EU Sanctions on Russia and Influence on Chinese Companies

The Ukrainian-Russian crisis has raised deep concerns worldwide not only from humanitarian, political and military perspectives, but also from the economic perspective. Economically, there are new challenges and hurdles for companies worldwide regarding their business with the Russian Federation ("Russia") and the Republic of Belarus ("Belarus").

As a reaction to the Russian military actions in Ukraine, the European Union ("EU") has imposed severe sanctions on Russia and Belarus.

This article gives an overview of the EU sanctions imposed on Russia and Belarus focusing on the potential effects for Chinese companies with ties to the EU market.

As many may not know, certain EU sanctions on Russia and Belarus have already been in force since 2014 (Russia) and 2006 (Belarus). When imposing new sanctions in the context of the ongoing Ukrainian-Russian crisis, the EU amended and extended the existing legal framework in several steps during February, March and April 2022.

The EU sanction regime on Russia is governed mainly by two major regulations: (1) EU 269/2014 and (2) EU 833/2014. EU 269/2014 as amended several times is implementing Council Decision 2014/145/CFSP and focuses on sanctions imposed on individuals and entities. EU 833/2014 as amended several times focuses, among others, on trade restrictions as well as financial sanctions. While certain amendments only relate to minor issues or add persons to the sanction lists, major amendment regulations are EU 2022/328 passed on 25 February 2022, EU 2022/428 passed on 15 March 2022, and EU 2022/576 passed on 8 April 2022.

Such major regulations are supplemented by a regulation EU 2022/263 (based on Council Decision 2022/266/CFSP) regarding the sanction regime for the areas Donetsk and Luhansk.

The EU sanction regime on Belarus is governed by Council Decision 2012/642 as amended as well as by one major regulation EU 765/2006 which has been amended several times even prior to 2022, e.g., in the context of the forced landing of a Ryanair Airplane (2021) and the manipulation of the Belarusian Presidential Election (2020). In 2022, a major amendment regarding trade restrictions was implemented by the amendment regulation EU 2022/355 and a major amendment regarding financial sanctions was introduced by the amendment regulation EU 2022/398.

The combination of amendment regulations and new regulations creates a complex legal environment. Additional complexity is added because some sanction measures such as entry bans or export bans for military goods qualify as measures of the common foreign and security policy (CFSP) that are imposed by an EU Council Decision but need to be implemented by the member states while others engage the EU's competences regarding trade and economic freedoms, such as asset freezes, trade restrictions or certain export bans. The latter sanctions require additional implementing legislation on EU level in the form of EU council regulations. Further, the enforcement of the EU sanctions is within the competence of the member states so that there are different legal consequences in case of breach and different enforcement agencies for each member state.

This article aims at assisting the reader in navigating the complex legal framework of EU sanctions regarding Russia and Belarus.

While there is no universal application of EU sanctions to foreign persons or entities, the EU sanctions can have some extraterritorial effects. However, a certain nexus to the EU is always required.

The EU regulations apply to (1) all activities undertaken within the territory of the EU (including on board any aircraft or vessel under the jurisdiction of an EU member state), (2) any person who is a national of an EU member state, (3) any legal person, entity or body, which is incorporated or constituted under the law of an EU member state, and (4) any legal person, entity or body in respect of any business done in whole or in part within the EU.

Based on these general rules, EU sanctions can become relevant for a Chinese company under one of the following (not exhaustive) scenarios:

I. Chinese Company has a Subsidiary in the EU

A Chinese company which sets up a subsidiary in the EU is not per se affected by the EU sanctions. While the EU subsidiary is fully subject to the EU sanction regime, the Chinese company’s business with Russia or Belarus would in general not be affected.

However, if the Chinese company is serving the Russian and Belarusian market through its EU subsidiary, any deliveries by the EU subsidiary to Russia or Belarus are now subject to the sanction regime. Furthermore, the supply of goods of the EU subsidiary via its Chinese parent company to Russia and Belarus would also be subject to the EU sanctions. This is considered as an indirect supply by the EU subsidiary to Russia or Belarus if the EU company is aware of the final destination of the product being Russia or Belarus. Therefore, a Chinese parent company that realizes that its EU subsidiary needs to stop its business with Russia and Belarus due to the EU sanction regime should not simply ask the EU subsidiary to redirect the goods destined to these markets to the Chinese parent company for delivery to Russia or Belarus. Finally, any shareholder financing of the Russian business of an EU subsidiary by its Chinese parent company would also be subject to the EU sanction regime.

