New EU Sanctions

On 16 December 2024, the Council of the European Union (the "Council") took several sanctions actions. The new High Representative for Foreign Affairs, Kaja Kallas, attended the Foreign Affairs Council meeting for the first time since her appointment on 1 December 2024.

15th Package

The Council adopted a 15th round of sanctions against Russia with “the objective of further limiting Russia’s ability to wage its illegal, unprovoked and unjustified war of aggression against Ukraine”.

The package includes, among other things, (i) individual sanctions, (i) trade restrictions, (iii) measures concerning divestment, and (iii) new tools to protect EU operators. A detailed summary of the 15th package is available here.

Among the things that stood out from the 15th package is the growing geographic impact of EU sanctions.

• The Council added 54 individuals and 30 entities to its restricted parties list. For the first time the Council imposed full sanctions on entities and individuals in China for their actions in support of Russia's war effort.

• 32 new entities were added to the list of individuals and entities supporting Russia’s military-industrial complex. These entities are subject to tighter export restrictions regarding dual-use items (Annex I of Regulation 2021/821), as well as advanced technology items (Annex VII of Regulation 833/2014). Some of these entities are located in third countries (including China, Hong Kong, India, Iran, Serbia, and the United Arab Emirates), and have been involved in the circumvention of trade restrictions.

Belarus

On 16 December 2024, in view of the gravity of the situation in Belarus, 26 individuals (all Belarusian and/or Russian) and two entities (both registered in Belarus) were added to the EU restricted parties list under Council Regulation 765/2006, through the adoption of Council Regulation 2024/3177.

North Korea

The Council also designated two senior officials from the North Korean regime, for their support to Russia's war of aggression through the deployment of North Korean troops to Russia, under Council Implementing Regulation (EU) 2024/3152.

Hybrid Threats

In addition, the Council made full use of the EU hybrid toolbox to prevent, deter and respond to Russia’s hybrid activities by designating, for the first time, three entities (registered in Russia and Togo) and 16 individuals (including Russian, Georgian, Ivorian, Moldovan) under the latest sanctions program adopted on 8 October 2024 against Russia hybrid threats through Regulation (EU) 2024/3188, amending Regulation (EU) 2024/2642.

Read more about the Russia hybrid threats sanctions program in the October 2024 edition of the newsletter.

Other Actions

On 16 December 2024, the Council also designated individuals and entities under the Sudan and Haiti sanctions programs.  Measures under several other sanctions programs were extended throughout December 2024 (e.g., Guatemala, DRC, and EU Global Human Rights).

European Council Update

The European Council met for the last time of the year. In its 19 December 2024 conclusions on Ukraine, it noted (emphasis added):

Efforts to further limit Russia’s ability to wage war must continue. In this context, the European Council welcomes the adoption of the 15th package of sanctions against Russia, including measures against the ‘shadow fleet’. It also reiterates its call for the full and effective enforcement of sanctions and for further means and measures to counter their circumvention, including through third countries. The European Union remains ready to step up pressure on Russia, including by adopting further sanctions. Subject to EU law, Russia’s assets should remain immobilised until Russia ceases its war of aggression against Ukraine and compensates it for the damage caused by this war.

New Commission FAQs

In December 2024, the European Commission released numerous and dense FAQs. Highlighted below are a few. The latest version of the consolidated version of the FAQs is dated 20 December 2024.

Circumvention and Due Diligence in General

On 11 December 2024, the Commission published five new FAQs concerning circumvention and due diligence.

Concerning the role of banks in trade compliance, the Commission noted:

Compliance with trade-related sanctions (e.g. dual-use exports, oil exploration equipment, high tech goods and technology) is not limited to the operators initiating such trade (e.g. exporters, brokers…), but is also a responsibility of the banks processing the related payments. Banks can tailor their compliance programmes to specific risks identified in relation to certain transactions or parties involved, such calibration being then more risk-based than systematic" (emphasis added).

Asked about the due diligence standard in relation to the no liability clause, the Commission noted:

"Paragraph 2 of Article 10 of Council Regulation (EU) No 269/2014 and Article 10 of Council Regulation (EU) No 833/2014, commonly known as ‘non-liability clauses’, indicate that actions by EU operators do not give rise to any liability of any kind on their part if they did not know, and had no reasonable cause to suspect, that their actions would infringe the measures set out in each Regulation.

On 24 June 2024, as part of the 14th sanctions package on Russia, recital 3 of Council Regulation (EU) 2024/1739 and recital 36 of Council Regulation (EU) 2024/1745 clarified that the protection against liability cannot be invoked where the EU operator has failed to carry out appropriate due diligence.

The two provisions moreover add that publicly or readily available information should be duly taken into account when carrying out such due diligence. Therefore, for example, an EU operator should not be able to successfully invoke such protection when it is accused of breaching the relevant sanctions because it has failed to carry out simple checks or inspections.

