In response to the war in Ukraine, the European Union (EU) has adopted sanctions against Russia. The first measures were issued on 23 February 2022, with further measures following, and the latest measures issued on 12 April 2022.

First package of sanctions

The sanctions adopted in the first stage on 23 February 2022 include:

Sanctions lists

Over 330 members of the Russian Parliament involved in the recognition of the self-proclaimed "Luhansk and Donetsk People's Republics" in eastern Ukraine have been added to the EU sanctions list. It also listed 26 individuals and entities that are considered to be assisting in undermining Ukraine's territorial integrity, sovereignty and independence. In addition to high-ranking representatives of the Russian military and media, this includes three Russian banks and some of their representatives. The sanctions include, among other things, an absolute ban on transactions with the designated persons and companies and that may also have an impact on companies they are involved in.

Regional economic embargo

An economic embargo with far-reaching trade, investment and import restrictions was also imposed on the areas of Donetsk and Luhansk oblasts not controlled by the Ukrainian Government. Certain exceptions for current transactions are possible but require a careful case-by-case examination. The measures are similar to the embargo on the Crimea region, which has been in force since 2014.

Funding restriction

A sectoral ban on the financing of the Russian Federation, its government and its central bank was also introduced. The aim of this measure is to restrict the access of the Russian State and Government to the capital and financial markets and related services in the EU.

Second sanctions package

On 25 February 2022, a second package of sanctions was adopted by the EU, which contains the following core elements:

Tightening of export controls

The export of dual-use goods (i.e., goods listed on the EU export list) and the provision of related services from the EU to Russia is prohibited. Narrow exceptions apply to certain humanitarian or security-related transactions where certain information must be included in the export declaration and where there is an obligation to report to the competent export control authority. Exceptions, which must be carefully examined for their conditions, also apply to the supply on the basis of contracts already concluded and to exports to Russian subsidiaries of EU companies. A detailed exchange of information and consultation procedure between export control authorities in the EU is required.

For trade with Russia, specific additional lists of restricted goods and related services have been drawn up, which are also provided with narrow exceptions and are outlined below:

• Goods that could contribute to Russia's military and technological advancement (including certain goods from the areas of electronics, computers, telecommunications, information security, sensors and lasers, navigation and avionics, marine, aerospace and propulsion)

This package will need to be approved by the EU Member States before it comes into effect.

Restrictions on financing

• Three Russian banks were added to the EU sanctions lists on 23 February, resulting in a comprehensive ban on doing business with these banks. Other natural persons were subsequently also included on the EU sanctions list.
• Nine Russian banks and 14 Russian companies are now subject to restrictions on trading their securities, money market instruments and access to credit/financing and related services.
• There is a ban on the provision of public finance or financial assistance for trade or investment in Russia (the German Government has suspended the provision of guarantees for exports to or investments in Russia).
• There is a prohibition on stock exchange listing and the provision of services on trading venues in the EU for transferable securities of persons or entities domiciled in Russia that are more than 50% publicly owned.
• A restriction on the acceptance of deposits of Russian nationals or persons or entities from Russia if the total value of the deposits of the natural or legal person, entity or body per credit institution exceeds €100,000. This restriction does not apply: (i) to nationals of an EU Member State or natural persons who have a temporary or permanent residence permit in an EU Member State; or (ii) to deposits necessary for the non-prohibited cross-border trade in goods and services between the EU and Russia. Reporting obligations apply for financial institutions.
• A restriction for central securities depositories in the EU to provide services for transferable securities issued after 12 April 2022 to Russian nationals or persons/entities in Russia, again with some of the above exceptions.
• Limitation of the sale of euro-denominated securities issued after 12 April 2022 or of units in collective investment undertakings offering exposure to such securities to Russian nationals or natural or legal persons in Russia, also with some of the above exceptions.