II. EU Company has a Subsidiary in China

The Chinese subsidiary of an EU company (other than a branch office of an EU company in China)[1] is in general not affected by the EU sanctions if it is legally independent and acts independently.

However, the EU parent is of course affected by the prohibition provisions. If the EU company who used to serve the Russian and Belarusian market directly now changes these distribution channels and supply these markets via its Chinese subsidiary, such arrangement tends to be deemed as a circumventing measure prohibited by the EU sanction regime.

Further, if the EU parent company has to approve actions or decisions by its Chinese subsidiary, they are hindered to approve any actions that are prohibited by the EU sanctions.

Finally, if members of management or supervisory boards or employees of the Chinese subsidiary are nationals of an EU member state, such members of management or employees are obliged to comply with the EU sanction regime (see below at V). While we note that the US Sanctions also apply to green card holders or permanent US-residents, the EU sanctions do not provide such an interpretation. Consequently, the individual has to be a holder of an EU member state passport to be considered an EU national and has the obligation to comply with the EU sanction regime. However, it is irrelevant if the individual holds a dual citizenship.

III. Change of Distribution Channels?

If a Chinese company who used to deliver its products to Russia and Belarus through an EU distributor now ceases the practice and delivers directly to Russia itself, the legal assessment is not that clear. While the transit through the EU is clearly prohibited, it can be argued that the change of distribution channel is a circumventing measure, as the Chinese company was doing business within the EU and now cuts the EU nexus to avoid jurisdiction of the EU sanction regime. On the other hand, the EU sanction regime does not hinder the Chinese company to directly serve the Russian and Belarusian market if there is no longer any nexus with the EU. However, any measure taken by a Chinese company on the occasion of the EU sanction regime needs to be carefully assessed as to whether such measure constitutes circumvention of EU sanctions.

IV. Business of Chinese Company Done in Part in the EU

Note that any business done in part within the EU may be sufficient to trigger the EU sanction regime. For this purpose, an e-mail or web server located in the EU or the fact that payment transactions are processed via the SWIFT messaging system located in Belgium might be sufficient.

The mere fact, however, that a product was produced in the EU or contains parts that had been produced in the EU should not per se make it subject to the EU sanction regime, which we understand that is different from the US sanction regime. Therefore, if a Chinese company only delivers products of EU origin already available in China to Russia or Belarus, it might be able to do so without violating EU sanction measures or export control laws, but this has to be reviewed carefully taking also into account any contractual limitations with the suppliers. Further, if the EU company delivering its products to China for assembly or further processing is aware that such products are destined for the Russian or Belarusian market and the supply of such products to Russia or Belarus would be covered by the EU sanctions, the EU company would be required to stop such supply.

V. EU Member State Nationals

The EU sanctions also apply to any person who is a national of an EU member state so that employees or members of management or supervisory board that are nationals of an EU member state have to comply with the EU sanction regime. While there is a view that the regime does not apply if the person concerned acts not as a national of the member state but as a representative of the foreign company, this is not in line with the clear wording of the provisions so that many enforcement authorities do not share such view. Therefore, anyone who is a national of an EU member state and is working for a Chinese company must pay close attention that he or she is not personally taking part in actions that are prohibited by the EU sanctions regime.

The EU sanction regime on Russia consists of a whole bunch of measures. In order to give an overview, this article sorts the measures into several categories. The first category of sanctions relates to certain sanctioned persons and entity (see I.). The second category restricts the export and import of certain sanctioned goods (see II.). The third category relates to financial sanctions and capital market restrictions (see III.). In the final (fourth) category, we summarize other types of measures imposed on Russia (see IV.).

I. Business with Sanctioned Persons and Entities

1. Freezing of Funds and Entry Ban

Sanctions on Russian individuals and several entities have been imposed already in 2014 on the occasion of Russia's annexation of Crimea. The list of sanctioned individuals and entities, however, has been extended considerably in 2022 and now lists more than 1100 individuals and entities. Sanctioned individuals include Russian President Putin, his daughters, Foreign Minister Lavrov, members of the State Duma as well as Russian oligarchs that are considered close to President Putin.

