Recent developments in EU and UK sanctions

1. Bans on import of Russian-origin iron and steel entered into force
2. EU issues guidance on due diligence to prevent circumvention of sanctions
3. Report on voting in EU Common Foreign and Security Policy
4. EU's 11^th package has been implemented in Norway

1. EU and UK: Bans on import of Russian-origin iron and steel from third countries have now entered into force

30 September 2023 saw the entry into force of the previously announced EU and UK import prohibitions on Russian-origin iron and steel products from third countries. The previous restrictions already prohibited the import, purchase and transport of iron and steel originating in Russia. The latest restrictions take this one step further by extending the ban to the direct or indirect import or purchase into the EU / UK of iron and steel products processed in a third country, if those products incorporate iron and steel originating in Russia.

The EU prohibition was originally introduced in the EU's eighth package of sanctions against Russia in October last year. The UK followed suit in April this year with the UK 2023 Amendment Regulations, with both bans set to enter into force on the same date (i.e., 30 September 2023) (although in the EU, the prohibition on certain CN codes will not apply until 1 April and 1 October 2024).

The goal of the new bans is to reduce circumvention of sanctions on Russian iron and steel, as third country processing can be a means of concealing the Russian origin of iron and steel products.

The EU's 11^th package of sanctions against Russia also included a further attempt to prevent the circumvention of the restrictions on imports of iron and steel goods from Russia. As of 30 September, there is now also an obligation on importers to provide proof that the iron and steel products imported from third countries do not incorporate banned steel inputs from Russia.

In practice, this means the burden of demonstrating that an iron or steel product does not contain Russian-origin iron or steel will fall on the importer.

A similar reverse burden of proof has not been introduced by the UK, although the UK Department for International Trade has published guidance on third country processed iron and steel measures, which makes it clear that all parts of the supply chain for third country processed iron and steel products are expected to undertake the necessary due diligence to ensure that sanctions are not being circumvented directly or indirectly. The EU has addressed the latest restrictions in its Q&A on the 11^th package of restrictive measures against Russia.

2. EU Commission publishes guidance on due diligence to prevent sanctions circumvention

On 7 September 2023, the EU Commission published a guidance note addressed to European operators to help them identify, assess and understand the possible risks of sanctions circumvention and how to avoid it. The guidance provides examples of threats and vulnerabilities as well as a checklist for general good practices and a list of circumvention red flags related to business partners and customers.

The guidance also specifies due diligence steps companies should take to mitigate the risk of inadvertent circumvention of sanctions. The precise steps to be taken will depend on the specific circumstances and related risk exposure of each EU operator. Two examples of companies that might be particularly exposed and thus need to exercise particular caution, are EU-based manufacturers of goods that are in high demand in Russia (and the export of which is prohibited to Russia) and EU-based freight forwarders that are organising the transport of such exported goods.

The list of red flags is a dynamic tool that should be further supplemented when new alerting indicators are detected. The list currently includes different typologies, ranging from indirect transactions that make no or little economic sense, to sudden changes of ultimate beneficial ownership just before or after sanctions are imposed, as well as instances where the CEO/manager is never available for discussions or to respond to queries from the EU company.

In addition to the guidance, the Commission recently published lists of High Priority Battlefield Items and Economically Critical Goods. The three new tools focus on export related sanctions. However, EU operators are expected to have due-diligence measures for all their relevant activities that might fall under the scope of EU sanctions (e.g., companies cannot simply review the lists and conclude that no due diligence is necessary if their products are not on those lists or the guidance does not apply to them).

3. EU: New Report on Qualified Majority Voting in Common Foreign and Security Policy

On a general note we would also like to mention that a new report by the European Parliamentary Research Service identifies the main challenges in Common Foreign and Security Policy (CFSP) and how these are related to the unanimity decision-making rule. One of the examples in the report is the use of strategic vetoes, used as bargaining chips against other Member States. The report finds that using Qualified Majority Voting (QMV) on some CFSP cases, may enable the EU to respond more effectively to emerging challenges. It might, however, also lead to decreased legitimacy and may damage the identification of the Member States as a collective.

Regarding sanctions in particular, the report underlines the importance of sanctions being implemented across the common market for the measures to have a strong impact. The report notes that moving from unanimity to QMV might lead to quicker adoption of a decision (i.e. the EU might come across as more responsive to the given act or incident that forms the basis for the sanctions decision), but that focusing solely on the decision-making process may not be sufficient to enhance the impact and efficiency of EU sanctions. The implementation and enforcement of sanctions is still within the competence of the Member States. If some Member States fail to sufficiently implement EU sanctions due to their resistance to their nature or scope, it would both harm the effectiveness of the sanctions regime and jeopardise the integrity of the EU common market.

The European Parliament has repeatedly expressed its support for greater use of QMV in its annual resolutions on the implementation of the CFSP. The discussion has intensified lately, especially in the wake of Russia’s invasion of Ukraine, but the Member States remain divided on the topic. The report is intended to be a starting point for discussions both within and beyond the European Parliament on possibilities for overcoming challenges relating to unanimity and allowing the EU to respond to emerging geopolitical challenges.

4: Norway: EU's 11^th package has been implemented in Norway

There were official statements already in early July that Norway would commit to the EU's 11^th sanctions package issued on 23 June 2023, but the new restrictions were formally introduced into the Norwegian Ukraine Regulation on 2 October 2023. Read more about the EU's 11^th sanctions package in our Sanctions Alert issued on 23 June 2023. Note that as of yet, Norway has not implemented the prohibition on access to Norwegian ports and locks for vessels engaging in ship-to-ship transfers if the competent authorities have reasonable cause to suspect that the vessel is either in breach of the ban on importing seaborne Russian crude oil and petroleum products into the EU, or is transporting Russian crude oil or petroleum products purchased above the relevant price cap, or regarding vessels transporting Russian crude oil and petroleum products that illegally interfere, switch off or disable their navigation system.

There is also a specific adjustment regarding maritime diesel where there is an exception for fishing vessels exempt from the port ban in the Norwegian regulation.