Other restrictions

• A ban on Russian-operated aircraft in EU territory
• A prohibition of transactions related to the management of reserves, as well as assets of the Central Bank of Russia
• Visa facilitation for persons from Russia, including for business purposes, has been reversed

Third sanctions package

On 1 March 2022, a third EU sanctions package came into force with the following provisions:

• From 12 March 2022, exclusion from the SWIFT system for seven Russian banks including holdings controlled by them in Russia
• A prohibition of investments or participations in projects co-financed by the Russian Direct Investment Fund, with certain exceptions for old cases
• A prohibition of the sale or delivery of banknotes denominated in euro to Russia or for use in Russia, with certain narrowly defined exceptions
• A prohibition of specific transactions with the Central Bank of Russia
• A ban on two Russian state media to broadcast in the EU
• On 28 February 2022, another Russian company and 26 persons were added to the EU sanctions list

Further sanctions

On 9 March 2022, the EU again extended the sanctions and export controls against Russia. The restrictions on transferable securities now also apply to crypto assets.

A new annex with prohibited maritime goods and technologies was also created. In addition, services related to these goods are prohibited. There are narrow exceptions for humanitarian purposes or for maritime security. In addition, 160 people have been added to the EU sanctions list.

It is important to note that there have been various corrections made to the sanction regulations issued to date.

Fourth sanctions package

Further sanctions and export controls were issued by the EU on 15 March 2022 such as an export ban on luxury goods to Russia, an investment ban on oil exploration and oil production as well as an import ban on Russian key goods in the iron and steel sector. In addition, business with 12 Russian companies and their holdings outside the EU was prohibited. These are companies from the energy, shipping, and aviation industries and companies that are active in both the civil and military sectors. These sanctions are coordinated within the G7 countries.

Fifth sanctions package

Further sanctions were issued on 8 April 2022:

• From August 2022, the ban on the purchase, import or transfer of coal and other solid fossil fuels to the EU if they originate in Russia or are exported from Russia will apply.
• Ships registered under the Russian flag will be denied access to EU ports. Exceptions exist for agricultural products and foodstuffs, humanitarian aid and energy.
• A ban on all Russian and Belarusian road transport companies to transport goods by road in the EU (also applies to transit). Exceptions exist for a number of products (e.g., pharmaceutical, medical and agricultural products and foodstuffs – including wheat, road transport for humanitarian purposes).
• There are additional export bans on aviation turbine fuels and other goods such as quantum computers and advanced semiconductors, high-quality electronics, software, sensitive machinery and vehicles, and new import bans on products such as wood, cement, fertilizers, seafood and spirits.
• With regard to the above, there are a number of economic measures aimed at reinforcing existing measures, such as a general EU-wide ban on the participation of Russian companies in public tenders in the Member States, the exclusion of any financial support to Russian public authorities, an extended ban on deposits in crypto wallets and the sale of banknotes and transferable securities denominated in official currencies of the EU Member States, to Russia and Belarus or to any natural or legal person, entity or body in Russia and Belarus.
• In addition, the Council adopted sanctions against companies and individuals and their families whose products or technologies have played a role in the acts of conflict.

Sixth sanctions package proposed

On 4 May 2022, the European Commission proposed a new package of sanctions that will include a phase out of Russian crude imports within six months, of refined products by the end of the year and sanctions on war crime suspects. In addition, the President of the Commission announced the addition of more individuals who committed war crimes to the sanctions list. It was also announced that Russia's largest bank Sberbank along with two other Russian banks will be excluded from the SWIFT network.

Next steps

To ensure compliance with the new export control and sanctions rules, companies should take the following measures in the short term:

• Identification of the goods, technologies, services and business partners subject to the new restrictions.
• Adaptation of internal processes for compliance with export control and sanction regulations (e.g., stopping transactions related to Russia and initiating a detailed check against the new requirements).
• In the event of withdrawal from business in Russia, ensuring compliance also in the context of withdrawal of business.
• Development of processes with regard to continued legitimate transactions (i.e., transactions not affected by the sanctions), in particular with regard to payment methods, logistics and insurance.
• Check of the relevance of non-EU regulations (e.g., United States sanctions imposed on Russia) on the companies' transactions.
• In case of business with Belarus, check and comply with the respective EU sanctions which are similar but not identical to those imposed on Russia.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young GmbH, Indirect Tax Services, Eschborn

• Rafik Ahmad | rafik.ahmad@de.ey.com

Ernst & Young AG, Indirect Tax Services, Geneva

• Ashish Sinha | ashish.sinha@ch.ey.com