September 2024 was off to a busy start for the EU sanctions and export controls community.

• Policy makers expressed deep concern following reports that Iran had transferred ballistic missiles to Russia for use in its war against Ukraine, marking a significant escalation.
• The EU and its partners issued additional compliance guidance for the industry, further illustrating the emergence of transnational standards within the Russia sanctions coalition and emphasizing the current focus on "relentless enforcement", as the EU Sanctions Envoy noted.
• Meanwhile, the Court of Justice of the EU rendered several judgements of relevance for EU trade compliance professionals, reflecting the growing role of EU and national courts in compliance albeit raising new legal questions.
• An important report by Mario Draghi underlined the importance of strategic export controls as a pillar of the EU's approach to competitiveness as new Commissioners were proposed for the 2024-2029 term.

Here’s an overview of these and other developments, including recent books and policy briefs, and some thoughts on the path towards a potential 15th package of EU sanctions against Russia.

Anticipated Response to Iran's Military Support to Russia

On 10 September 2024. the governments of France, Germany, and the United Kingdom (the E3) strongly condemned Iran’s export and Russia’s procurement of Iranian ballistic missiles. The statement noted, in relevant parts:

[...] This act is an escalation by both Iran and Russia, and is a direct threat to European security. [...] We will be taking immediate steps to cancel bilateral air services agreements with Iran. In addition, we will pursue the designations of significant entities and individuals involved with Iran’s ballistic missile programme and the transfer of ballistic missiles and other weapons to Russia. We will also work towards imposing sanctions on Iran Air.

Will new EU sanctions on Iran follow? On 13 September 2023, the High Representative, on behalf of the European Union, noted in a statement:

The European Union will respond swiftly and in coordination with international partners, including with new and significant restrictive measures against Iran, including the designation of individuals and entities involved with Iran's ballistic missile and drone programmes, and in this regard is considering restrictive measures in Iran’s aviation sector as well.

Compliance & Enforcement Update

Commission FAQs

On 5 September 2024, the European Commission published new FAQs concerning i) provision of services, ii) firewalls, and iii) aggregate ownership. The latest version of the Consolidated FAQs is dated 5 September 2024.

First-ever joint evasion prevention guidance

On 24 September 2024, the United States, Canada, France, Germany, Italy, Japan, the United Kingdom, and the European Union (the G7) published, for the first time ever, joint guidance, for industry on preventing evasion of the export controls and sanctions imposed on Russia.

This guidance document contains:

1. A list of items which pose a heightened risk of being diverted to Russia;
2. Updated red flag indicators of potential export control and/or sanctions evasion;
3. Best practices for industry to address these red flags; and
4. Screening tools and resources to assist with due diligence.

Meeting of the Sanctions Coordinators forum in Brussels

On 23 September 2024, EU Sanctions Envoy David O'Sullivan convened the fourth Sanctions Coordinators Forum, gathering high-level representatives from all EU Member States and a broad coalition of international partners from 12 countries.

As the Statement on the fourth Sanctions Coordinators Forum noted, the meeting covered three main topics:

• The impact that sanctions are having on Russia. The discussion focused on the war footing of the Russian economy, including the spending of nearly half of its federal budget on defense and security
• The progress and next steps in further disrupting Russia’s access to sensitive technology with a potential military application.

Overall, it is clear that sanctions and export controls are frustrating the Kremlin’s military ambitions. The measures are increasing costs, causing delays as well as impairing the quality and precision of Russia’s military equipment. Russia is believed now to be paying over 130% more for semiconductors than it was before the invasion, and more than 300% more for machine tools sourced via China and Turkey. Moreover, we observe that - as a result of our joint effort and outreach - trade to Russia from such countries as Armenia, Georgia, Kazakhstan, Kyrgyzstan, Serbia, Turkey and Uzbekistan has dropped significantly. We also discussed the results of our collective outreach to third countries, financial institutions and industry

• The strengthening of the enforcement of the Oil Price Cap and the targeting of the ‘shadow fleet’, thereby squeezing Russian oil revenues used to finance its illegal war. The importance of dialogue and action, including vis-à-vis our own operators, was an overarching theme of the meeting.

Following the Forum, Mr. O’Sullivan commented:

This is the fourth time we meet in Brussels and our numbers are growing, which is a true testament to our determination to disrupt Russia’s war machine. What we have done so far is bearing results. We see it from reduced trade flows to an even more vigorous compliance of our operators. At the same time, there is more that needs to be done and relentless enforcement is where we all should focus on now.

Recent Judgments of Interest for Compliance

Among the numerous judgements rendered in September 2024 by EU courts in the area of external relations, three standout as particularly relevant for EU trade compliance professionals.

• 5 September 2024, Case C‑109/23 (Jemerak), reference for a preliminary ruling from the Landgericht Berlin (Regional Court, Berlin, Germany) discussing, among other issues, the scope of the prohibition on the provision of legal advisory services to the Russian Government or to legal persons, entities or bodies established in Russia.
• 5 September 2024, Case C‑67/23 (W. GmbH), reference for a preliminary ruling from the Bundesgerichtshof (Federal Court of Justice, Germany, discussing, among other issues, the concepts of "originating in" and "exporting from" countries under EU sanctions and the legal value of third-country certificates of origin.
• 10 September 2024, Case C‑351/22 (Neves 77 Solutions SRL), reference for a preliminary ruling from the Tribunalul Bucureşti (Regional Court, Bucharest, Romania, discussing, among other issues, the scope of the prohibition on brokering services and the validity of confiscating the proceeds of an unlawful brokering transaction.

