Twelfth package of restrictive measures against Russia (Questions and Answers)
Q&A twelfth package of restrictive measures against Russia
ENERGY MEASURES
Why have you taken additional measures concerning the oil price cap?
As a result of our internationally coordinated sanctions, Russia's budgetary revenues from oil have dropped, thereby limiting its resources to continue waging its war of aggression. However, as Russia finds ways to evade the oil price cap, we are determined to strengthen our measures to increase their effectiveness. We reaffirm our efforts to enforce compliance with the price cap and to preserve stability in global energy markets – in terms of both price level and supply. The Commission and its G7 coalition partners are monitoring closely the shifts in the trade of Russian oil and the different circumvention practices used by nefarious actors to evade the oil price cap.
What measures have you taken to tackle the ‘shadow fleet' which is transporting Russian oil above the oil price cap?
The “shadow” fleet refers to old vessels that are anonymously owned and/or have a corporate structure designed to hide their beneficial owners, and which are deployed in the trade of sanctioned oil and engage in various deceptive shipping practices.
The 12th package of sanctions includes measures to closely monitor the sale of tankers to third countries and prevent that these are used to transport oil above the cap. All sale of tankers of EU operators will need to be notified to national authorities and sales to Russian persons and entities, or for use in Russia, will be subject to an authorisation. This will help us gather more information on the ‘shadow fleet' currently used by Russia to circumvent the price cap, improve our monitoring of these vessels and bring more transparency to this market.
We have also introduced a requirement for Member States to share information among themselves and with the Commission, with the support of the European Maritime Safety Agency, to identify vessels and entities carrying out one or more deceptive practices, such as ship-to-ship transfers used to conceal the origin or destination of cargo and manipulations of the automatic identification system, while transporting Russian crude oil or petroleum products. Such information will support enforcement actions by Member States.
How have you reinforced the oil price cap?
The price cap mechanism relies on an attestation process that enables operators in the supply chain to get assurance that the oil has been purchased at or below the price cap. However, we are witnessing manipulation of shipping and ancillary costs (including shipping, freight, customs, and insurance costs). The bundling of such costs could be used to hide the actual price of the oil which could be above the price cap. We have therefore introduced a requirement, after a transition period, that itemised price information for ancillary costs, such as insurance and freight, be shared at request throughout the supply chain of Russian oil trade. Enforcement authorities will be able to request this information in order to verify compliance with the price cap.
Have you banned the import of additional energy products, such as LPG (liquified petroleum gases)?
The new import ban on certain types of liquified petroleum gases (LPG) will enter into force after a 12-month transition period. This represents approximately 6% of the EU's total LPG intake from Russia in 2023. Alternative supplies are available and can be secured through seaborne imports.
LPG are a group of hydrocarbon gases, primarily propane and butane, derived from crude oil refining or natural gas processing. LPG are mainly used as heating fuel (e.g. cooking), transport fuel, or as a feedstock in the petrochemical or chemical industries.
Why did the EU not ban the import of Russian LNG (liquified natural gas)?
Any additional restriction needs to be agreed by the Council, unanimously. The net impact of such a measure on Russian revenues would have probably been limited as Russia would have been able to redirect most of its exports, notably to Asia. In addition, Russia would have benefited from rising global gas prices following the embargo. LNG global markets are very volatile and tend to overact even to small shocks on demand and supply.
LISTINGS
Who have you targeted?
The 12th package of EU sanctions adds over 140 individuals and entities to the list of natural and legal persons subject to asset freezes and the prohibition to make funds and economic resources available to them.
What entities have been targeted and in which countries?
The list of newly designated legal persons covers actors in the Russian military and defence, including military industry companies and Private Military Companies. This also includes actors from the IT sector, as well as other important economic actors, and individuals and entities involved in the circumvention of EU restrictive measures. The measures also target whose who have orchestrated the recent illegal so-called “elections” in the territories of Ukraine that Russia has temporarily occupied, and those responsible for the forced “re-education” of Ukrainian children, as well as actors spreading disinformation/propaganda in support of Russia's war of aggression against Ukraine.
TRADE MEASURES
- Import ban on Russian diamonds
The new sanctions on Russian diamonds are part of a concerted G7 effort to introduce an internationally coordinated diamond ban. It aims at depriving Russia of this important revenue stream estimated at €4 billion per year, of which approximately €1.5 billion are annual imports into the EU.
How is this going to work in practice?
All G7 members will implement a direct ban on diamonds exported from Russia at the latest as of 1 January 2024. As of 1 March 2024, a ban on Russian diamonds polished in a third country will take effect for natural diamonds with a weight of 1 carat and above. As of 1 September 2024, the ban will be expanded to also include lab grown diamonds, jewellery and watches incorporating diamonds with a weight of 0.5 carat and above.