Due diligence should be proportionate and include various controls at several levels of the transaction. At a minimum, it should include:

• Screening of all parties to the transaction: the beneficial owner (customer) and also indirect parties (suppliers, service providers, transporters, banks);
• Control of the goods and services, including whether the goods – finished product or components – are subject to other control regulations (dual-use, military);
• Risk analysis of the transaction: on the contractual documentation; rationale for the transaction; financial flows; shipment route; end-use of the goods; risk of diversion of the goods.
• These checks and inspections are part of the ‘strategic risk assessment' that operators should implement."

Further Commission guidance on enhanced due diligence in preventing circumvention is available here. These FAQs should also be read in conjunction with other FAQs, most recently with the 22 November 2024 FAQs on best efforts.

Enhanced due diligence for operators manufacturing and/or trading with CHP items (article 12gb)

On 11 December 2024, the Commission published a new dedicated FAQ chapter concerning enhanced due diligence for operators manufacturing and/or trading with CHP items including 15 FAQs. CHIP items operators are subject to specific compliance requirements.

Concerning the standard for these heightened expectations, the Commission noted:

There is no single model for conducting due diligence. EU operators should adapt their efforts to comply with the risks identified. This risk assessment and risk management approach should lead EU operators to adopt an effective yet proportionate approach. As a general practice, whenever implementing due diligence (for example because EU operators’ activity creates exposure to a particular risk), EU operators can make specific checks at different levels.

The FAQs provide detailed guidance and emphasize the notion of "strategic risk assessments" as part of the "appropriate measures" required under article 12gb1(a) of Regulation 833/2014.

No re-export to Russia clause (article 12g)

On 18 December 2024, the Commission published long-awaited FAQs concerning the no re-export to Russia clause (article 12g). The new 11 FAQs regarding article 12g touch on several key aspects of the provision. Of particular note is question 12, providing a path to EU operators that face "persistent difficulties" in inserting the “no re-export to Russia” clause in an existing contract due to the refusal of the counterparty.

The Commission noted:

If an EU operator faces persistent difficulties in inserting the “no re-export to Russia” clause in a contract concluded before 19 December 2023 due to the refusal of their contractual counterparty, the obligation set out in Article 12g can be considered met, if the operator issues a unilateral communication to its client (meaning non contractually agreed) prohibiting the re-exportation to Russia and re-exportation for use in Russia.

The Commission conditioned this solution on several criteria (thereby emphasising the link between 12g requirements with due diligence). It noted:

However, this can be only valid in exceptional cases, for instance where: EU operators can demonstrate that they have applied their best efforts to include the clause; or where; they have longstanding business relations with the counterparty and hence have a good understanding of the counterparty and they have done their adequate due diligence processes that minimises the risk of sanctions violations or circumvention; and/or where; the national legislation of the third country where the counterparty is established in prevents such clauses; etc. EU operators must also include a reference to possible adequate remedies which the EU operators could unilaterally activate in case of its breaches, see also Q. 5 and 6 above.

Divestments from Russia

On 17 December 2024, the Commission published a new FAQ titled divestment from Russia. The two new FAQs discuss the derogations available to certain prohibitions in the divestment context.

Relatedly, recital 9 of the 15th package (which extended the deadlines for these derogations, among others) noted (emphasis added) :

Operators should be aware that Russia is a country where the rule of law is not applied anymore, and that the Russian Federation has adopted several pieces of legislation targeting assets of companies from ‘unfriendly countries’, including Member States. That could lead to Union assets being stranded in Russia without the possibility for orderly withdrawal. Because of the risks of maintaining business activities in Russia, Union operators should consider winding down businesses in Russia and/or not to start new businesses there. The exceptional extension of the divestment derogations is necessary to enable Union operators to exit as swiftly as possible from the Russian market. The extended derogations are granted on a case-by-case basis by Member States and focused on allowing an orderly divestment process, which would not be possible without the extension of these deadlines.

Diamonds

On 20 December 2024, the Commission published 14 new FAQs concerning the diamonds embargo.

Select 2024 Developments in EU Courts

As 2024 draws to a close, it is helpful to consider some of the noteworthy trends that developed EU litigation related to sanctions and export controls. EU courts continued to take a growing role in shaping compliance standards, albeit raising new questions. These include, among others:

• 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.

2025 will likely bring additional judgements of interest, including from the cases referred to the Court of Justice from various national courts on issues such as ownership or control and the no-claims clause.

Looking Ahead

• The Polish presidency of the Council of the European Union will begin on 1 January 2025 for six months; reportedly with a 16th package of sanctions against Russia already in preparation.
• Meanwhile, Hungary reportedly intends to block EU's Russia sanctions extension until Donald Trump takes office.
• The EU is considering taking actions in view of the situation in Georgia. The Commission proposed to suspend visa-free travel for officials from Georgia, although Hungary and Slovakia reportedly veto EU sanctions on Georgian officials.
• Discussions regarding a potential easing of EU sanctions against Syria have reportedly begun (EU should reconsider sanctions against Syria, says Ursula von der Leyen), although Germany's Syria envoy warns on sanctions hopes after visit to Damascus.
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