Since February 2022, following the outbreak of the war against Ukraine, the EU adopted its 11th round of sanctions against Russia on 23 June 2023.

The latest sanctions package centres around a newly introduced anti-circumvention tool, described by the European Commission as a measure of last resort that “will allow the EU to restrict the sale, supply, transfer or export of specified sanctions goods and technology to certain third countries whose jurisdictions are considered to be at continued and particularly high risk of circumvention”.

Although the Council has not yet identified the specific third countries and products concerned, this new tool introduces the potential for such designations. In the wake of to the 11th sanctions package, the European Commission has published two separate product lists to support due diligence and effective compliance, by exporters and targeted anti-circumvention actions by customs and enforcement agencies of third countries determined to prevent circumvention through their territories.

Our lawyers delve deeper into the two product lists in their latest publication.

On 23 June 2023, the EU published its 11th sanctions package.

We set out below a summary of key highlights in this latest update. These are all subject to further interpretative guidance provided by the EU, where applicable.

Designations / Asset Freeze Restrictions

The new round of sanctions extends the categories of persons that may be subject to an asset freeze, to include not only natural or legal persons, entities or bodies facilitating infringements of the prohibition against circumvention but also those that are significantly frustrating the provisions laid out by EU sanctions.

Over 100 additional individuals and entities have been added to the list of entities and individuals subject to asset freezing measures, including senior military officials, decision makers, Russian IT companies, banks, businesspersons, judges etc. In total 1572 entities and 244 individuals are currently listed as being subject to asset freezes.

Two new banks are designated, MRB Bank and CMRBank. An authorisation may be granted to release frozen funds or resources belonging to them if such funds or economic resources are necessary for the purchase, import or transport of agricultural and food products, including wheat and fertilizers.

Continue Reading EU 11th Sanctions Package – Update

The Carbon Border Adjustment Mechanism (CBAM) is a measure to ensure that imported goods pay a price for their carbon emissions that is comparable to the price paid by EU domestic producers under the EU Emissions Trading System (EU ETS). The CBAM Regulation entered into force on 17 May 2023. During the transitional period (1 October 2023 – 31 December 2025), declarants must submit quarterly CBAM reports to the CBAM Transitional Registry no later than one month after the end of the relevant quarter.

On 13 June 2023, the European Commission communicated a draft implementing regulation (IR) on reporting obligations. Below, we review the key elements of the draft IR. Interested parties can submit their comments to the Commission until 11 July 2023.

Background

The CBAM Regulation entered into force on 17 May 2023. During the transitional period (1 October 2023 – 31 December 2025), declarants must submit quarterly CBAM reports that include: (i) the total quantity of imported goods; (ii) the direct and indirect emissions embedded in the imported goods; and (iii) any carbon price effectively paid in the country of origin for the embedded emissions. The CBAM Regulation empowers the Commission to adopt an implementing regulation  on reporting obligations. On 13 June 2023,the European Commission published a draft IR on reporting obligations, which will be applied during the transitional period.

To understand the basic features of the CBAM, please see our previous alert.

Continue Reading EU Carbon Border Adjustment Mechanism: consultation open until 11 July on the reporting measures to apply during the transitional period

In May 2023, the European Union (EU) adopted Regulation (EU) 2023/1115 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation (the Regulation). The Regulation was officially published on 9 June 2023 and will enter into force on 29 June 2023.

In essence, to fight climate change and biodiversity loss, the Regulation obliges companies to ensure that products sold in and exported from the EU have not led to deforestation and forestation degradation.

Covered products: The Regulation targets seven forest-risk commodities (relevant commodities) – cattle, cocoa, coffee, palm oil, rubber, soya and wood – as well as ‘relevant products’, which are products that contain, have been fed with or have been made using the relevant commodities.

Requirements to access or exit the EU market: Relevant commodities and products may enter the EU market, or be exported from the EU, only if they meet three cumulative requirements:

  • They are deforestation-free.
  • They have been produced with the relevant legislation of the country of production.
  • They are covered by a due diligence statement.

Obligations on businesses: The framework lays down mandatory due diligence rules, as well as data collection and reporting obligations, on all operators and traders who make available on or export from the EU market the covered commodities and their derived products. The extent of the due diligence obligations will depend on the risk level of the country or region of production, based on a country benchmarking system to be developed by the European Commission.

