioned Concerning Restrictive Measures in View of Russia’s Actions Destabilising the Situation in Ukraine. These actions introduced sanctions on the military-industrial, banking, and oil sectors, prohibiting:

the delivery of Russian arms and dual-use goods;
access to the market of long-term loans (over 30 days) for five Russian banks with the state participation (VTB, VEB, Gazprombank, Rosselkhozbank, Sberbank); and
the supply of equipment for deep-water oil exploration and production, oil exploration and production in the Arctic, and for shale oil projects in the Russian Federation.

Because the European Council concluded that the purposes of these resolutions have not yet been achieved, they decided in June 2015 to extend the sanctions. On 19 June 2015 Council Decision (CFSP) No. 2015/959 extended Council Decision No. 2014/386/CFSP until 23 June 2016. On 22 June 2015, by Council Decision (CFSP) 2015/971, they extended the sanctions imposed pursuant to Council Decision 2014/512/CFSP and its implementing Council Regulation until 31 January 2016.

Parliamentary Assembly of the Council of Europe continues credentials sanctions against the Russian delegation

On 10 April 2014, the Parliamentary Assembly of the Council of Europe (PACE), by Resolution 1990 (2014), suspended the voting rights of the Russian delegation to PACE, and other participation in Council of Europe entities and activities, such as participation in election observation missions. Resolution 1990 also warned the Russian government that its credentials to PACE could be annulled if the Russian Federation did not “de-escalate the situation and reverse the annexation of Crimea.”

On 28 January 2015 and, most recently on 24 June 2015, PACE extended the suspension of the Russian delegation’s credentials until the end of 2015. In response, the Russian delegation has left the Assembly and does not plan to attend any further meetings until the end of the year.

Canada adds 17 persons and entities to its sanctions list

On 25 June 2015, the Ministry of Foreign Affairs of Canada expanded its sanctions list under the Special Economic Measures Act, to add three Russian citizens and 14 entities to schedules under the Special Economic Measures (Russia) Regulations.

Personal sanctions, in the form of visa and economic restrictions, were imposed on: Alexander Dugin, Paul Kanischev and Andrei Kovalenko. Among the newly sanctioned companies and other entities are ones these sectors:

oil and gas (Gazprom, Gazprom Neft, Sugutneftgas, and Transneft)
finance (Marchall Capital Fund)
military and defense systems (Tula Arms Plan, United Aircraft Corporation, Himkompozit, Sirius, Stankoinstrument, and Oboronprom)

Under the Special Economic Measure Act, Canadian individuals and corporate entities may not enter into transactions involving the assets of, finance the activities of, or produce any goods for or provide any services to an individual or entity listed on a sanctions schedule. Furthermore, there are restrictions on the financial activities of sanctioned individuals and entities in Canadian territory.

United States of America expands sanctions

On 30 June 2015, the Office of Foreign Assets Control under the U.S. Department of the Treasury expanded its sanctions list to include Gazprom, Gazprom Neft, Surgutneftgas, Transneft, and Lukoil.

The supply of goods and technologies by U.S. companies for use in the development of hydrocarbon fields in deep water, the Arctic shelf, and in shale formations in the Russian Federation, also was restricted.

The Russian Federation extends and expands its response

The Russian government considers the original imposition of sanctions and their extension to be unjustified and illegal. After the extension of the sanctions by the EU Council, on 24 June 2015, Russian President Vladimir Putin signed a Decree About the Extension of the Special Economic Measures in Order to Ensure the Security of the Russian Federation, which extends the prohibition on the importation of several goods into the territory of Russia before 6 August 2016. Presidential press secretary Dmitry Peskov noted that, “the Russian Federation has never been an initiator of the sanctions measures, however, it is impossible to ignore the renewal of sanctions by the EU.”

Pursuant to President Putin’s extension of the import restrictions, the Government of Russia adopted Decree No. 625 About the Amending Resolution of the Government of the Russian Federation from August 7, 2014 No. 778 (25 June 2015), which defines the list of goods prohibited from import into the territory of the Russian Federation. This new decree also extends until 5 August 2016, the embargo against certain goods manufactured in United States, European Union, Canada, Australia, and Norway. It also expanded the list of prohibited products to include:

fresh or chilled cattle meat;
meat and edible offal of domestic poultry;
salted, dried, smoked meat;
live fish (except Atlantic salmon whitebait (Salmo salar) and trout (Salmo trutta, Oncorhynchus mykiss);
fish and crustaceans, mollusks and other aquatic invertebrates (excluding juveniles (spat), oysters, and mussels);
milk and dairy products (except the special lactose-free milk and lactose-free specialized milk products for dietary nutritional therapy and dietary prophylactic nutrition);
vegetables, edible roots, and tubers (excluding seed potatoes, onion sets, sweet corn hybrid for sowing, and peas for sowing);
fruit and nuts;
sausages and similar products of meat, meat offal or blood; food preparations based thereon; and
food or finished products made of cheese production technologies.

At this point, the Federal Customs Service of Russia estimates the total annual value of the imports of the prohibited goods at US$ 7 billion. The expansion of the scope of the sanctions certainly will cause this amount to increase. According to independent experts of the Austrian Institute of Economic Research (WIFO), the combined effect of the Western sanctions and the Russian responses could cause losses to the EU of 100 billion euros and two million jobs.

ART DE LEX International Sanctions Group

Analysts of the ART DE LEX International Sanctions Group monitor systematically the recent and pending legislation to identify the risks that might result for companies, private organizations, individuals, and other legal entities.

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