Note: This alert originally was published on February 28,
2022, and has been supplemented to reflect additional
developments.
Over the past week, in close coordination with the United States
and Canada, the United Kingdom and European Union have expanded the
sanctions in response to Russia’s invasion of
Ukraine.1
This Alert summarizes the waves of EU and UK sanctions decided
from February 24 until March 2, albeit some key points still await
guidance and further sanctions are expected. The Alert also covers
the latest details related to the agreement among the European
Union, United Kingdom, Canada and the United States to cut certain
Russian banks from SWIFT, the Belgian cooperative that serves as
the primary messaging network for banking transactions.
Ropes & Gray will release additional Alerts to provide
updates on the evolving situation.
European Union
Sanctions Package
On February 24, the EU Council announced that it would implement further
restrictive measures, which were agreed on February 25, see here and here. First, the EU Council announced the
implementation of further individual sanctions on individuals close
to President Putin (including Putin himself) and those responsible
for the decision to recognize the independence of the Donetsk
People’s Republic (“DNR”) and Luhansk People’s
Republic (“LNR”) regions of Ukraine. Second, the EU
Council released further details of the proposed measures designed
to deprive the Russian government and key state-owned companies of
access to EU financial markets and goods and services for critical
industries. Third, the European Union has announced a strategy to
counter “disinformation,” beginning with a prohibition on the RT and Sputnik networks
airing in the European Union.
Specifically, the European Union imposed sanctions against the
following persons: (i) ~70 additional members of the Russian State
Duma who supported Russia’s recognition of the self-proclaimed
Donetsk and Luhansk “republics,” (ii) five members of the
Russian National Security Council, (iii) ~20 Belarussian military
personnel and/or border officials,2 and (iv) President
Vladimir Putin and Minister of Foreign Affairs Sergey Lavrov. The
EU Council has also announced that it will step up efforts to
identify and freeze assets of sanctioned individuals within EU
member states. Since then, on February 28, the European Union implemented sanctions on 26 additional
individuals including well-known Russian oligarchs Mikhail Fridman,
Alisher Usmanov, Alexey Mordashov, Gennady Timchenko and Alexander
Ponomarenko. Gas company Sogaz was also sanctioned in the same
round of additions.
The Council previously announced details of further sanctions which
have been imposed in stages over the past few days, covering the
following sectors:
- Finance – the European Union’s new financial
sanctions are aimed to target 70% of the Russian banking sector,
and key state-owned companies, including within the defense sector.
- The restrictions seek to:
- expand the existing capital markets restrictions that limit the
ability of certain Russian entities to secure new debt and equity
financing in the European Union (i.e., “sectoral
sanctions”);3 - prohibit the listing and provision of services in relation to
shares of Russian state-owned entities on EU trading platforms;
and - prohibit the acceptance of deposits exceeding €100,000
from Russian nationals or residents,4 the holding of
accounts of Russian clients by the EU Central Securities
Depositories (subject to certain exemptions).
- expand the existing capital markets restrictions that limit the
- The previously announced prohibition on the sale of
euro-denominated securities to Russian clients was finalized on March 2, prohibiting the sale
or export of Euro-denominated banknotes to any person, entity or
body in Russia, including the government and the Central Bank of
Russia, or for use in Russia. - On March 2, the EU Council also imposed restrictions on
investing in, participating in or otherwise contributing to future
projects co-financed by the Russian Direct Investment Fund.
- The restrictions seek to:
- Energy – the European Union will prohibit the sale,
supply, transfer or export to Russia of specific goods and
technologies in oil refining, and will introduce restrictions on
the provision of related services. - Transport – the European Union introduced an export
ban on the sale of all aircrafts, spare parts and equipment to
Russian airlines, and a prohibition on the provision of insurance
and reinsurance and maintenance services related to those goods and
technology. This will also include a prohibition on the provision
of related technical and financial assistance.
- Late on February 27, the EU Commission announced a bloc-wide
ban of all Russian aircraft from EU airspace, after many Member
States (including France, Germany, Italy and Finland) had announced
their own bans. Commission President Von der Leyen explained that
the ban will apply to all Russian-owned, Russian-registered, or
Russian-controlled aircraft, including private jets and aircraft
that are registered outside of Russia but chartered or otherwise
controlled by Russian legal or natural persons. The United Kingdom
has taken similar steps, as discussed below. Prior to the bloc-wide
ban, Russia had responded with tit-for-tat flight bans for the
airlines of many countries, which has led to significant disruption
and re-routing between Europe and Asia. Russia responded with a
reciprocal airspace ban for all EU Member States.
- Late on February 27, the EU Commission announced a bloc-wide
- Technology – the European Union imposed further
restrictions on exports of dual-use goods and technology, and
restrictions on exports of certain goods and technology that might
contribute to Russia’s technological enhancement of its defense
and security sector (e.g., semiconductors or cutting-edge
technologies.) - Visa policy – The European Union revoked the visa
facilitation policy for Russian officials and diplomats, and
“business people and representatives of business
organizations.”