On 8 April 2022, among other individuals and entities, four Russian banks, namely Otkritie FC Bank, Novikombank, Sovcombank und VTB Bank, have been added to the list of sanctioned persons and entities resulting in an asset freeze and transaction ban. According to information on the EU website, these banks represent 23% of the market share of the Russian banking sector.

All funds and economic resources belonging to, owned, held or controlled by any sanctioned individual or entity shall be frozen. In addition, no funds or economic resources shall be made available, directly or indirectly, to or for the benefit of such sanctioned individual or entity. While the sanctions only relate to the persons on the list, the fact that they also apply, if funds or economic resources are indirectly made available for the benefit of a sanctioned individual or entity, results in a broader application. For example, a delivery to a company owned or controlled by a sanctioned individual is also prohibited.

Both "funds" and "economic resources" are broadly defined. Funds means financial assets and benefits of every kind whereas economic resources refer to assets of every kind which are not funds but may be used to obtain funds, goods or services. However, it is subject to discussion whether the provision of services to sanctioned persons or entities is covered by the definition of economic resources. In any event, the purpose of such broad definition is to completely exclude the sanctioned individuals or entities from the economy of the EU.

Along with the freezing of funds an entry ban on the sanctioned individuals has been imposed.

2. Transactions with Certain State-Controlled Entities

On 15 March 2022, a special prohibition was introduced covering transaction with certain state-controlled entities. This covers transactions with a legal person, entity or body established in Russia, which is (i) publically (i.e., state) controlled, (ii) with over 50 % public ownership, (iii) in which Russia, its government or Central Bank has the right to participate in profits or (iv) with which Russia, its government or Central Bank has other substantial economic relationship. This also applies to any subsidiary of these entities.

The prohibition also applies to any entities controlled by such state-controlled entity. A list of the relevant companies attached to the new regulation includes companies such as Rosneft, Gazprom Neft and United Aircraft Corporation.

An exception is made for transactions in the field of energy and natural gas, as among other EU Member States, Germany is not willing to boycott Russian energy supplies (yet).

3. Impact on Chinese Companies

Any subsidiary or branch of a Chinese company located in the EU should make sure that it complies with these sanctions and stop dealing with any sanctioned entities. Branches of Chinese banks in Europe will have to comply with the fund freeze regarding bank accounts of sanctioned individuals.

In case of a transaction between a Chinese company and a sanctioned individual or entity, the Chinese company should carefully review whether there is any nexus with the EU in the entire process. The mere fact that payments are transmitted via the SWIFT system (which is located in Belgium) or that the correspondence is via an e-mail or webserver stored within the EU might be sufficient for the transaction to qualify as a transaction partially taking place in the EU.

Further, the freezing of funds may lead to financial shortage of the sanctioned entities and individual and therefore may indirectly affect Chinese companies doing business with these entities or individuals even if there is no nexus with the EU.

II. Export and Import Bans

Various regulations of the EU sanction regime prohibit the export and import of certain specified goods. Such regulations not only prohibit the sale, supply or transfer but also block certain services (technical assistance, brokering services or other services) related to such sanctioned goods as well as the provision of financing or financial assistance related to sanctioned goods.

1. Export Ban: Military Goods, Dual-use Goods and Strategic Items

The export of military goods to Russia is prohibited by the national laws of the different member states on the basis of an EU Council Decision 2014/512/CFSP as amended.

The export of dual-use goods to Russia or for use in Russia is prohibited by an EU council regulation 833/2014 as amended. The original version of 2014 has only prohibited the export of dual-use goods for military use or to certain entities. Due to amendments in 2022 the export ban now applies generally to the export of all dual-use goods to Russia or for use in Russia. This includes the direct and indirect sale, supply, transfer, etc. to Russia. Dual-use goods are such items that can be used for military and civil purposes equally. A list of technologies which fall under the dual-use term can be found in an annex to the EU dual-use regulation (EU 2021/821) to which the sanction regime refers to.

In addition, the export ban was extended to certain strategic items contributing to the Russian security and defense sector. A very detailed list of relevant technologies can be found in an annex to the relevant regulation, last enhanced on 8 April 2022. Strategic items include e.g., electronics, communication systems, information security equipment and software, quantum computing and advanced semiconductors, etc. In any event, in case of relevant export to Russia with EU nexus, all lists of relevant goods should be carefully reviewed together with the industry specialist from the exporter.

