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13.10.2022 — European Union Adopted Eighth Package of Sanctions against Russia

The new package of EU sanctions restricts seaborne transportation of Russian oil by EU parties to third countries other than where the sale is subject to a pre-set price cap. Moreover, the eighth package of sanctions introduces the prohibition of importing certain types of Russian steel products, plastics and chemicals into the EU. EU entities and individuals are also prohibited from rendering some types of services to the Russian companies and the Russian Government, including IT consultancy and legal advisory services.

On 06 October 2022 the European Union adopted the eighth package of sanctions against Russia. This package prohibits European operators from undertaking and supporting the transport of Russian oil to third countries except when the price conforms to a pre-set price cap. The restriction is effective with regard to oil starting from December 2022 and with regard to petroleum products starting from February 2023. At the same time, the new package of sanctions provides only the legal framework, but not the price cap itself. In particular, the price cap will be implemented through the exemption from the prohibition to provide technical assistance, brokering services or financial assistance, including insurance, related to the maritime transport to third countries of the Russian crude oil or petroleum products, which was introduced by the sixth package of sanctions, if the oil or petroleum products are purchased at or below a price cap agreed by the Price Cap Coalition.

Furthermore, the eighth package provides for restrictions on the import from Russia of certain types of Russian steel products, plastics and chemicals and other goods. The new prohibition also affects exports of electronic components suitable for creating weapons and additional goods used in the aviation sector to Russia.

The package of sanctions also includes the prohibition to render financial services (including auditing and accounting services), architectural and engineering services, legal advisory services and IT consultancy services to entities established in Russia and to the Russian Government. IT consultancy services cover consultancy services related to the installation of computer hardware, development and implementation of software. Prohibited legal advisory services cover the provision of legal advice to customers in non-contentious matters. The prohibition in particular prohibits legal advice on commercial transactions, including advice on the application or interpretation of law; participation on behalf of clients in commercial transactions, negotiations and other dealings with third parties; and preparation, execution and verification of legal documents. At the same time, prohibited legal advisory services do not cover representation of Russian parties in proceedings before administrative agencies, courts or other duly constituted official tribunals, or in arbitral or mediation proceedings, as well as offering advice, preparing or verifying documents in connection with such proceedings.

EU nationals are also prohibited from holding any positions on the governing bodies of select Russian State-owned or State-controlled legal persons, entities or bodies (including PJSC NK Rosneft, PJSC Transneft and PJSC Gazprom Neft).

Apart from that, the eighth package prohibits the provision of crypto-asset wallet services to Russian individuals and entities, regardless of the total value of such crypto-assets and extends personal sanctions to a number of Russian individuals and entities.

16.09.2022 — New Restrictions on Transactions with Shares in Russian Limited Liability Companies with Foreign Parties are Introduced

Decree No. 618 of the Russian President introduces new restrictions on transactions with the shares in Russian LLCs if a party to a transaction is a foreign person associated with countries that enacted sanctions against Russia. Such transactions now require the prior approval of the Government Commission for the Control of Foreign Investment in the Russian Federation. The Decree also introduces a number of other measures. In particular, it allows Russian banks subject to foreign sanctions to perform obligations related to foreign currency accounts (deposits) in Russian rubles.

Under Decree No. 618 dated 08 September 2022 (“Decree No. 618”) prior approval of the Government Commission for the Control of Foreign Investment in the Russian Federation is required to execute transactions with the shares in Russian limited liability companies (“LLCs”) if a party to the transaction is a foreign person associated with countries that enacted sanctions against the Russian Federation, such as the EU countries, the UK, Canada and the US (“Foreign Party associated with the Covered States”). The new requirement is worded as broadly as possible and applies to any type of transactions which directly or indirectly lead to establishment of control, change of control or cessation of control over an LLC (except for credit organizations and non-credit financial organizations) or relate to other rights that allow a party to manage an LLC or influence its business decisions.

Foreign Parties associated with the Covered States are also defined broadly and include (i) persons that are citizens of a Covered State, (ii) entities that are incorporated in a Covered State, have a principal place of business in a Covered State or derive profits primarily from business in a Covered State, and (iii) persons controlled by any Foreign Parties associated with the Covered States, even if their place of incorporation or principal place of business is not in a Covered State (this may be interpreted as covering Russian entities that are affiliated with Foreign Parties associated with the Covered States).

Therefore, the prior approval requirement may apply to virtually any transaction with the shares in Russian LLCs that are owned directly or indirectly (such as through another Russian entity) by Foreign Parties associated with Covered States. It has been reported that Decree No. 618 is a part of the package of measures taken to stabilize the Russian economy in view of the withdrawal of a number of foreign companies from Russia.

At the same time, the requirement to obtain approval in accordance with the Decree No. 618 does not apply to transactions in fuel-energy and financial industries. These transactions are subject to a different regulation, namely Decree of the Russian President No. 520 dated 05 August 2022. Furthermore, according to Decree No. 618, LLCs, shares in which are owned by entities that are deemed strategic subsoil operators, are now allowed under Russian law not to disclose information on their business activities to shareholders that are Foreign Parties associated with the Covered States.

In addition, Decree No. 618 also allows Russian banks subject to foreign sanctions to perform their obligations related to foreign currency accounts (deposits) of the Russian companies in Russian rubles at the rate of the Russian Central Bank as at the date of payment.

27.05.2022 — Russian President’s New Decree Set Special Procedure for Royalty Payments to Certain Foreign IP Owners

Under the Decree, which is part of Russian counter-sanctions, Russian residents are to pay royalties and other IP-related fees to select foreign IP owners, including under existing license agreements and other contracts, only to specifically designated bank accounts and only in Russian Rubles, regardless of the otherwise applicable contract provisions. These IP owners will need an authorization from the Russian Government in order to access such funds paid to the specifically designated bank accounts. If IP owners do not consent to this payment procedure, the Decree excuses the Russian parties’ failure to provide payment.