The current Council Regulations and Decisions implementing the
above announcements are set out below.
Further Council Decisions and Regulations are awaited to
formalize the full package of sanctions announced by EU officials
over the weekend (as described above). The latest Council Decisions
and Regulations are regularly updated and available here.
Ban from SWIFT Network
There has been significant global debate in the past week on
whether and on how to cut Russia off from the “SWIFT”
network (the Society for Worldwide Interbank Financial
Telecommunication), which is the principal secure messaging system
by which financial institutions make cross-border payments. Cutting
Russia off from SWIFT—a move that has been used before with
respect to Iran in 2012 and North Korean banks in 2017—means
that ordinary transactions need to be conducted directly between
banks, or routed through less traditional or established rival
systems, with attendant delays and fees.
On March 2, the EU Council announced that it would prohibit
SWIFT services to Bank Otkritie, Novikombank, Promsvyazbank,
Rossiya Bank, Sovcombank, VNESHECONOMBANK (VEB), and VTB and any
entities directly or indirectly owned for more than 50% or more by
these banks. The prohibition will enter into force March 12,
2022.
While the BRICS have been working on SWIFT alternatives (notably
China, with its CIPS network, and Russia, with its relatively slow
and unsophisticated SPFS system), the immediate impact of expulsion
from SWIFT means that Russian businesses would find it almost
impossible to access the financial markets, or pay and be paid
without considerable delay and cost. The move would also
significantly impact Russia’s export markets, including its
energy exports.
Exceptions
The European Union generally implements more targeted sanctions
restrictions to avoid impacts on humanitarian aid or the provision
of health services, but has in other programs such as the
Counterterrorism sanctions and Syria sanctions specifically allowed
for the provision of funds to designated persons or other
exceptions to activity-based restrictions where necessary to the
provision of humanitarian aid.
Similarly here, the thus-far finalized EU sanctions related to
Russia provide for exceptions to the export prohibitions where
goods are intended for humanitarian purposes, health emergencies,
human health and safety or the environment, or in response to
natural disasters; and medical or pharmaceutical purposes. The
prohibition on financial assistance for trade with Russia also
includes an exception where public financing or financial
assistance is made for trade in food, or for agricultural, medical
or humanitarian purposes. Moreover, the ban on Russian
nationals’ deposits includes the standard basic needs and
humanitarian purposes authorization (see fn 4).
United Kingdom
Sanctions Package
On February 25, the United Kingdom sanctioned President Putin
and his Foreign Minister, Sergey Lavrov. On February 28, the United
Kingdom imposed sanctions against three additional banks: Public
Joint Stock Company Bank Financial Corporation Otkritie
(“Otkritie”), Open Joint Stock Company Sovcombank
(“Sovcombank”) and Vnesheconombank (“VEB”),
following from previous US designations of these entities; see our
latest Alert on US sanctions here. At the same time, the United Kingdom
amended the restrictions applied to Sberbank (previously subject to
sectoral capital markets restrictions) to include prohibitions on
correspondent banking and sterling clearing, in line with the
latest US restrictions on Sberbank.
On March 1, the United Kingdom prohibited the provision of
financial services for the purpose of foreign exchange reserve and
asset management to:
- the Central Bank of the Russian Federation;
- the National Wealth Fund of the Russian Federation;
- the Ministry of Finance of the Russian Federation;
- a person owned or controlled directly or indirectly by any of
the persons above; and - a person acting on behalf of or at the direction of any of the
persons above.
The United Kingdom has also aligned with the European Union, the
United States and Canada to cut off certain Russian banks from
SWIFT.
On March 3, the United Kingdom prohibited Russian ships from
entering UK ports and prohibited registration of ships on the UK
Ship Register where they are owned, controlled, chartered or
operated by a designated person or persons connected with Russia,
or otherwise specified ships. The European Union is expected to
follow with a similar ban.
The United Kingdom also announced that it would introduce
prohibitions on providing insurance to Russian companies in
aviation and space industry and bring in legislation to prohibit UK
based insurance and reinsurance providers from undertaking
financial transactions connected with a Russian entity or for use
in Russia. Details on this are to follow.
The United Kingdom previously announced that it will impose
additional sanctions on Russia, including:
- Additional sanctions on Russian elites, companies and financial
institutions, including more than 100 companies and oligarchs close
to Putin’s regime;5 - The freezing of Russian bank assets in the United Kingdom;
- A prohibition on certain Russian state-owned and private
companies (yet to be identified) seeking financing in the United
Kingdom; - Trade and export restrictions on high-tech and other
industries; - Restrictions on Russians using United Kingdom banks, including
a £50,000 limit on bank account holdings;6
and - A ban on all Russian airlines from using UK airspace. Initially
the ban applied only to the national airline, Aeroflot, but this
was expanded to all Russian airlines on February 26. As noted
above, Russia responded quickly with an equivalent ban, which has
significantly extended flight times for UK airlines flying to and
from Asia.