We look forward to strong cooperation from industry to ensure that our approach and intentions are understood and implemented. The goal of this effort remains centred on reducing revenue that Russia earns from diamonds, which fuels Moscow's war machine against Ukraine.
What is the traceability-based verification and certification mechanism for rough diamonds?
In order to prevent Russian diamonds from entering the G7 market, diamonds need to be traced from ‘the mine to the finger'. Hence the traceability system includes a mandatory registration, using so called ‘digital twins' of the real diamond in its rough state and issuing a certificate of its origin. The identifying information and certificate will be entered in blockchain-based ledger. This allows the diamond to be traced through the production process and can be presented at the time of importation of the finished diamond.
As the EU is a major importer of rough diamonds, it will establish a robust traceability-based verification and certification mechanism for rough diamonds within the G7 by 1 March 2024. This strengthened approach will provide certainty to our citizens and consumers that they are not purchasing Russian diamonds. It will also deliver stronger transparency to producers, including in countries with artisanal production. This will positively impact both earnings from diamonds and producers' story and brand throughout the supply chain.
The system will be operational as of 1 March 2024 in a pilot phase to be fully on-line on 1 September 2024. During this period, economic operators can choose to use either the traceability-based certification and certification mechanism or other evidence proving the non-Russian origin. As of 1 September 2024, the use of the traceability-based certification and certification mechanism will be mandatory.
Why have diamonds not been banned earlier?
It is worth noting that the import of Russian diamonds to the EU has already been decreasing steadily: EU direct imports from Russia are down by more than 80% in the period July-2022-April 2023 compared to the same period of 2021 (down from €1.6 billion to over €300 million), due to the deterring effect of our broader sanctions. When looking at 2023, this reduction is even greater, as it approaches 90%.
However, this reduction in bilateral flows with the EU does not necessarily mean a similar loss in global revenue for Russia. Diamond trade is being diverted via other countries. Diamonds are processed elsewhere and still find their way back into G7 markets with a change of origin (i.e. as non-Russian goods). That is why a ban on Russian diamonds polished in a third country is also necessary. An “EU only” import ban would not have been efficient. The EU has been the driving force for a fully coordinated approach and timeline within the G7.
For the import ban of Russian diamonds to be effective, it needed to be agreed with other major international markets for diamonds (the US, Japan, Canada and the UK.) which together accounts for 70 % of the world diamond retail market. This includes acting upon imports of Russian-mined diamonds that have been worked elsewhere, for example polished, and undergone a lawful change on their ‘country of origin' due to this polishing.
How are you going to tackle possible circumvention risks?
By registering the rough diamond at an early stage and collaborating with producer countries, its proof of origin can be ensured. Furthermore, so-called mixed packages of rough diamonds from several origins will not be allowed to be imported without additional proof that the packages do not contain Russian diamonds. As of 1 September 2024, the ban expands to include jewellery and watches containing diamonds. While consultations on verification methods are ongoing, those G7 members who are major importers of rough diamonds will establish a robust traceability-based verification and certification mechanism.
Circumventing EU sanctions is a crime and that is why the Commission is working hard to crack down on it. This means stronger enforcement at EU level and making sure that EU operators do not circumvent sanctions. While the implementation and enforcement of sanctions is the responsibility of EU Member States, the Commission has dedicated significant efforts to support Member States in this task. It is working closely with national competent authorities on addressing circumvention risks by, among others, providing guidance and legal clarity. The Commission is consistently revising its guidance and FAQs and is regularly convening meetings with Member States to discuss sanction implementation and to exchange best practices.
- Other trade-related measures
Which are the new import restrictions introduced with the 12th package of sanctions?
The new package includes an import ban on raw materials for steel production, and certain processed aluminium and copper goods. These measures restrict imports from Russian of certain goods where Russia has been increasing its volume of exports to the EU. For some of these metal goods, in particular for steel raw materials, those measures will apply in full after a transitional period of 12 months for executing existing contracts, or after a 2-year period where a certain volume of imports would still be authorised to allow EU companies the necessary time to find alternative sources of supply.
In addition, new import restrictive measures would also ban imports of liquified petroleum gas (LPG), for which annual imports into the EU are over €1 billion per year.
Altogether, import restrictive measures set out in the 12th package, including diamonds, will impact about €4.5 billion of annual Russian export revenues to the EU.
The new package also extends the transitional period for the full ban of imports into the EU of two types of semifinished steel goods produced in Russia with gradual reduction of volumes over an extended 4-year period. This extension takes into account the very specific needs of parts of the EU steel industry, which require a longer period for alternative suppliers to build their full production capacity needed to replace Russian inputs.
Which are the new export restrictions introduced with the 12th package of sanctions?