Penalties: In case of non-compliance, operators and traders will be subject to penalties set by EU member states that could include fines of up to 4% of their annual EU-wide turnover; confiscation of the relevant products concerned or the revenues gained from the transaction; temporary exclusion from public procurement processes and from the EU market in the event of serious infringement; and prohibition from exercising the simplified due diligence.

The Regulation aims to incentivise the transition to sustainable supply chains in all producing countries of deforestation-related products, within or beyond the EU, in particular by encouraging sustainable behaviour from exporting businesses. In this regard, the Regulation intends to achieve a cascade effect from rural producers all the way up to national governments by encouraging companies to relocate their operations away from high-risk producers to other low-risk commodity-producing producers . 

For more details, please see our client alert.

Although 2021 has predominantly been referred to as the “year of Russia” in terms of sanctions, the collapse of nuclear talks (JCPOA) as well as the social repression in the country have also shifted the focus to Iran, to some degree.

While designating members of the Islamic Revolutionary Guards Forces (IRGF) as Specially Designated Nationals (SDNs), the United States has also blacklisted numerous key companies that assist its unmanned aerial vehicle (UAV) sector. The U.S. continue to pile on the pressure on Iran, as a bipartisan bill emerged in Congress, targeting the country’s primary source of income.

The Stop Harboring Iranian Petroleum (SHIP) Act, introduced by U.S. Senators Marco Rubio (R-FL), Maggie Hassan (D-NH), and Jacky Rosen (D-NV), aims to impose sanctions on illicit purchases of Iranian oil and ensure that those supporting the regime are held responsible.

Our lawyers explore the implications of the SHIP Act on Iran’s oil trade and China’s role in the Middle East further in their publication.

U.S. Customs and Border Protection’s (CBP) statistics confirm that the Uyghur Forced Labor Prevention Act’s (UFLPA) reach extends beyond imports from China. Though importers must remain focused on mitigating UFLPA compliance risks for Chinese-origin goods, CBP’s enforcement statistics offer a broader perspective on the scope of UFLPA-related detentions and seizures.

We highlight key takeaways and suggest some practical steps companies can take in our latest post.

test

On 9 June 2023, the UK implemented The Republic of Belarus (Sanctions) (EU Exit) (Amendment) Regulations 2023 which amends The Republic of Belarus (Sanctions) (EU Exit) Regulations 2019 (the “Belarus Regulations”). The latest approach allows the UK government to more strongly target exports from Belarus and to ramp up restrictions against Belarus to avoid any circumventions of restrictions against Russia via Belarus.

This post sets out a brief summary of the key points:

Imports & Exports

Chapter 2 of the Belarus Regulations has been significantly expanded. It is now prohibited to export, amongst other things, bank notes denominated in sterling or the currency of any EU member state, chemical and biological weapons related goods & technology and machinery related goods & technology to Belarus.

Chapter 2B of the Belarus Regulations has also been expanded such that UK persons are now prohibited from engaging in transactions relating to, amongst others, cement, gold & gold jewellery, processed gold, rubber & wood from Belarus or of Belarus origin, irrespective of the destination of such products.

Accompanying schedules have also been added to the Belarus Regulations which list the HS Codes of the products that are now subject to the restrictions.

Internet Services

The latest amendment also imposes a new Chapter 2D which is related to internet services. Any persons provide an internet access service must take reasonable steps to prevent a UK user from accessing any internet services provided by a designated person in Belarus. OFCOM has been given the power to fine persons they believe have failed to perform their duties under this amendment.

Designated Person Criteria

Similar to the latest amendments to the restrictions relating to Russia, the criteria of “involved person” under regulation 6 of the Belarus Regulations has been expanded to include a wide range of persons who work for or are affiliated to the Government of Belarus and immediate family members associated with designated persons.

Companies and individuals alike have struggled to keep on top of the increased sanctions risks emanating from the heightening of international tensions in recent years. Recently, two English law cases, Havila Kystruten AS and Others v. STLC Europe Twenty Three Leasing Ltd and Another [2022] EWHC 3166 (Comm) (referred to as the Havila case) and Gravelor Shipping Ltd v. GTLK Asia M5 [2023] EWHC 131 (known as the Gravelor case) shed light on the challenges encountered by contracting parties in situations where the lessor is sanctioned, encompassing issues such as lease termination, security enforcement, and payment. The insights from these cases hold significance for leasing companies and charterers worldwide.

In a recent alert, our lawyers discuss how the impact of sanctions on the operation of a contract and the applicability of sanctions provisions are demonstrated by the Havila case and the Gravelor case, highlighting the significance of the way the provisions are drafted and the circumstances of the transaction.