The Russian President has issued new Decree No. 322 dated 27 May 2022 (the “Decree”), which applies inter alia to (i) IP owners (including Russian subsidiaries of foreign companies) that are associated with foreign countries that enacted sanctions against Russia, unless such IP owners continue to duly comply with their obligations before Russian parties (item 17(c) of the Decree), (ii) IP owners that publicly supported or called for sanctions against Russia, (iii) IP owners that discontinued, limited or suspended their operations in Russia after 23 February 2022 for non-economic reasons, (iv) IP owners that took public steps to “disparage” the Russian state or the military acting abroad or disseminate “knowingly false information” about the same, and (v) IP owners that disseminated information expressing in an “inappropriate manner” clear “disrespect” to the Russian state and society (the “Covered Parties”).

Per the Decree, Russian persons are to perform their obligations to pay royalties or other IP fees to Covered Parties (unless they fall under an exemption) only in Russian Rubles, regardless of what the license or other agreement provides. In addition, all such payments will have to be made to specifically designated “O-type” bank accounts in an authorized Russian bank (the exact bank is to be determined by the Russian Government via implementing regulations). Covered Parties will have to seek approval of the Russian Government to access funds paid to these accounts. If a Covered Party does not consent to this payment procedure, the Decree excuses the Russian parties’ failure to perform their obligations to such Covered Parties.

It appears that the Decree will likely have the primary practical effect of allowing unauthorized use of IP rights of companies that withdrew from the Russian market in Russia or limited/suspended their activities. Importantly, the Decree expressly extends to IP owners who normally offer their services to the general public – such IP owners, provided that they are considered a Covered Party, will have to publicize the details of their “type O” bank account, failing which their IP rights may be used without providing payment.

A number of industries, such as telecommunications and pharmaceutical manufacturing, are also exempt from the Decree. In addition, the Decree does not apply to payments lower than 100 000 RUB made by private individuals for private consumption.

11.05.2022 — Russian Government Adopted List of Companies Targeted By Russian Counter-Sanctions

In line with recent Presidential Decree No. 252 dated 03 May 2022, which introduced framework regulations on Russian counter-sanctions, the Russian Government adopted a list of specific persons targeted by Russian counter-sanctions (the “Designated Persons”) in Decree No. 851 dated 11 May 2022 (the “Decree”). There are 31 companies in the list of the Designated Persons, which mostly include former foreign subsidiaries of Russia’s Gazprom and companies formerly controlled by Gazprom.  

The list of the Designated Persons includes 31 companies from the USA, Britain, European countries and Singapore. In particular, the Designated Persons include Gazprom Germania GmbH, Gazprom Marketing & Trading Ltd. and other former foreign subsidiaries of Russia’s own Gazprom as well as companies formerly controlled by Gazprom, such as entities within the VEMEX and Wingas/WIEH/WIEE groups. All Designated Persons seem to have been involved with the supply and sale of Russian gas.

According to Decree No. 252, all Russian companies (including Russian branches and subsidiaries of foreign companies), individuals and state authorities may no longer enter into transactions with the Designated Persons, fulfill existing obligations vis-à-vis them, perform financial transactions and export products or raw materials benefitting the Designated Persons. The Decree of the Russian Government established additional criteria for the prohibited transactions with the Designated Persons. In particular, such prohibited transactions include:

  • transactions benefitting the Designated Persons; 
  • transactions aimed at providing access to the Russian ports to ships owned or chartered by the Designated Persons, in their interest or at their instruction; 
  • transactions including payments, securities transactions with the participation of or for the benefit of the Designated Persons.

The Russian Ministry of Finances is entitled to make proposals to the Russian Government on amendments to the list of the Designated Persons and the issuance of temporary licenses (permits) to authorize individual transactions with the Designated Persons as an exception from the sanctions regime.

Although now the list of the Designated Persons seems to focus on the companies formerly associated with Gazprom, this list may be extended further. 

We will keep you informed on the relevant developments in due course.

03.05.2022 — Russian Government to Adopt Counter-Sanctions against Certain Foreign Companies

On 03 May 2022, Russian President signed Decree No. 252 (the “Decree”) introducing framework regulations on new Russian counter-sanctions. The Decree does not provide for a specific list of persons targeted by the counter-sanctions (the “Designated Persons”), which is to be adopted by the Russian Government via implementing regulations by mid-May. The Decree does not purport to target persons other than the Designated Persons. However, the Decree imposes restrictions on dealing with the Designated Persons, which may affect Russian companies and Russian branches and subsidiaries of foreign companies.

As of now, in the absence of implementing regulations, the Decree does not by itself lead to new restrictions. However, once the list of the Designated Persons is released, their legal status in Russia will be roughly similar to the restrictions applicable to persons targeted by EU or US sanctions. In particular, Russian individuals, entities and federal, regional and municipal authorities (the “Russian Persons”) will be subject to the following obligations:

  • not to enter into transactions with the Designated Persons and persons controlled by the Designated Persons; 
  • not to fulfill existing obligations vis-à-vis the Designated Persons even if required by existing contracts; 
  • not to perform financial transactions benefitting the Designated Persons; 
  • not to export products or raw materials produced in Russia for the benefit of the Designated Persons or in favor of third parties on behalf of the Designated Persons. 

Importantly, it appears that Russian branches and subsidiaries of foreign companies will also be treated as the Russian Persons and therefore bound to comply with the Decree when dealing with the Designated Persons. Therefore, after the list of Designated Persons is released, we advise to review existing contracts and dealings and carefully consider further steps via legal advice.

We will keep you informed on the relevant developments in due course.