Ukraine ● Focus on the European Union's 12th sanctions package (asset freeze and restrictive measures)

On 18 and 21 December 2023, the Council of the European Union adopted measures to freeze funds and economic resources (persons and entities responsible for actions that compromise or threaten the territorial integrity, sovereignty and independence of Ukraine, mentioned in the Monegasque list of measures to freeze funds and economic resources) and restrictive measures (sectoral and individual) as part of the European Union's 12th package of sanctions.

The Banking & Finance Law Department provides an update on these measures:

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National list for freezing funds and economic resources: 149 new entries concerning Ukraine

Pursuant to Implementing Regulation (EU) 2023/2875 of 18 December 2023 implementing Regulation (EU) No 269/2014 concerning restrictive measures with regard to actions undermining or threatening the territorial integrity, sovereignty or independence of Ukraine, Ministerial Decision 2023-107 of 19 December 2023 added 147 entries (61 persons, 86 entities) to the national list for the freezing of funds and economic resources.

Pursuant to Implementing Regulation (EU) 2024/196 of 21 December 2023 implementing the aforementioned Regulation (EU) 269/2014, Ministerial Decision 2024-1 of 3 January 2024 added 2 entries (1 person, 1 entity) to the aforementioned list.

The target persons and entities are:

• players in the Russian army and defence, military industry companies and private military companies;
• players in the IT sector and other major economic players;
• those who orchestrated the recent illegal 'elections' in the Ukrainian territories temporarily occupied by Russia;
• those responsible for the forced "re-education" of Ukrainian children;
• those involved in propaganda in favour of Russia's war of aggression against Ukraine.

As a reminder, Sovereign Order 10.077 of 31 July 2023 (JDM no. 8655 of 11 August 2023) clarified Article 14-2 of Sovereign Order 8. 664 of 26 May 2021 on information likely to facilitate the implementation of measures to freeze funds or economic resources adopted by the Minister of State for the application of restrictive measures adopted by the European Union with regard to actions compromising or threatening the territorial integrity, sovereignty and independence of Ukraine, which credit institutions, other financial institutions, insurance companies and other bodies, entities or persons are required to communicate promptly to the Director of the Budget and Treasury.

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Stricter obligations for persons placed on the freeze list by the Council of the European Union

Regulation (EU) 2023/2873 of 18 December 2023 amending Regulation (EU) 269/2014 sets out stricter obligations regarding the freezing of assets:

• Extension of the criteria for inclusion on the list to include natural or legal persons, entities or
  legal persons, entities or bodies benefiting from a forced transfer of ownership or control over Russian subsidiaries of EU companies. Objective: to ensure that no one benefits from the losses that EU companies face when their subsidiaries are forcibly acquired by Russian owners/managers.
• Possibility of keeping the name of a deceased person on the list where it is likely that the assets concerned would otherwise be used to finance the war or other actions. Objective: to prevent the freezing measure from being potentially compromised.
• Stricter obligation on Member States to proactively trace the assets of listed persons. Objective: to prevent and detect cases or attempts to violate or circumvent sanctions.

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Restrictive measures (sectoral and individual)

Regulation (EU) 2023/2878 of 18 December 2023 amending Regulation (EU) 833/2014 provides for new restrictive trade, energy and anti-circumvention measures:

• Addition of 29 Russian entities and third countries (Uzbekistan and Singapore) to the list of entities associated with the Russian military-industrial complex, against which stricter restrictions are imposed on the export of dual-use goods and technologies as well as likely to contribute to the technological strengthening of the Russian defence and security sector.
• Extension of the list of items that contribute to Russia's military and technological of Russia or to the development of its defence and security sector: items that contribute to the development or production of Russia's military systems, including chemicals, lithium batteries, thermostats, DC motors and servo motors for drones, machine tools and machine parts.
• Ban on the direct or indirect import, purchase or transfer of diamonds from Russia (diamonds of Russian origin, diamonds exported from Russia, diamonds transiting Russia, Russian diamonds processed in third countries other than Russia) which is part of a G7 effort to develop an internationally coordinated ban: from 1 January 2024 (direct) for natural and synthetic non-industrial diamonds, diamond jewellery; phased in from 1 March 2024 to 1 September 2024 (indirect) for Russian diamonds processed in third countries other than Russia, including jewellery incorporating diamonds originating in Russia.
• Additional restrictions on exports of goods likely to contribute in particular to the strengthening of Russia's industrial capacities, and in order to minimise the risk of circumvention of the restrictive measures, ban on the transit through Russian territory of certain goods and technologies likely to contribute in particular to the strengthening of Russia's industrial capacities, exported from the EU.
• Additional restrictions on imports of goods that generate significant revenue for Russia, such as liquefied propane gas, pig iron and spiegel, copper wire, aluminium wire, foil, tubes and pipes. Certain exceptions and transitional periods are provided for.
• New measures to monitor more closely the sale of oil tankers to third countries, and more detailed certification requirements, in order to combat the "phantom fleet"* used by Russia to circumvent the price cap (*Commercial vessels that are not owned by countries in the G7 coalition with the European Union, or that do not use P&I protection and indemnity insurance).
• New ban on imports of liquefied petroleum gas (LPG), affecting annual imports worth more than €1 billion, with grandfathering of existing contracts for a maximum period of 12 months.
• New ban on Russian nationals or natural persons residing in Russia, from owning or controlling legal persons, entities or bodies providing crypto-asset services, or holding any position in their governing bodies, in order to limit circumvention of the prohibition on providing crypto-asset wallet, crypto-asset account and crypto-asset custody services to Russian nationals and residents.
• Extending the existing prohibition on the provision of services to also include the provision of business management software and industrial design and manufacturing software, subject to appropriate exemptions and derogations.
• New reporting requirements for the transfer of funds outside the EU by entities established in the EU, including special purpose entities, whose ownership rights are held by entities established in Russia, by Russian nationals or by natural persons resident in Russia.
• Obligation on exporters to contractually prohibit re-export to Russia and re-export for use in Russia of sensitive goods and technology, high priority common items, or firearms and ammunition.

Regulation (EU) 2023/2878 also provides for new derogations:

• Member States may authorise the entry into the EU of personal effects that do not present significant circumvention problems, such as items of personal hygiene, or clothing worn by travellers or contained in their luggage, and which are clearly intended for their strictly personal use or the strictly personal use of their family members.
• Exemption for the entry of cars with diplomatic registration plates into the EU and, in order to facilitate the entry into the Union of Union citizens living in Russia, possibility for Member States to authorise the entry of cars of EU citizens or their close relatives who reside in Russia and are travelling to the Union, provided that these cars are not intended for sale and are driven for strictly personal use.
• Extension for a further year of the specific derogations from the ban on imports of crude oil and petroleum products from Russia, in order to ensure the security of certain Member States.
• Derogation allowing loans or credits to be granted to entities operating in the Russian energy sector that are subject to the ban on transactions set out in Regulation (EU) 833/2014.
• Given the importance of the Paks II project for Hungary's security of energy supply interests, it is clarified that the exemptions and derogations provided for in the Regulation concerning civil nuclear projects are fully applicable to all goods and services necessary for this project.

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