Exemptions (where the export ban does not apply) cover humanitarian needs, health emergencies, natural catastrophes, medical use, consumer communication devices, items for personal use, etc. Further, authorizations can be granted with respect to products needed for, among others, certain international high-profile projects or internet services. An exemption is also established for contracts concluded before 26 February 2022, provided that application for clearance is filed prior to 1 May 2022 with the relevant EU member state authority. The exemptions are again restricted if the supply is to certain recipients such as military end-users or the aviation or space industry.

It should be noted that the general dual-use Regulation EU 2021/821 applies in parallel, so that an authorization for export under this Regulation may be required as well.

2. Export Ban regarding Special Industries

The EU sanctions also target important economic sectors of Russia by imposing certain specific export bans on such sectors.

The restricted sectors include the oil and gas business (e.g., certain line pipes for oil or gas pipelines, certain casing and tubing used for drilling for oil and gas, certain goods and technology suited for use in oil refining or gas liquefaction), the aviation and space industry (including jet fuel and fuel additives) and the maritime sector (e.g., certain vessels, marine systems or equipment). The regulations provide for numerous details and include lists of affected items. As the items are specified based on a technical basis it would go beyond the scope of this article to describe the affected items in detail. In case of relevant export to Russia with EU nexus, relevant provisions and lists should be carefully reviewed together with the industry specialist from the exporter.

The EU sanctions were in particular extended on 8 April 2022 to areas where Russia depends on imports from the EU, widening the sanctions not only with respect to further strategic items contributing to the Russian military and defense sector (see above 03.II.1) but also covering a variety of goods such as certain chemicals, printing ink or rhododendrons. Note that the regulations include extensive lists of goods concerned that cannot really be categorized so that for any export to Russia such lists need to be carefully reviewed.

3. Export Ban: Luxury Goods

To affect the Russian elites, the EU also imposed an export ban on luxury goods. The supply of such goods to anyone in Russia or for use in Russia is generally prohibited.

Such luxury goods include certain groceries, such as caviar or truffle, certain alcoholic beverages, such as wine and champagne, other daily-use products, such as cigarettes, perfumes, travel items, luxury clothes, watches, carpets, jewelry, cutlery, household items (fridge, AC, etc.), but also electronic products such as TVs and photo cameras. Finally, the definition of luxury goods is extended to vehicles, such as cars, trucks, trains, aircrafts, and ships. It is noteworthy that not only yachts but also cargo vessels are included in the list.

In terms of what constitutes luxury products, different thresholds apply. While certain luxury products are already covered if their value exceeds EUR 300, a threshold of EUR 1,000 applies for certain electronic products and a threshold of EUR 50,000 applies for vehicles. The regulation provides for a list specifying the products and applicable thresholds in great details.

4. Import Ban on Iron and Steel, Coal and Various Other Products

An import ban has been imposed on certain individually listed iron and steel products which have their origin in Russia, or which have been exported from Russia.

Products that are required to secure the energy supply to the EU are exempted from this prohibition. Furthermore, there is an exception for contracts concluded before 16 March 2022 provided that execution is completed prior to 17 June 2022.

The sanctions passed on 8 April 2022 have extended the import ban to various other products. In particular, an import ban on all forms of coal products has been imposed. Further, an import ban is imposed on certain other goods which generate significant revenues for Russia. Such goods are listed in an annex and include a variety of goods including cement, rubber products, wood, alcoholic spirits (e.g., vodka) as well as certain seafood (e.g., caviar). Note that the regulations include extensive lists of goods concerned that cannot really be categorized so that for any import into the EU such lists need to be carefully reviewed.

5. Import and Export Ban for the regions of Luhansk and Donetsk

Further, it is prohibited to import and export goods from and to the regions of Donetsk and Luhansk, as these regions are no longer controlled by the Ukrainian Government. No exception applies to transactions with a humanitarian or medical purpose. Nonetheless, the export of goods from these regions to the EU is allowed prior to 24 May 2022 in fulfilment of contracts concluded before 23 February 2022, or if goods, originating from these regions, have been made available to Ukrainian authorities for examination and a certificate of origin in accordance with the EU-Ukraine Association Agreement has been issued.