The 12th package of EU sanctions introduces additional export restrictions on dual-use and advanced technologies aiming at undermining Russia's capacity to wage war. These restrictions will apply to certain chemicals, thermostats, DC motors and servomotors for unmanned aerial vehicles (UAV), machine tools and machinery parts. These items have all been used by the Russian army and found on the battlefield. Export restrictions on dual-use and advanced technologies are also extended to an additional 29 entities that are associated to Russia's military-industrial complex and support Russia's war of aggression against Ukraine, including through the circumvention of sanctions through third countries.
In addition, there are new export bans on EU industrial goods, aiming at further weakening its industrial base, including machinery and parts, construction-related goods, processed steel, copper and aluminium articles, batteries, and lasers.
The new measures also allow for a prohibition to provide enterprise and design-related software to the Russian government or to Russian companies. The aim is to further hamper Russia's capacities in its industrial sector.
Overall, the restriction of exports of certain industrial goods that reinforce Russia's industrial base is tightened and simplified by merging different parts of the existing export bans and applying other parts at a higher level (moving from 6 to 4-digit custom codes). This will make it easier for customs officials to check compliance.
ASSET FREEZE RELATED MEASURES
Why have you adopted a new listing criterion?
We have introduced a new listing criterion to include entities and individuals who benefit from the forced transfer of ownership or control over Russian subsidiaries of EU companies. This will ensure no one profits from the losses that EU companies face when their subsidiaries in Russia are forcibly acquired by Russian owners/management.
The Council will be able to list, among others, the Russian subsidiaries that have been forcibly transferred and the new managers appointed by the Russian government without the consent of the EU parent companies.
The criterion applies in a wide range of situations, including when the compulsory transfer has been carried out through laws or other actions of the public authority.
What is the added value of keeping deceased persons on the asset freeze list?
This provision would be used only when needed to ensure the proper enforcement of our sanctions by Member States. The Council will be able to keep deceased persons on the list when it thinks that their assets would be used – if released - for actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, and in particular if they could be used to finance the unprovoked and unjustified military aggression against Ukraine.
How is the introduction of the new obligation for Member States to designate the authorities competent to identify and trace assets of listed persons going to work in practice?
Member States will have to designate the authorities in charge of identifying and tracing the assets of listed persons and companies, in order to prevent and detect breaches or circumvention.
This will allow the authorities of all Member States to use an additional tool to ensure the enforcement of targeted sanctions.
ANTI-CIRCUMVENTION MEASURES
Why have you proposed a broader scope of the transit measures through Russia?
The broadening of the scope of the prohibition of transit through Russia to certain economically critical goods when these are intended for export to third countries will ensure that such goods are not diverted to Russia during the transit. This is part of the tools that we are putting in place to avoid the circumvention of our export restrictions.
Which categories does the prohibition to re-export to Russia concern?
The package introduces an obligation for operators to contractually prohibit the re-export of certain categories of sensitive goods to Russia, including goods related to aviation, jet fuel, firearms, and goods on the Common High Priority list.
What other measures have been adopted?
The package introduces a requirement to notify certain transfers of funds out of the EU from EU entities directly or indirectly owned for more than 40% by Russians or entities established in Russia.
OTHER MEASURES
The ban for Russian nationals and persons residing in Russia to own or control crypto service providers
The package further seeks to limit circumvention of the prohibition on the provision of crypto-asset wallet, account or custody services to Russian persons and residents by including a ban on Russian nationals or natural persons residing in Russia from owning or controlling, or holding any posts on the governing bodies of, the legal persons, entities or bodies providing such services.
Clarification on the personal use items including cars for import
The package, in order to facilitate the entry into the Union of Union citizens living in Russia, permits Member States to authorise, under such conditions as they deem appropriate, the entry of cars of Union citizens or their immediate family members who are resident in Russia and are travelling into the Union provided that the cars are not for sale and are driven for strictly personal use.
General
What is the impact of imposing such sanctions?
Russia's brutal war now lasts more than 650 days. The EU stands firmly with Ukraine and its people, and will continue to strongly support Ukraine's economy, society, armed forces, and future reconstruction.
EU sanctions fulfil the EU's key objective, which is to continue to work for a just and lasting peace, not another frozen conflict.
The data available at this stage show that the sanctions have already imposed an immediate and growing cost on the Russian economy. The rouble has lost about 40% of its value from its peak in summer 2022, which has forced the Central Bank of Russia to raise its interest rates from 8% to 15% and to strengthen capital controls.
Sanctions need to be properly implemented. Ensuring an effective and diligent implementation of sanctions is key to prevent circumvention. This is primarily the responsibility of Member States. In this process, the European Commission is fully committed to assisting national authorities and ensuring a consistent implementation across the Union.
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