EU Sanctions Package Includes New Due Diligence Rules, Export Controls

The EU this week unveiled its 14th sanctions package against Russia for its war on Ukraine, including new due diligence rules for companies with counterparties that may be selling to Russia. The package also includes new measures to prevent sanctions evasion, new import and export controls, a set of servicing restrictions on certain Russian energy shipments, designations of more than 100 people and entities, and more.

The sanctions package gives the EU a new "tool" that will require EU parent companies to make sure their third-country subsidiaries aren't participating in activities that enable sanctions evasion. And EU businesses selling certain "battlefied goods" used by Russia in Ukraine must "implement due diligence mechanisms capable of identifying and assessing risks of re-exportation to Russia, and mitigating them," the European Commission said. This will help "counter the re-exportation of battlefield goods found in Ukraine or critical to the development of Russian military systems."

Under the new rules, EU companies exporting certain high-priority items to third countries -- other than a select group of "partner countries"-- must have these diligence "mechanisms" in place and must ensure their foreign subsidiaries also have them in place.

Under another new requirement, businesses transferring "industrial know-how for the production of battlefield goods to third-country commercial counterparts" must now include provisions in their contracts to "ensure that such know-how will not be used for goods intended to Russia." This addition to the EU's "No Russia” clause will apply to transfers of intellectual property rights, the commission said in a question-and-answer document, and is specifically designed to make sure the EU isn't making and sending items to Russia that are listed on the list of Common High Priority goods maintained by the EU, the U.S. and others.

This new requirement builds on the EU's existing no-Russia clause announced in a previous sanctions package issued in December (see 2312180070 and 2402270046). The commission this week said it's extending the deadline to comply with the original no-Russia clause requirement from Dec. 20, 2024, to Jan. 1, 2025. The deadline was extended only for contracts concluded before the adoption of that December package.

The commission added that it plans to "assess the impact of the 'no-Russia clause' in order to understand its impact on deterring circumvention." It will also "consider other appropriate actions to curb Russia's access to sensitive goods, including the possibility of requiring Union operators to ensure that their subsidiaries in third countries also use the 'no-Russia clause.'"

Other measures in the new sanctions package include an expanded set of export controls on sensitive items destined to Russia. Those controls now apply to certain machine tools, certain “All Terrain Vehicles," and certain chemicals, plastics, excavating machinery, monitors and electrical equipment.

The commission also added 61 entities, including firms in China, Kazakhstan, Kyrgyzstan, Turkey and the United Arab Emirates, to the list of companies subject to export controls on dual-use goods and technologies, and sanctioned more than 100 people and entities for their ties to Russia. Many of the sanctioned entities are involved in skirting EU sanctions through financial transactions and delivery of banned goods, including various Russian military and defense industry firms.

The EU also sanctioned the Volga Dnepr Group and its shareholders for providing services to the Russian military and Russian shipping company Sovcomflot, along with its CEO and "other leading companies in the energy sector." The International Children's Center Artek, the organizer of camps for Ukrainian children, the Kadyrov Foundation and the Belarusian Republican Youth Union also were targeted.

The sanctions package also included new service restrictions on Russian firms, including a new ban on reloading services of Russian liquefied natural gas in EU territory "for the purpose of transshipment operations to third countries." The restrictions cover both ship-to-ship transfers and ship-to-shore transfers, and only apply to reeexports to third countries and not imports.

The package also includes new restrictions on new investments and services to complete certain Russia-related LNG projects, such as the Arctic LNG 2; outlaws the "System for Transfer of Financial Messages," a financial messaging service used by the Central Bank of Russia; bans transactions with certain financial institutions and crypto-asset providers set up outside the EU that facilitate transactions for Russia’s defense-industrial base; expands the EU's Russia-related flight ban; and more.

The commission also included a measure to allow EU companies to be compensated for damages caused by Russian companies "due to sanctions implementation and expropriation." It also "creates the instrument to draw up a list of [companies] subject to a transaction ban for meddling with arbitration and court competence."