6. Impact on Chinese Companies

Any subsidiary or branch of a Chinese company located in the EU will have to make sure to comply with the sanction measures and stop importing or exporting any sanctioned goods.

Chinese companies should no longer supply sanctioned goods through the EU to Russia. Furthermore, an EU company is not allowed to supply sanctioned goods to Russia directly or through its Chinese parent company, as this would be considered as an indirect supply.

In case of the export or import of a good to or from Russia by a Chinese company, it should be carefully reviewed whether there is any nexus with the EU. Again, the mere fact that payments are transmitted via the SWIFT system (which is located in Belgium) or that the correspondence is via an e-mail or webserver stored within the EU might be sufficient for the transaction to qualify as a transaction partially taking place in the EU.

III. Financial Sanctions and Capital Market Restrictions

A substantial part of the EU sanction measures relates to financing and capital market transactions.

1. SWIFT Ban

Since 12 March 2022, seven Russian banks, namely Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank, VEB, VTB Bank, and their affiliates have been banned from SWIFT, the Society for Worldwide Interbank Financial Telecommunication. This means that SWIFT has to disconnect the abovementioned banks from its specialized financial messaging services. According to the EU, 70 % of the Russian banking sector is affected and consequently this measure is considered to be the most severe sanction on Russia, as it cuts off Russia from the international financial markets. It intends to stop these banks from conducting their financial transactions worldwide in a fast and efficient manner.

2. Financing Restrictions

The EU sanction regime contains a variety of extensive financing restrictions.

The relevant regulations restricting the export or import of certain sanctioned goods extend such prohibition to the provision of financing or financial assistance related to such sanctioned goods (see above 03.II.) or to the financing of investment projects that are prohibited (see below 03.III.4) as well.

Further, any public financing or financial assistance for trade with or investment in Russia is prohibited. Exceptions relate to financing commitments established prior to 26 February 2022, financing of up to EUR 10 million for small and medium-sized enterprises (SMEs) established in the EU and financing for various humanitarian purposes.

In addition, no new loans or credit should be granted to any Sanctioned Entities (as defined at 03.III.3 below) or to Russia, its government, or its Central Bank.

European Banks shall further not accept any deposits from Russian nationals, residents, or Russian companies exceeding EUR 100,000. This was extended to the provision of crypto-asset wallet, account or custody services for values above EUR 10,000 to avoid circumventions. Exceptions are provided for EU nationals and EU residents, as well as for cases of basic needs, legal services, approved extraordinary expenses, and diplomatic mission. A clearance by the relevant authority in case of humanitarian purposes or civil society activities for human rights, etc. may be obtained.

Banks are obliged to report existing deposits above EUR 100,000 (held by Russian nationals, residents or companies or golden passport or golden visa holders) to competent authorities of the member states or to the EU Commission by 27 May 2022.

In addition, it is prohibited to provide financing, financial assistance or other support entities in Russia with 50% public ownership or control under EU, Euratom and member state programs.

Finally, it has also been prohibited to provide banknotes denominated in any official EU member-state currency to Russia or to any natural or legal person, entity or body in Russia, including the government and the Central Bank of Russia, or for use in Russia.

3. Access to Capital Market

Under the EU sanction regime, it is prohibited to provide investment services to transferable securities and money market instruments issued by certain Russian entities. Such prohibition already existing in 2014 now applies irrespective of a maturity term and extends to additional entities. Such restrictions now apply to certain banks (including Sberbank and Gazprombank), certain military equipment and services entities and certain crude oil and petroleum entities as well as certain state-controlled entities (together the Sanctioned Entities). Such prohibition on investment services for transferable securities and money market instruments also applies to Russia, its government, the Central Bank of Russia, and to investment services for activities in the energy sector.

In general, it is prohibited to provide investment services to or assistance in the issuance of or deal with transferable securities and money market instruments issued after 9 March 2022 by Russia, its government or the Central Bank of Russia.

As of 12 April 2022, it is prohibited to list and provide services on trading venues in the EU for companies with more than 50% public ownership. European stock exchanges, however, even go beyond. For example, the Frankfurt Stock Exchange has stopped trading with all Russian securities as of 1 March 2022.

Further, it is prohibited for EU central security depositories to provide any services regarding the settlement of financial instruments for transferable securities issued after 12 April 2022 to any Russian national or resident or Russian company.

