EU further extends sanctions against Russian individuals

The existing measures now apply to almost 1,600 designated individuals and more than 200 entities, imposing travel restrictions for natural persons, freezing assets and a ban on making funds or other economic resources available.

However, the sanctions have not been renewed against three previously listed individual business leaders: Farkhad Akhmedov, Grigory Viktorovich Berezkin and Alexander Alexandrovich Shulgin. The latter won his appeal against designation at the Court of Justice of the EU’s General Court on 6 September 2023. A fourth, Georgy Ivanovich Shuvaev, was de-listed following his death in 2022.

Separately, the European Commission (EC) has published guidance on implementing enhanced due-diligence procedures to prevent circumvention of its Russia sanctions. EC regulations 833/2014 and 269/2014 both prohibit EU operators from knowingly and intentionally participating in activities that have the effect or object of circumventing these prohibitions.

The new EC guidance says Russian sanctions targets have deployed various and increasingly sophisticated techniques to evade EU sanctions prohibitions, such as by using complex financial schemes, falsifying the nature or origin of the goods traded or concealing assets. It warns that EU operators 'may find themselves in a position where they may facilitate prohibited activities involving Russia, thereby reducing the impact of sanctions and possibly violating EU regulations'. This evolving risk, it says, has led to its development of an enhanced due-diligence model, particularly for high-risk sectors and complex supply chains. National competent authorities may consider the failure to conduct adequate due diligence to be a violation of EU sanctions, it says.

The guidance sets out a four-stage process for dealing with possible circumvention: risk identification, risk evaluation, design of mitigation measures and regular updates to address the rapid evolution of circumvention measures.

It also lists a number of 'circumvention red flags' that should trigger enhanced due-diligence measures. These escalation triggers include indirect transactions using intermediaries or shell companies that make little or no economic sense; new customers and transactions with operators located in countries known as 'circumvention hubs', notably Armenia, Kazakhstan and Kyrgyzstan, or transit through these countries; and complex corporate or trust structures, notably involving offshore companies. It says the use of trust arrangements was specifically identified by the Russian Elites, Proxies, and Oligarchs (REPO) Task Force as being used by sanctioned persons to evade sanctions.

Other red flags include:

• a business partner's recent establishment or merger with a sanctioned person or an entity linked to such person;
• a business partner sharing an address with multiple different companies;
• changes of ownership to reduce ownership stakes below the 50 per cent threshold;
• change of ultimate beneficial owner shortly before or after imposition of sanctions;
• movement of assets previously associated with a sanctioned person by family members or on their behalf;
• transfers of shares from sanctioned entities to non-sanctioned entities involving corporations incorporated by the same individuals or entities;
• potential control of an entity by designated persons; and
• the non-availability of a chief executive or manager for discussions.

The guidance also notes that transactions relying on correspondent banking accounts can lead to a higher residual risk of sanctions circumvention. It asks financial institutions to monitor transactions related to these accounts depending on level of risk of sanctions evasion posed by the foreign respondent.

Sources

• EU Council
• EUR-Lex
• Reuters
• Hughes Hubbard & Reed
• European Commission (guidance, PDF)
• STEP International News 11 September 2023: First EU court decision to overturn Russian sanctions against businessman