Export Controls Developments

The future of European competitiveness: report by Mario Draghi

On 9 September 2024, Mario Draghi presented his long-awaited report titled "The future of European competitiveness". The report contains several findings and recommendations regarding export controls, generally emphasizing their importance in the EU's strategy for autonomy and competitiveness.

Critical technologies: the report noted that while the EU has developed strong presence and capabilities in specific chip segments including sensors, power controls and mature chips for car microcontrollers and peripherals, "[...] this primacy could be challenged by export controls in the backdrop of rising geopolitical tensions worldwide."

• The report recommended to "support European consolidation and leadership in semiconductor manufacturing equipment (lithography, depositions, etc.) as a pillar of the EU long term strategy in semiconductors as well as a geopolitical negotiation strategy for partnerships with third countries to boost the EU’s value chain autonomy." It also called to "[...] increasingly manage export controls at the EU level and defend EU interests in equipment and materials from third-countries’ export restrictions."

Defense: the report noted that in May 2024, the European Investment Bank (EIB) waived a previous requirement that dual-use projects eligible for financing in the area of security and defense derive more than 50% of their expected revenues from civilian use. It further noted that the EIB updated its rules for security and defense SME financing, opening credit lines for dual-use projects by smaller companies and innovative startups whose activity is partly in defense.

• To improve access to finance for the European defense industry, including by removing restrictions on access to EU-funded financial instruments, the report called for the modification of the EIB Group’s Lending Policies on the exclusion of defense investment, extending beyond dual-use projects

Other recommendations: The report recommended that national export controls should be coordinated at the EU level (including for critical raw materials and rare earths), ensuring a common approach to security and trade policy objectives. It also recommended that the EU take reciprocal measures on limiting the export of critical raw materials waste to third countries if such countries have themselves put in place export restriction measures on critical raw materials.

Dual-use items: updated list

The EU amended its list of dual use items. The revised list was adopted on 5 September 20224. The delegated regulation will enter into force on the day following that of its publication in the Official Journal of the European Union. The updated annex I is available here.

Expanded export controls in the Netherlands

On 6 September 2024, the Netherlands announced expanded export controls for advanced semiconductor manufacturing equipment. According to the press release, the Dutch export control measure applicable to advanced semiconductor manufacturing equipment will be expanded, making more types of equipment subject to a national authorisation requirement. This new authorisation requirement builds on the existing national export control rules that have been in force since 1 September 2023.

Research Corner

Recent books

• "International Sanctions: Monetary and Financial Law Perspectives", edited by Prof Dr Chiara Zilioli, Regis Bismuth and Luc Thévenoz ( De Gruyter Brill) prepared under the auspices of the International Monetary Law Committee of the International Law Association (Mocomila), is the first to focus on the unexplored financial and monetary law aspects of economic sanctions and examine their impact on central banks and payment systems.
• "National Security and Investment Controls", edited by Jens Hillebrand Pohl, Thomas Papadopoulos and Janosch Wiesenthal (Springer Law) gathers leading experts on topical and critical issues in investment screening, sanctions, and investment subsidies. The book is part of a book series Springer Studies in Law and Geoeconomics.
• "International Sanctions in Practice: An Interdisciplinary Perspective", edited by Antonio Bultrini, Francesco Giumelli, Dr Clara PORTELA, and Mirko Sossai (Routledge) addresses key aspects relating to the use of sanctions with contributions from different fields of expertise with a view to providing readers with an interdisciplinary perspective.

Recent policy briefs and commentary

What could EU sanctions in a Taiwan conflict scenario look like? In a 19 September 2024 policy brief for the European Council on Foreign Relations titled "Hard, fast and where it hurts: Lessons from Ukraine-related sanctions for a Taiwan conflict scenario" Agathe Demarais shares some thoughts.

What are some of the assumptions behind the "best efforts" obligation in the EU's 14th package of sanctions against Russia? In a 20 September 2024 commentary for the Carnegie Endowment for International Peace, Alexander Kolyandr argues that the EU, along with its partners, seeks to increase the costs of Russia sanctions evasion.

New research network on sanctions

Minos is born! The Multidisciplinary International Network on Sanctions (MINOS is a new international network of scholars working on sanctions. Operated by Ghent University in collaboration with numerous international universities and research institutes, it aims to foster a multidisciplinary approach to the policy of sanctions, from their adoption to implementation and enforcement in practice. MINOS also aims at organising events and dedicated courses in the field of sanctions, as well as enhancing multidisciplinary publications to foster innovation and knowledge in the field of sanctions.

Looking Ahead

• New Commissioners? On 17 September 2024, Ursula von der Leyen unveiled the proposed team of European Commissioners for the next five years (2024-2029).

Parliamentary confirmation hearings are tentatively expected for mid-October (with several Commissioners-designate portfolios of relevance for sanctions and export controls).

• Towards a 15th package? Discussions regarding a potential 15th round of EU sanctions against Russia have reportedly begun. As noted, on 23 September 2024, the EU and 12 partner countries met in Brussels to discuss the effectiveness of Western sanctions on Russia and ways to strengthen the G7 price cap on Russian oil. Among the new measures under consideration, the EU would look at targeting specific financial institutions and the transit of products from southeast Asia through through China that are being used by Russia's military. Discussions could include extended controls on overseas subsidiaries.

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