Finally, the sale of euro denominated transferable securities or units in collective investment undertakings providing exposure to such securities to Russian national, resident, or Russian company is now prohibited.

4. Prohibition of investments

It is prohibited to invest in real estate or entities located in Luhansk and Donetsk or to provide financing to such entity.

Further, new investments into the Russian energy sector are prohibited, e.g., the acquisition or extension of participations in entities operating in the Russian energy sector, or provision of loans and credits in this respect. An exemption is made for cases securing the energy supply to the EU.

The EU sanction regime further contains a prohibition to invest and participate in projects co-financed by Russian Direct Investment Fund.

5. Further Limitations on Market Access

In order to hamper business with Russia even further, the provision of credit rating services to Russian individuals or entities is prohibited. Business partners of Russian individuals or entities now have less security regarding the debtor’s ability to pay the debts on time.

On 8 April 2022, new sanctions were adopted to prohibit providing any management services regarding trusts to the Russian nationals, residents, or companies, making it more difficult to store their assets in the EU.

Further, the participation of Russian nationals or companies in any public procurement contracts in the EU is now prohibited.

6. Impact on Chinese Companies

Any bank transfers to Russia via the SWIFT system can be hampered by the SWIFT ban, including payments from China. Further, there is no clear guideline on whether relevant changes to the payment system arguably qualify as circumvention measures.

With regard to sanctions on financing or providing financial assistance, Chinese banks financing an export of sanctioned goods to Russia can be affected, if, for example, the financing is granted to an exporter from the EU or, arguably, the goods are transported via the EU. The same applies with respect to financing of sanctioned investments.

While investment services by Chinese banks regarding Russian transferrable securities listed on Chinese stock exchanges are less likely to fall within the scope of application of the EU sanctions as such business is less likely to take part partly in the EU, the fact that stock exchanges in EU such as the Frankfurt stock exchange have stopped dealing with Russian securities will certainly have an indirect effect on Chinese banks and Chinese investors dealing with such securities.

Arguably, any credit rating of Russian business for use in the EU by a Chinese credit rating service could also be subject to the sanctions.

IV. Other Sanctions

1. Transport

Since 27 February 2022, the EU closed its airspace to aircrafts operated by Russian air carriers (and as a countermeasure, Russia closed its airspace to aircrafts operated by EU air carriers). This complicates the (allowed) transport of goods to Russia, as goods now have to be transported via ship, train or truck from the EU to Russia. Note that in this context, shipping and logistics companies (e.g., MSC and Maersk) went beyond what is legally required and have suspended container shipping to and from Russia so that transport other than air traffic is also affected. 

The entry of EU ports is prohibited to all Russian-flagged vessels from 16 April 2022 (including vessels that changed their Russian flag after 24 February 2022). Exceptions are made for medical products, certain raw materials including gas and oil, as well as groceries and humanitarian purposes.

Further, the sanction measures passed on 8 April 2022 include a prohibition to any road transport undertaking established in Russia to transport goods by road within the territory of the Union, including in transit. Exceptions are limited and include mail service, humanitarian aspects and gas and oil imports.

While these measures do not directly affect Chinese companies, they might make the transport of goods to Russia more challenging as transport options are limited.

2. Sanctions on Russian Media

As a reaction to the Russian broadcast of the Ukrainian-Russian crisis, the EU has introduced sanctions on certain Russian broadcasting services. It is prohibited to broadcast or to enable, facilitate or otherwise contribute to broadcast, any content by Russia Today and Sputnik by any means. All related broadcasting licenses were suspended.

As a reaction to the Belarusian involvement in the Ukrainian-Russian crisis, the EU also aggravated the sanctions already imposed on Belarus.

I. Business with Sanctioned Persons and Entities

In the context of the Ukrainian-Russian crisis, the EU has added 22 high-ranking members of Belarusian military personnel to the already existing and extensive list of sanctioned individuals and entities. The sanction list was introduced in 2006 and enforced in 2020 on the occasion of violence against protestors in the context of the Belarusian presidential election. The sanctions against Belarus individuals and entities have the same structure and effect as the sanctions on Russian individuals and entities. Therefore, all funds and economic resources belonging to, owned, held or controlled by any natural persons or natural or legal persons, entities or bodies associated with them shall be frozen. In addition, no funds or economic resources shall be made available, directly or indirectly, to or for the benefit of natural persons or natural or legal persons, entities or bodies associated with them.

