Trade restrictions and sanctions against Russia and its allies in response to the invasion of Ukraine

1. Trade-related restrictions

The most recently adopted trade restrictions include numerous prohibitions on goods and recipients, which extend the already existing restrictions, e. g. with regard to armaments.

This includes, in particular, a far-reaching prohibition on the sale, supply, transfer or export of goods (items, software and technology) that can be used both in a military and civilian environment (dual-use goods), to Russia or for use in Russia. Dual-use goods listed in the EU can be found in Annex I of Regulation (EU) 2021/821 (e. g. certain alloys, encryption technology, special materials).

In addition, the EU imposed prohibitions on the sale, supply, transfer or export of specific goods that are listed in the various Annexes of the applicable Regulation, provided that these goods:

• contribute to the military and technological enhancement of Russia or to the development of the Russian defence and security sector,
• are suitable for use in petroleum refining, or
• are suitable for use in the aerospace industry.

In this context, delivery bans apply to a large number of different goods, such as general electronics, computers/ electronic assemblies, telecommunications and information security, sensors and lasers, navigation and avionics, marine and marine technology as well as aerospace, including corresponding propulsion systems.

In addition, trade-related restrictions were imposed on the Donetsk and Luhansk regions not controlled by the Ukrainian government. On the one hand, it is prohibited to import goods from the two regions into the EU. On the other hand, there are prohibitions on the sale, supply, transfer and export of specific goods listed in the annexes to the respective regulation to the regions of Donezk and Luhansk, provided that they are suitable for use in the fields of telecommunications, transport, energy and oil production. These prohibitions also apply to a large number of goods, such as certain materials, turbines, machines and apparatus or electronics.

Finally, each of the abovementioned export prohibitions shall be subject to a corresponding prohibition in relation to the provision of technical assistance, brokering services or other services, provided that they are related to the goods affected by the export bans.

Additionally, it is prohibited to provide services related to any Tourism activity in the occupied territories.

Appropriate regulations for old contracts have to be taken into account.

2. Designations

In addition to trade restrictions, the EU imposed numerous sanctions designations on individuals and entities, including the Russian President and Foreign Minister, as well as members of the National Security Council and other members of the Russian State Duma, who allegedly supported the independence of the occupied territories of Donetsk and Luhansk. In addition, several Belarusian persons (mainly military officers) allegedly involved in Russia's military activities have been included in the EU's sanctions lists.

As a result of the designations, all assets within the EU will be frozen. Furthermore, it is prohibited to provide funds or economic resources directly or indirectly to sanctioned parties.

3. Financial market-related restrictions

In the process of financial market-related restrictions, certain Russian banks (e. g. Alfa Bank, Bank Otkritie, Bank Rossija and Promsvyasbank), which had already been sanctioned in the past, are additionally excluded from the SWIFT banking communication system, which makes it practically impossible to route transactions related to the European financial market via the above mentioned financial institutions. Furthermore, assets of the Russian central bank located in Europe will be frozen, which has a direct impact on the price of the Russian Ruble. In addition, there are prohibitions for trading Russian government bonds, as well as for granting of new loans to the Russian state.

4. Other restrictions

Other sanctions include investment and financing bans as well as the introduction of a cap on deposits of Russian nationals and companies with financial institutions in the EU.

5. What do companies have to consider now?

It is now essential for domestic companies to closely follow current and future developments in international trade and to be prepared to react in time and in compliance with applicable sanctions requirements. This includes, in particular, the analysis of whether or not planned exports are affected by the newly adopted trade restrictions, which also applies to planned imports from the Donetsk and Luhansk regions.

In addition, business partners should be screened against the relevant sanctions lists.

Further, it must be ensured that the company´s organization enables uniform actions by the various departments related to foreign transactions (e. g. purchasing and sales, shipping, etc.) in order to prevent individual departments from violating sanction regulations in the course of their regular business activities. This particularly applies in relation to Russian subsidiaries.

Existing and future contracts should be checked for any contractual clauses by which supplying companies may be held liable for damages based on the suspension of deliveries due to possible delivery bans.

If the legal and/or factual situation is unclear, it may be appropriate to stop any deliveries for the time being and to suspend payments in order to reduce the risk of sanctions, at least temporarily, and to clarify the situation.

Finally, companies should check whether planned business activities (exports, imports, payments, etc.) notwithstanding any restrictions due to an exemption (e.g. transitional periods, certain end uses, etc.).

If you have any questions, please do not hesitate to contact your Deloitte Legal experts.

_{Published: March 2022}