The Council adopted earlier this week the 12th package of sanctions against Russia with focus on additional import and export bans on Russia, combatting sanctions circumvention and closing loopholes.
Despite a range of new measures, the package falls short of closing all loopholes. According to an article in the international edition of The New York Times on Saturday, Russia has largely continued getting the technology it needs to keep its economy running and financing its war of aggression against Ukraine because of cracks in the global response. The article did not assess the new EU sanctions package.
In particular, the package includes additional listings of Russian individuals and companies and new import and export bans – such as banning the export of Russian diamonds to Europe – in very close cooperation with EU’s G7 partners.
Moreover, the package tightens the implementation of the oil price cap by including transports costs in the total price. The monitoring of the sale of tankers to third countries to circumvent the cap will also become tighter. All sales will have to be notified and authorized by national authorities.
The issue of the import of liquid natural gas (LNG) from Russia is controversial and was not banned but the Council added a new import ban on liquified petroleum gas (LPG), impacting annual imports worth over €1 billion, but existing contracts will continue to be valid for a period of maximum 12 months.
The package also includes stricter asset tracing obligations and tough measures on third-country companies circumventing sanctions. Operators in the EU will be obliged to contractually prohibit the re-export of certain categories of sensitive goods to Russia, including goods related to aviation, jet fuel, firearms and goods on the Common High Priority list.
Another new measure will require the notification of certain transfers of funds out of the EU from EU entities directly or indirectly owned by more than 40% by Russians or entities established in Russia.
Over 140 individuals and entities were added to the sanctions list and will be subject to asset freezes. This covers actors in the Russian military and defence, including military industry companies and private military companies operating outside Russia. It also includes actors from the IT sector, as well as other important economic actors.
The measures also target those who have orchestrated the recent illegal so-called “elections” in the territories of Ukraine that Russia has occupied, and those responsible for the forced “re-education” of Ukrainian children, as well as actors spreading disinformation/propaganda in support of Russia's war against Ukraine. However, the Russian Orthodox church is still exempted from any sanctions.
The import ban on Russian non-industrial diamonds is part of an internationally coordinated G7 diamond ban, aiming to deprive Russia of this important revenue stream estimated at €4 billion per year. All G7 members will implement a direct ban on diamonds exported from Russia at the latest by 1 January 2024.
As of 1 March 2024, a ban on Russian diamonds polished in a third country will take effect and, as of 1 September 2024, the ban will be expanded to include lab-grown diamonds, jewellery, and watches containing diamonds. A traceability-based verification and certification mechanism for rough diamonds will be established in Belgium on behalf of all EU member states.
The EU also imposed additional export restrictions on dual-use and advanced technological and industrial goods worth €2.3 billion per year. The measures aim at weakening Russia's military capabilities, including chemicals, thermostats, DC motors and servomotors for unmanned aerial vehicles (UAV), machine tools and machinery parts.
The Council also agreed on a new listing criterion to include persons who benefit from the forced transfer of ownership or control over Russian subsidiaries of EU companies. This will ensure that no one profits from the losses that EU companies face when their subsidiaries are forcibly acquired by Russian owners/management.
Are anti-circumvention measures effective?
As previously reported, Belgium plays an important role in the international trade with Russian LNG. Belgian gas operator Fluxys provides storage and transhipment facilities to Yamal LNG in the port of Zeebrugge. Yamal LNG is owned by Novatek, the second largest gas producer in Russia after state-owned Gazprom.
Only a small part of the imported LNG is destined for Belgian consumers. In fact, most of the LNG arriving to Zeebrugge is sent to non-EU countries, generating revenues for Russia. Fluxys claims that it is bound of a contract dating back to 2015 and running for a period of 20 years. Anyway there is no consensus in the EU on a ban on the import of LNG because of Hungary’ opposition.
Ukraine has implemented its own extra-sanction instrument by shaming and naming those companies and individuals that still do business with Russia on a list called “International Sponsors of War”. The list includes currently 46 entities. China tops the list with 13 listings, followed by the US with 7 listings. The EU countries account for 18 listings, included Belgian Fluxys.
The idea is that the listing will affect the reputation of the listed companies in such a way that they will agree to stop making business with Russia and denounce its aggression against Ukraine to be delisted. This apparently happens. The Commission is aware of the list but declined to comment on it.
The enforcement of the obligation on including clauses in sales contracts prohibiting the re-export of sensitive equipment to Russia is key in the anti-circumvention part of the new package. Currently military technology which is legally sold to third countries, including important EU trade partners, is easily re-exported to Russia for use in its war machine without the EU producers taking any responsibility.
Another loophole are investments by European companies and financial institutions in companies that continue to operate in Russia.
EU says that the sanctions are at the core of the EU's response to Russia's unjustified military aggression against Ukraine, as they degrade Russia's military and technological capability, cut the country from the most developed global markets, deprive the Kremlin from the revenues it is financing the war with, and impose ever higher costs on Russia's economy.
The 12 sanctions packages have been launched and reinforced gradually, as Russia’s war of aggression continued, requiring unanimity among the EU member states. This has given Russia time to adapt its economy to the sanctions and finds ways to circumvent them.
According to the European Commission, the effects of the sanctions have grown over time as they erode Russia's industrial and tech base. While the Commission monitors the enforcement of EU sanctions by EU member states, it is up to the relevant member state to implement them, which can be a weakness in the system.
The Commission admits that growing trade figures for some specific products/countries are hard evidence that Russia is actively attempting to circumvent the sanctions. “This calls for us to redouble our efforts in tackling circumvention and to ask our neighbours for even closer cooperation.”
It is aware that unscrupulous individuals are trying to circumvent the sanctions, a spokesperson told The Brussels Time. To stop this, the EU Sanctions Envoy David O'Sullivan continues his outreach to key third countries to combat circumvention and re-export of certain goods to Russia. So far, his diplomatic outreach has been successful, according to the Commission
The EU has also drawn up a list of sanctioned goods that are economically critical and on which businesses and third countries should be especially vigilant.
M. Apelblat
The Brussels Times