There is also a travel ban covering the sanctioned individuals.

II. Export and Import Bans

There are various export and import bans relating to Belarus that follow the same scheme as the trade sanctions relating to Russia. Such regulations not only prohibit the sale, supply or transfer, but also block certain services (technical assistance, brokering services or other services) related to such sanctioned goods as well as the provision of financing or financial assistance related to sanctioned goods.

1.  Export Bans

The export of military goods to Belarus is prohibited by the national laws of the different member states on the basis of an EU decision.

Further export bans based on EU regulations relate to dual-use goods, certain strategic items listed in detail, internal repression equipment, goods for tobacco industry, certain machinery and equipment including communication interception equipment (mainly used for surveillance of the internet or intercepting telephone traffic). The list of goods subject to export restrictions for Belarus covers a wider range of industry sectors than with respect to Russia but do not contain a more general list of luxury goods as with respect to Russia.

Some export bans are subject to exceptions (such as humanitarian needs, health emergencies) and the EU allows authorizations (e.g., with respect to fulfilment of contracts concluded prior to 3 March 2022 provided application for authorization is filed prior to 1 May 2022).

2. Import Bans

The sanctions against Belarus also contain import bans on certain goods, including petroleum (oil) products, potassium chloride products, timber and rubber products, cement products as well as iron and steel products. 

III.Financial Sanctions and Capital Market Restrictions

1. SWIFT Ban

The EU has banned three Belarusian banks from SWIFT, namely Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, as well as their Belarusian subsidiaries. The SWIFT ban is in force since 20 March 2022, cutting off Belarus from the international financial markets.

2. Financing Restrictions

With respect to financing, it is prohibited to provide financing or financial assistance with respect to any sanctioned goods.

Further, it is prohibited to provide public financing or financial assistance for trade with, or investment in Belarus. Exemptions apply to financial commitments established before 10 March 2022, financial projects up to EUR 10 million benefiting SMEs in the EU, and financing projects for humanitarian purposes.

EU sanctions also include a prohibition to accept deposits from Belarusian nationals, residents or companies exceeding EUR 100,000 although there are some exceptions.

Note that it is also prohibited to provide any banknotes denominated in an EU official member state currency to Belarus or to any person or entity in Belarus, including the Government and the Central Bank of Belarus, or for use in Belarus.

3. Access to Capital Market

With respect to capital market access, it is prohibited as of 12 April 2022 to provide services on trading venues for the transferable securities of any legal person entity or body established in Belarus with over 50% public ownership.

Further, the sanctions prohibit transactions with the Central Bank of Belarus related to the management of reserves or assets.

Additionally, it is prohibited to sell euro denominated transferable securities issued after 12 April 2022 to any Belarusian national or resident.

IV. Other Sanctions

The European air space was already closed to Belarusian air carriers since 2021 (after the forced landing of a Ryan Air aircraft) and such closure was confirmed in 2022 to continue. On 8 April 2022, it was further decided that it shall be prohibited for any road transport undertaking established in Belarus to transport goods by road within the territory of the Union, including in transit. Exceptions include gas and oil, medical products, as well as groceries and humanitarian purposes.

The EU sanction regime brings challenges to EU and international businesses. On the one hand, such businesses risk a liability to pay damages to their business partners if they go overboard in implementing the sanctions. On the other hand, they have to face even criminal consequences for sanction violation if they do not comply with the sanction regime.

Taking such difficult situation into account, the EU sanction regime contains certain clauses limiting the liability for violations either towards the business partner or towards the authorities. 

I.Limitations of Liability and Non Circumvention Clauses

1. Limitation of Liability and Due Diligence Defense

With respect to freezing of funds and economic resources or the refusal to make available such funds or economic resources, such activity shall not give rise to liability of any kind if carried out in good faith, provided that such action is in accordance with sanction regime.

Further, on the other hand, action will not give rise to liability of any kind if the person acting did not know and had no reasonable cause to suspect that such action would infringe the sanction regime. This applies, for example, if a person provides goods to a business partner and could not have known that such goods are received by the partner for the benefit of a sanctioned person. However, the person acting has the burden of proof to demonstrate that there was neither knowledge nor reason to suspect that the action violated the sanction regime.

