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05 Jul 2024

EU's 14th sanctions package against Russia: an expanded approach to jurisdiction

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The EU's 14th package of sanctions against Russia, which entered into force on 24 June 2024, takes an expansive, United States-style approach to jurisdiction and circumvention.

Until now, the well-established position as set out in Article 13 of the Regulation (EU) 833/2014 (the "Regulation") was that non-EU subsidiaries of EU parent companies were not bound by EU sanctions.  Outside the territory of the EU, only EU persons and EU-incorporated companies were required to comply with EU sanctions, including non-EU branches of EU companies.  Article 12 of the Regulation prohibited EU parent companies from using their subsidiaries to knowingly and intentionally circumvent their own obligations under EU sanctions, but that was as far as the EU's jurisdictional reach extended.

Under the newly introduced Article 8a of the Regulation, however, the EU's conservative approach to jurisdiction has expanded.  EU persons and entities are now required to use their "best efforts" to ensure that any non-EU legal person, entity or body they control or own does not participate in activities that undermine EU sanctions.  The wording of Article 8a leave room for interpretation; the Regulation explains that "best efforts" may include the implementation of controls and policies to mitigate the risk of restricted goods being exported to Russia, but only where feasible for the EU entity to carry out due to its size and nature, and the "degree of effective control" it has over its non-EU subsidiary.

In effect, the EU is now imposing some level of obligation on non-EU subsidiaries to comply with EU sanctions if they are majority-owned by EU entities, which is more aligned with the United States' approach to sanctions enforcement. EU entities should therefore take stock of any potential Russia touchpoints that their non-EU subsidiaries may have, and whether there are sufficient policies in place at the group level.

The 14th package also expands Article 12's restrictions on circumvention; circumvention of sanctions is now also "intentional" if the person is aware that participation in activities may have the object or effect of circumventing sanctions, but accepts that possibility and proceeds anyway. The EU has also expanded the scope of the "No-Russia clause", which now must be incorporated for the transfer of IP rights and trade secrets relating to restricted goods.

The UK has not yet expressly followed the EU's lead on the expansive approach to jurisdiction and circumvention, but this may soon change.

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Alex Winsley

Alex Winsley
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