On March 2, the United Kingdom introduced trade sanctions prohibiting the export of
“critical-industry goods and critical-industry
technology” for export, supply or transfer to, or for use in,
Russia, along with the provision of related technical assistance,
financial services and brokering services. These items include
technology for use in telecommunications, marine, aerospace and
propulsion, navigation and avionics, sensors and lasers, and
information security – in line with similar export controls
put in place by the United States and European Union.
Exceptions
The United Kingdom has introduced a general license to wind down (or facilitate
the wind-down of) activities with or positions in VTB bank, which
was sanctioned early last week.
The United Kingdom also introduced two further general licenses
related to VTB and its UK subsidiaries to wind down operations. The
licenses specifically allow:
- VTB Capital and its UK subsidiaries to make payments, including
for basic needs, reasonable fees or service charges arising from
routine holding and maintenance of its frozen funds and economic
resources, and reasonable professional fees for the provision of
legal services; and - relevant financial authorities to do anything with regard to
VTB Capital and its UK subsidiaries related to prudential
supervision, or protecting, maintaining or enhancing the financial
stability of the UK.
These licences run from 1 March 2022 until 1 March 2023.
The United Kingdom also introduced three general licenses to permit:
- A seven-day wind-down period in respect of sovereign debt,
loans and money market instruments measures; - A 30-day wind-down period in respect of the clearing and
correspondent banking prohibitions on Sberbank; and - A wind-down period until June 24, 2022 to permit UK financial
institutions to continue processing GBP payments to/from Sberbank
and its subsidiaries where the payments relate to Relevant Energy
Products for use in the United Kingdom.7
Similar to the European Union, the United Kingdom typically
implements more specific sanctions restrictions to avoid
humanitarian impacts without the need for an exception or general
license. Given the proposal to limit Russian nationals’ account
access in the United Kingdom similar to that in the European Union,
we can also likely expect basic needs permissions with respect to
those restrictions. As the United Kingdom has not yet implemented
many of its proposed sanctions, however, it is not clear what will
be put in place related to humanitarian exemptions or licensing
grounds. The current prohibition on investment in Crimea, which is
meant to be extended to the DNR and LNR regions, provides a
licensing ground for the provision of services if necessary for the
“urgent prevention or mitigation of an event likely to have a
serious and significant impact on human health and safety,
including the safety of existing infrastructure, or the
environment.” Similarly, the current Russia-related export
sanctions contain an exemption for “an act dealing with an
emergency,” defined as “an act assisting with the urgent
prevention or mitigation of an event likely to have a serious and
significant impact on human health or safety, infrastructure or the
environment.” These types of exemptions and licensing grounds
may be reasonable to expect with the new sanctions once adopted
into law.
Next Steps
Companies should conduct thorough due diligence of any
Russia-related transactions to ensure compliance with EU and UK
regulations. Companies may wish to consider additional protections
required (e.g., inclusion of DNR and LNR regions in
restricted activity definitions) as well as any impacts as regards
pre-existing contractual arrangements (such as financing
agreements). Given the rapid pace of change, companies should also
continue monitoring for further escalation of trade
restrictions.
The response of the international community is developing at a
rapid rate. Ropes & Gray is monitoring developments closely and
will publish further Alerts as events progress.
Footnotes
1. Please see here our previous Alerts on initial sanctions
by the European Union, the United Kingdom, and the United States in
response to Russia’s invasion of Ukraine.
2. The European Union has noted Belarus’s involvement
in supporting the Russian invasion and announced a new sanctions
package targeting Belarus late on February 27, with details to
follow. On March 2, the European Union imposed sanctions against high ranking
Belarusian military personnel and introduced further restrictions
on trade with Belarus.
3. The banks added to capital markets restrictions
include Alfa Bank, Bank Otkritie, Bank Rossiya, and Promsvyazbank,
while companies added to capital markets restrictions include
Almaz-Antey, Kamaz, Novorossiysk Commercial Sea Port, Rostec
(Russian Technologies State Corporation), Russian Railways, JSC PO
Sevmash, Sovcomflot, and United Shipbuilding
Corporation.
4. The €100,000 deposit limit is per financial
institution, and does not apply to (i) Russian nationals resident
in an EU Member State, or (ii) deposits necessary for
non-prohibited cross-border trade in goods and services between the
European Union and Russia. Member States may also authorize
acceptance of deposits from Russian nationals or residents for a
variety reasons including basic needs (such as health care, food,
or rent), payment of professional fees, “extraordinary
expenses,” diplomatic purposes, humanitarian purposes or for
use for civil society activities promoting democracy, human rights
or the rule of law in Russia.
5. On March 3, the United Kingdom designated prominent
Russian elites, Igor Ivanovich Shuvalov and Alisher Burkhanovich
Usmanov.
6. As of the publication of this Alert, further detail
has not been provided as to how this prohibition will operate
specifically. However, see above for further specific detail of the
implementation of a similar regime in the European Union. The
United Kingdom may choose to follow similar parameters.
7. Defined as crude oil, petroleum products, and
gas.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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