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The EU and US step up trade sanctions against Ukraine and Russia

07 August 2014
The EU and US have significantly stepped up trade and investment sanctions against the Ukraine and Russia in recent days in light of the on-going political instability in Eastern Ukraine.  For details on the sanctions regime previously in force, see our blog post of March 26.  The key new measures are outlined below.

EU Regulation 833/2014: Trade and investment sanctions against Ukraine and Russia

On 31 July, the EU introduced significant further sanctions measures against both Russia and certain former members of the Ukrainian Government.  The Council stated that these measures will be kept under review and may be suspended, withdrawn or extended in light of developments on the ground.

The new measures:

  1. prohibit the direct or indirect sale, supply, transfer or export of certain dual-use goods and technology for military use or to a military end-user;
  2. prohibit the direct or indirect provision of technical assistance, brokering services, financing, or financial assistance in relation to the sale, supply, transfer or export of such dual-use goods and technology (including grants, loans and export credit insurance);
  3. require companies to obtain prior authorisation from the competent authority in order in order to sell, supply, transfer or export certain technology (as listed in Annex II) suited to the oil industry for use in deep water or Arctic oil exploration/production or shale oil projects, to any person, or for use, in Russia (Note: competent authorities will not grant authorisation if they have reasonable grounds to suspect that the technology will be used in the Russian oil industry and so this requirement is a de facto ban.);
  4. prohibit the provision of technical assistance, financing, or financial assistance in relation to military equipment; and
  5. prohibit the purchase, sale, brokering, assistance in the issuance of, or otherwise dealing with bonds, equities or other financial instruments issued by major Russian credit or financial institutions with over 50% public ownership/control or 50% ownership by designated entities (or people acting on their behalf).

Grandfathering exemptions may be available for the above restrictions in relation to contracts concluded (or instruments issued) prior to 1 August 2014.

Member states have also agreed an arms embargo in relation to Russia.

EU Regulation 825/2014: Trade and investment restrictions in Crimea and Sevastopol

Further restrictions against Crimea and Sevastopol were implemented by the EU on 30 July 2014.  The EU also sanctioned an additional eight individuals and three entities.

This new measures prohibit:

  1. granting loans or credit to, acquiring/extending a participation in, or participating in a joint venture with, companies involved in the transport, telecommunications or energy sectors or for the exploitation of oil, gas or mineral resources and providing related technical assistance or brokering services;
  2. the sale, supply or transfer of key equipment and technology (as listed in Annex III to the Regulation) for creating, acquiring or developing infrastructure projects for the above sectors to any person or entity in, or for use in, Crimea or Sevastopol or the provision of related technical assistance, brokering services, financing or financial assistance.

Again, grandfathering exemptions may be available for the above restrictions in relation to contracts concluded before 30 July 2014.

Power to designate

The EU also now has the power to designate individuals or entities who have supported financially or materially: (i) any actions threatening Ukrainian independence; (ii) the annexation of Crimea and Sevastopol; or (iii) the destabilisation of Eastern Ukraine, including Russian oligarchs.  The enabling provisions were implemented under EU Regulation 811/2014 (of 25 July 2014) and then used almost immediately under EU Regulation 826/2014 (effective 30 July).

US Sanctions

The US Office of Foreign Assets Control ("OFAC") has issued several new designations.  A further Russian entity, United Shipbuilding Corporation, has been added to the Specially Designated National (SDN) list, resulting in a freeze of their assets within the US and a prohibition on US persons dealing with that entity, as well as a visa ban preventing travel to the US.

OFAC has also added several more entities to the Sectoral Sanctions Identification List (SSIL) under Directive 1, which prohibits US persons (or persons geographically located in the US) from transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days' maturity or new equity for these persons, their property, or their interests in property.

Significance of the new measures for (re)insurers and brokers

These sanctions impose significant new restrictions on entities wishing to do business in Russia and/or the Ukraine.  Therefore, (re)insurers and brokers will need to conduct further to checks to assess the extent to which their business activities in the region may be affected and consider what steps they may need to take to ensure their continued compliance with the EU and US sanctions regimes.

Should you have any specific questions relating to the impact of these sanctions on your insurance or reinsurance business you can contact Jamie Rogers in our London office.

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