Comment

Overview of Financial Sanctions

In view of the gravity of the situation, and in response to Russia’s attack on Ukraine, the European Union (“EU”) has implemented and continuously implements sanctions on Russia and Belarus.


On 28 February 2022, the Council of the European Union (“Council”) adopted a decision that transactions related to the management of reserves as well as of assets of the Central Bank of Russia, including transactions with any legal person, entity or body acting on behalf of, or at the direction of, the Central Bank of Russia, are prohibited. By way of derogation, the competent authorities may authorise a transaction provided that it is strictly necessary to ensure the financial stability of the EU as a whole or of the Member State concerned.

This involves the freezing of funds and economic resources of designated persons and ensuring that funds and economic resources are not made available to or for the benefit of designated persons. EU restrictive measures now apply to a total of 877 individuals and 62 entities.

The Council has adopted that:

1)     336 members of the State Duma in Russia are to be added to the list of persons, entities and bodies subject to restrictive measures as set out in Annex I to Regulation (EU) No 269/2014 due to their vote in favour of a resolution to ask President Vladimir Putin to recognise the separatist-claimed parts of eastern Ukraine as independent states;

2)     48 persons and 5 entities associated with the Russian regime should be added to the list of persons, entities and bodies subject to restrictive measures set out in the Annex to Decision 2014/145/CFSP and Annex to Decision 2022/337;

3)     It shall be prohibited as of 12 March 2022 to provide specialised financial messaging services, which are used to exchange financial data (SWIFT), to the legal persons, entities or bodies listed in Annex VIII to Decision 2022/346/CFSP or to any legal person, entity or body established in Russia whose proprietary rights are directly or indirectly owned for more than 50 % by an entity listed in Annex VIII to Decision 2022/346/CFSP. Such entities are: Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank, VNESHECONOMBANK (VEB), VTB BANK.

4)     It shall be prohibited to sell, supply, transfer or export euro-denominated banknotes to Russia or any natural or legal person, entity or body in Russia, including the government and the Central Bank of Russia, or for use in Russia.[N1] 

5)     It shall be prohibited to invest, participate or otherwise contribute to projects co-financed by the Russian Direct Investment Fund.

6) In view of the gravity of the situation and of the fact that Belarus is participating in a Russian unprovoked invasion against Ukraine by allowing military aggression from its territory, the Council considers that 22 persons should be added to the sanctions list.
7)  It shall be prohibited as of 15 April 2022 to provide credit rating services and access to any subscription services in relation to credit rating activities to any Russian national or natural person residing in Russia or any legal person, entity or body established in Russia. 
8) It shall be prohibited since 16 March 2022  investments in and assistance to Russia's energy sector and imports from Russia of finished steel.

9 March 2022 new measures impose restrictive measures on 160 individuals and amend Regulation (EC) 765/2006 concerning restrictive measures in view of the situation in Belarus and Regulation (EU) 833/2014 concerning Russia's actions destabilising the situation in Ukraine. In particular, the agreed measures will:

1) Restrict the provision of SWIFT services to Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, as well as their Belarusian subsidiaries. 

2) Prohibit transactions with the Central Bank of Belarus related to the management of reserves or assets, and the provision of public financing for trade with and investment in Belarus.

3) Prohibit the listing and provision of services in relation to shares of Belarus state-owned entities on EU trading venues as of 12 April 2022.

4) Significantly limit the financial inflows from Belarus to the EU, by prohibiting the acceptance of deposits exceeding €100.000 from Belarusian nationals or residents, the holding of accounts of Belarusian clients by the EU central securities depositories, as well as the selling of euro-denominated securities to Belarusian clients.

5) Prohibit the provision of euro-denominated banknotes to Belarus.

For Belarus, the measures introduce SWIFT prohibitions similar to those in the Russian regime, clarify that crypto-assets fall under the scope of “transferable securities” and further expand the existing financial restrictions by mirroring the measures already in place regarding Russia sanctions. EU confirmed the common understanding that loans and credit can be provided by any means, including crypto assets, as well as further clarified the notion of “transferable securities”, so as to clearly include crypto-assets, and thus ensure the proper implementation of the restrictions in place.

In order to prevent possible circumvention of sanctions and the illegal activities of Russia and Belarus, the Estonian government decided on 08.03.2022 to suspend the issuing of new Estonian e-residency status to Russian and Belarusian citizens. According to the resolution, the reception of new e-residents who are citizens of Russia and Belarus will be suspended and applications already pending will also be rejected. Existing digital identity cards of e-residents shall remain valid. In addition, it is important that the supervisory authorities put existing e-residents of Russia and Belarus on high alert. In the coming months, special attention will be paid to them, their activities will be followed more closely and, if necessary, the e-residency of the persons will be interrupted or revoked.

In addition to the above, there are also sanctions in place in relation to various other areas of commerce. To stay up to date with recent developments, we strongly advise reviewing regularly if any new measures have been imposed, for example via FIU’s webpage or EU Sanctions Map.

With regard to the sanction imposed by the Council, please assess, among other things in accordance with § 19 of the International Sanctions Act (“ISA”), whether your activities (incl. customer service and related activities) violate or may violate a financial sanction, including making a resource available and, in the case of a financial sanction, whether there is a need to apply a financial sanction.

In view of the extensive sanctions imposed on the Russian and Belarus financial institutions, legal persons, entities or bodies, the FIU and the Estonian Financial Supervision Authority call on the virtual currency service providers to exercise due diligence in relation to transactions that come or go to Russia and Belarus. In order to implement sanctions, the virtual currency service providers have appropriate systems and controls. The effectiveness of the customer base and transaction control measures may affect the impeccable business reputation of the subjects and their managers or otherwise lead to liability.


 [N1] Exception: The prohibition shall not apply to the sale, supply, transfer or export of euro-denominated banknotes provided that such sale, supply, transfer or export is necessary for:

 - the personal use of natural persons traveling to Russia or members of their immediate families traveling with them; or

- the official purposes of diplomatic missions, consular posts or international organisations in Russia enjoying immunities in accordance with international law.

Authors:
Jaanus Sildam
Assistant Attorney, Senior Associate
Mobile: +372 5265 065
jaanus.sildam@njordlaw.ee

Elnara Nadžafova
Lawyer
Mobile: +372 5662 6125
elnara.nadzafova@njordlaw.ee


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