EU Continues to Adopt Economic Sanctions Against Russia

The latest package of sanctions against Russia

On 15th March 2022, the European Union introduced additional sectoral sanctions against Russia in the light of the foregoing invasion of Ukraine, aimed at escalating the pressure on Russian economy and consequently disable the financing of their military operations.

The imposed Regulation limits transactions with corporations, specifically listed in Annex XIX, with their on-EU subsidiaries (min. 50% ownership), and persons acting on behalf of the listed companies or their subsidiaries. As expected, the EU did not go as far as to completely limit the import of fossil fuels, but they implemented certain exceptions, which allow transactions relating to the import of Russian fossil fuels, along with certain metals and alloys.

The EU also prepared an exhaustive list of steel and iron made products originating from Russia, to which restrictions on direct or indirect import of said products apply. The European Commission estimates that Russian Federation should suffer around 3.3 billion euros in losses from this measure alone. A similar ban also applies to several luxury products, if their value exceeds 300 euros, as well as to the export of cars, valued above 50,000 euros.

Russian companies also have severely limited access to the European financial markets, since European credit rating agencies cannot provide their services to Russian persons and entities anymore. However, this restriction does not apply to persons with permanent or temporary residence permit in a Member State.

One of the most important sanctions, adopted with the new Regulation pertain to the area of investment law. EU did not only limit new investments and the export of goods, technology and services in the Russian energy sector; they also, in cooperation with Member States of G7, removed Russia from the Most-favoured-nation status. The latter is one of the most important principles in international trade and investment law, since it ensures equal treatment of all countries (and investors) – a benefit that applies to one country (or one country’s investor) must also apply to all others. 

Investments in the energy sector are constrained in several respects. It is prohibited to acquire new or increase existing stakes in legal entities operating in the Russian energy sector, as well as to establish new joint ventures. In addition, it is prohibited to provide investment services or in any way provide financing to legal entities and other entities operating in the Russian energy sector. However, investments are allowed if it is necessary to ensure critical energy supply in the EU or if they are legal persons or bodies incorporated or constituted under the law of an EU Member State, although it operates in the Russian energy sector. Russia’s energy sector will be further restricted, as it is now prohibited to provide, directly or indirectly, any technical assistance and services related to goods and various technologies, as well as financing and financial assistance in this sphere.

Exclusion of Russian banks from the SWIFT system

The above-mentioned measure is, however, only the latest in a series of sanctions adopted by the EU in response to Russia’s invasion of Ukraine. One of the most high-profile measures is the exclusion of some Russian banks from the SWIFT system, which is a financial communications system that allows messages to be sent between banks and other financial institutions around the world.

As there is virtually no other globally accepted alternative, SWIFT is essential for international business. The exclusion of (some) Russian banks from the SWIFT system, however, means that Russian companies lose access to the usual transactions provided by SWIFT. As payments for energy and agricultural products will be severely disrupted, the banks will have to do business directly with each other, which incurs additional costs and ultimately reduces the revenues of the Russian government. Any exclusion, even if only of certain banks, therefore has far-reaching and important economic consequences for Russia, its banks, and last but not least, the value of the ruble.

Despite its far-reaching consequences, such a measure is not without precedent. As early as 2012, SWIFT excluded Iranian banks from its system in response to Iran’s nuclear plan. Nor is it the first time that the Western world has considered introducing this measure specifically against Russia. Already in 2014, similar talks took place in the light of Russia’s annexation of Crimea. At that time the EU has not decided to take this step, but the latter has prompted Russia to take measures to mitigate the potential exclusion of Russian banks from the SWIFT system. Russia has since introduced its own payment system, SPFS. However, the SPFS is significantly more limited in its operation than SWIFT. SPFS is restricted in word-length of messages, making it less suitable for performing more complex transactions. But perhaps more important, is the fact that this system does not have sufficient international connectivity, especially compared to SWIFT. That being said, Russia simply does not have an adequate alternative to the SWIFT system.

Freezing of Russian assests

EU’s restrictive measures now apply to a total of 877 individuals and 62 legal entities. All of these are subject to frozen assets, and persons are also banned from traveling to or from EU territory.

According to the latest reports, the Slovenian government will now be able to implement EU sanctions against Russia, especially when it comes to freezing the assets of Russian representatives. Namely, an amendment was adopted, which significantly empowers the government in the implementation of these measures. The new law thus gives bodies such as the Financial Administration (»FURS«) and the Surveying and Mapping Authority (»Geodetska Uprava«) all the powers to carry out supervision and to seal property of individuals and legal entities on the EU criminal list with real estate in Slovenia.


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Law firm Sibinčič Novak & Partners
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