2. Non Circumvention Clauses

However, it must be noted that any attempt to structure business relationships in a way to avoid the EU sanction regime will not be successful because the sanction regulations contain a clause prohibiting any activities the object or effect of which is to circumvent the prohibitions imposed by the sanction regime.

Whenever a Chinese company makes any changes to its existing business in order to avoid being caught by the EU sanction regime, there is a high risk that, if the original behavior was caught by the EU sanction regime, the amended behavior will be considered circumvention being an activity the object of which is to circumvent the prohibitions. The clause on circumvention, however, is even broader, and covers a behavior whose mere effect (although not object) is to circumvent the sanction regime. In Germany, the Federal Court of Justice (BGH of 23 April 2010, AK 2/10) raised concerns that such broad wording might violate the constitutional principle of clarity and the legislator in Germany changed the law that any violation is no longer qualified as a criminal offence but only as a misdemeanor. However, the European Court of Justice favors a broader interpretation of the non circumvention clauses (ECJ of 21 December 2011, C-72/11).

II. No Claims Clause

The EU sanction regime protects business partners from damage claims if they do not perform sanctioned trade or do not deliver to sanctioned individuals or entities despite a contractual commitment. Such no claims clauses usually provide that no claims in connection with any contract or transaction the performance of which has been affected by the sanctions shall be satisfied if made by or on behalf of Russian or Belarus persons or certain other entities.

While such clauses will be enforced in litigation or arbitration if the law of any EU member state is applicable and, in practice, will be disregarded in Russian courts if Russian law applies, the situation is less clear if the underlying contract is governed by, for example, Chinese law and/or the dispute is to be decided by a Chinese court or arbitral institution. 

III. Sanction Violations as Criminal and Administrative Offenses

Because the enforcement of the EU sanction measures is within the competence of the EU member states, there is no general provision on the legal consequences for violating the EU sanction measures. The penalties are also not consistent among the EU member states.

Legal consequences differ from EU member states to EU member states. Usually, violations are punished by fines imposed against individuals or entities. However, there are also cases where sanction violations were punished by imprisonment. In Germany, for example, an entrepreneur was punished by 7-year imprisonment for exporting sanctioned chemicals to Russia on a regular basis. However, such cases are rare. Further, possible legal consequences include the seizure of funds or assets obtained due to a violation. Indirect consequences include the revocation of a business license due to unreliability or difficulties in obtaining export clearances in the future.

Additional complexity is added because, even within a single member state, various authorities cooperate in the implementation of sanctions according to their (local) competence and responsibility. For example, in Germany, the following areas are to be distinguished for the various sanctions:

For financial sanctions and freeze of funds, commercial banks and insurance companies are directly operationally responsible for taking the necessary measures to comply with financial sanctions and freeze. In doing so, they are obliged to report to the Bundesbank. The Bundesbank (Financial Sanctions Service Center) is responsible for the release of frozen funds within the scope of the sanction-related exceptions. This applies in particular to the disposal of frozen accounts.

The Federal Office of Economics and Export Control (BAFA) is responsible for prohibitions or licensing requirements relating to the supply of goods or the provision of non-financial services in connection with goods, and also for exemptions regarding frozen economic resources.

Custom authorities monitor EU sanctions, particularly in the area of import and export, and take the appropriate operational measures, if necessary, in close consultation with the Federal Office of Economics and Export Control (BAFA), insofar as, for example, questions arise regarding the recording of certain goods under sanctions law.

Further, under German law, the authorities entrusted with the prevention of danger or criminal prosecution are responsible for seizing or otherwise freezing assets.

Due to these diverting competences, on the occasion of the intensified sanctions against Russia, German government has established a task force to better coordinate the implementation of the EU sanction measures.

Because the enforcement of fines and penalties against non-EU entities is subject to general hurdles of international prosecution, it is more challenging for EU authorities to enforce EU sanctions against Chinese and other non-EU entities. However, if such non-EU entity either has an EU subsidiary, branch or assets located within the EU or if an EU national has been involved who either is permanently located in the EU or travels to the EU for whatever reason, they could be targets of law enforcement.

Thanks to Huibin Li and Jiaxin Fan for their contributions to this article.

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