The EU’s 20th sanctions package

Following the withdrawal of Hungarian opposition, the EU has adopted its 20th sanctions package in response to Russia’s military aggression against Ukraine. We examine the key elements of the new measures and explore why it has never been more important for businesses in Ireland to proactively and continuously update and assess their trade sanctions compliance programmes.

What you need to know

• The EU recently adopted its 20^th sanctions package concerning Russia and Belarus since the February 2022 full-scale invasion of Ukraine.
• Significantly, the package includes the EU’s first use of its anti-circumvention tool, which restricts the export of certain products to a third country.
• Irish industry should take note of these restrictions, particularly while the Irish government has pledged to investigate certain Irish companies for sanctions-related issues.
• With Ireland due to assume the Presidency of the Council of the European Union shortly, domestic sanctions enforcement activities may increase as all eyes turn to Ireland for leadership.

The European Union (EU) recently adopted its 20^th sanction package in response to the February 2022 invasion of Ukraine.[1] In this article, we highlight some key elements of the changes that we believe to be the most important or relevant. While we focus on restrictions against Russia, generally, the restrictions against Belarus are closely related.

New trade restrictions

The 20th package has introduced new restrictions and sharpened measures:

• For the first time, the European Commission has activated the anti-circumvention tool to prohibit the sale, supply, transfer, or export of certain goods to any party in a certain jurisdiction.
  • The anti-circumvention tool was provided for as part of the 11^th sanctions package in June 2023. The tool has been previously described as an “exceptional and last resort measure” to activate after “other individual measures and outreach by the EU to concerned third countries have been insufficient to prevent circumvention.”[2]
  • Under the 20^th package, it is now prohibited to sell, supply, transfer, or export certain machine tools and telecommunications equipment to any party in the Kyrgyz Republic.
  • In a press release accompanying the release of the 20^th package, the European Commission clarified that its decision to activate the anti-circumvention tool was due to a “systematic and persistent failure by the Kyrgyz Republic to prevent the sale, supply, transfer, or export to Russia of specific high-risk EU goods”. It noted that “insufficient action has been taken by the Kyrgyz Republic to effectively stem this re-exportation.”
• The number of Russian banks or financial institutions with which it is prohibited to engage in “any transaction” has expanded to include 20 additional institutions. There are also now new potential exemptions from this restriction. These include instances in which the transaction is necessary to pay certain professional fees or to fund the needs or certain organisations that promote Member State cultural policies in Russia.
• Beginning 25 May 2026, it will be prohibited to provide “managed security services” to the Russian government or Russian legal parties. “Managed security services” is defined as “a service provided to a third party consisting of carrying out, or providing assistance for, activities relating to cybersecurity risk management, such as incident handling, penetration testing, security audits and consulting, including expert advice, related to technical support”.
• The existing restriction on accepting donations from the Russian government or Russian legal parties now applies to public and private research institutions, universities, etc. They also apply to natural persons associated with those entities.
• It is now restricted to engage in any transaction with an identified Russian legal party that has used intellectual property rights held by an EU operator without that operator’s consent. The Russian parties against which this restriction will apply will be identified at a later date. Relatedly, there is also a new reporting requirement for EU operators to report instances where their intellectual property rights are used by Russian parties without their consent.
• The restriction on engaging with crypto assets has expanded. While it remains prohibited to engage in any transaction with certain crypto assets (A7A5), that restriction has now expanded to include certain central bank digital currencies (RUBx and the digital rouble), as well as providing “any support to the development of” those products.
• Beginning 24 May 2026, it will be prohibited to engage in any transaction with a legal party that is providing crypto-asset services or is a platform enabling the exchange or transfer of crypto-assets and is established in Russia. This restriction will not apply, however, to Member State nationals that were residents of Russia prior to 24 February 2022.
• The grounds for obtaining an exemption from the restriction against selling, supplying, or exporting either (i) dual-use goods and technology or (ii) goods and technology that might contribute to Russia’s military and technological enhancement have narrowed. This restriction applies as against selling, supplying, or exporting, directly or indirectly, to a Russian party or for use in Russia. Previously, exemptions could be obtained if items were to be used to ensure cyber and information security for Russian natural and legal persons, except those directly or indirectly controlled by the Russian government. Now, the exemption is only available for Russian legal persons that are owned or controlled by a Member State-incorporated entity.
• Beginning 1 January 2027, there will be restrictions on providing liquified natural gas terminal services to Russian parties. For current contracts, there is a wind down period until 1 January 2027.
• Restrictions on providing certain services to ice breaker vessels or LNG tanker vessels. Restrictions on the former begin 25 April, while restrictions on the latter begin on 1 January 2027.

Changes to financial restrictions

The list of parties subject to the existing asset freeze and restrictions against making funds or economic resources available to them has expanded. The newly listed parties include the following notable ones:

• Chinese electronics manufacturers Brightmile Ltd and Yangzhou Yangjie Electronic Technology Co., Ltd.
• Two UAE-based shipping companies that manage tankers transporting crude oil: Centauri Services LLC and Lumen Ship Management – FZCO.
• CJSC TengriCoin: a Kyrgyzstani company operating the Meer platform for trading stablecoin A7A5, which is collateralised by Promsvyazbank, a Russian state-owned institution
• Limited Liability Company Soglasie Insurance Company: Russian insurance company
• United Capital Partners Investment Group: large Russian financial investment group

In addition, the circumstances under which entities may obtain an exemption from the restriction against making funds or economic resources available to a sanctioned party have increased. Now, exemptions may be obtained if the funds or economic resources are necessary for either:

• The needs of state-funded organisations for a Member State’s foreign cultural policy in Russia, or
• A Member State’s historical responsibility program or for the support of a Member State’s ethnic minorities in Russia.

Comment

Twenty sanctions packages in four years underscores the EU’s commitment to maintaining a sanctions program intended to progressively restrict economic ties with Russia. While the initial delay of the 20^th package may have suggested to some commentators that the EU had lost its steam, the new measures demonstrate a clear political will to enhance and refine sanctions against Russia arising from the war in Ukraine.

In a recent interview, the European Commission’s sanctions envoy, David O’Sullivan, underscored the need for industry to maintain an effective trade compliance program, particularly when dealing with an indirect sales program, which remains an area of exposure for European companies:

“[European businesses are] tricked into selling something to a shell company or to someone who then sells it to a shell company, so the company can legitimately say we had no idea this was going to end up in Russia. But there are undoubtedly some bad actors inevitably and those are increasingly being caught and punished.”

For Irish industries, this package comes on the foot of increased attention to trade restrictions closer to home. While there is no suggestion that Irish companies were involved in wrongdoing, the Irish press has recently reported on separate instances of suspected diversion of raw materials and technical components to Russia, or for use in Russia. In some cases, these materials and components are suspected to have ultimately been used for military purposes. Indeed, the Irish government has committed to investigate these industries, and, with Ireland due to assume the Presidency of the Council of the European Union this summer, all eyes will be on Ireland. Ultimately, the Presidency may result in increased regulatory scrutiny of Irish industry and domestic trade compliance programs. Now, more than ever before, Irish industry participants should assess their trade compliance programs and ensure that they are meeting legal requirements.

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The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] See also our recent coverage concerning the 19^th sanction package and recommendations on what companies can do to reduce their potential liabilities concerning trade sanctions.

[2] https://ec.europa.eu/commission/presscorner/detail/en/ip_23_3429.