In coordination with the G7 and other international partners, the U.S. implemented new Russia-related sanctions and export controls on May 19, 2023. The U.S. also released an additional select list of potential export control evasion “red flags.”

Restrictive economic measures

The Office of Foreign Assets Control (OFAC):

  • Sanctioned 22 individuals and 104 entities in more than 20 jurisdictions;
  • Expanded the existing services prohibitions to include architecture or engineering services, effective June 18, 2023;
  • Added a reporting requirement to Directive 4 under Executive Order 14024, which requires U.S. persons in possession or control of property in which an entity subject to Directive 4 has a direct or indirect interest to submit a report to OFAC by June 18, 2023 and then annually by June; and
  • Expanded its sanctions authority to persons operating in the Russian architecture, engineering, construction, manufacturing, and transportation sectors.

The State Department designated or identified as blocked property almost 200 additional individuals, entities, vessels, and aircraft.

FAQ 1128 provides guidance on the scope of the new services prohibitions:

  • Architecture services include advisory services; pre-design services; design services, including schematic design, design development, and final design; contract administration services; combined architectural design and contract administration services, including post construction services; and all other services requiring the expertise of architects. The prohibition applies to all types of architectural services from residential, commercial, and industrial to transportation infrastructure, land subdivisions, and urban planning.
  • Engineering services include assistance, advisory, consultative, design, and recommendation services concerning engineering matters or during any phase of an engineering project. Engineering design services can be for structure, mechanical, electrical, construction, or industrial engineering, as well as other engineering designs, such as those for acoustics, vibration, traffic control systems, or prototype development for new products; geotechnical, groundwater, and corrosion engineering services; integrated engineering services, such as those for transportation infrastructure or other projects; engineering-related scientific and technical consulting services, including geological, geophysical, geochemical, surface or subsurface surveying, and map making services; testing and analysis services of chemical, biological, and physical properties of materials or of integrated mechanical and electrical systems; and technical inspection services.

OFAC also issued Russia-related General License 13E (“Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024”), General License 66 (“Authorizing the Wind Down of Transactions Involving Public Joint Stock Company Polyus”), General License 67 (“Authorizing Certain Transactions Related to Debt or Equity of, or Derivative Contracts Involving, Public Joint Stock Company Polyus”), and General License 68 (“Authorizing the Wind Down of Transactions Involving Certain Universities and Institutes”), as well as new FAQs on its actions.

Expanded export controls

The Bureau of Industry and Security (BIS) released a final rule implementing the following amendments to the Export Administration Regulations (EAR), effective May 19, 2023:

  • The addition of 1,224 industrial items to Supplement No. 4 to Part 746 that will now require a license to export, reexport, or transfer (in-country) to or within Russia or Belarus, including all items classified under any Harmonized Tariff System (HTS) code in Chapters 84, 85, or 90;
  • The replacement of the Schedule B numbers in Supplement No. 5 to Part 746 with HTS-6 codes, consistent with the other supplements in this Part;
  • The addition of four new chemicals to Supplement No. 6 to Part 746 that will now require a license to export, reexport, or transfer (in-country) to or within Russia or Belarus;
  • The addition of HTS-6 code 854800 (Electrical parts of machinery or apparatus, NESOI) to Supplement No. 7 to Part 746, expanding the list of foreign-produced items requiring a license when destined to Russia, Belarus, Iran, or the temporarily occupied Crimea region of Ukraine;
  • The addition of the temporarily occupied Crimea region of Ukraine to the destination scope of the Russia/Belarus Foreign Direct Product (FDP) rule; and
  • The exclusion of ECCN 5A991 from the “luxury” goods license requirement when exported, reexported, or transferred (in-country) to or within Russia or Belarus for the specified civil end-users outlined in 15 C.F.R. § 746.8(a), which is consistent with how ECCNs 5A992 and 5D992 are also treated under the EAR.

The final rule is scheduled to be published in the Federal Register on May 23. Additionally, BIS added 71 entities to the Entity List.

New export control evasion “red flags”

The Financial Crimes Enforcement Network (FinCEN) and BIS issued a supplemental alert urging U.S. financial institutions to continue being vigilant for potential Russian export control evasion. The alert contains the following new export control evasion “red flags”:

  • Transactions related to payments for defense or dual-use products from a company incorporated after February 24, 2022 and based in a non-Global Export Control Coalition (GECC) country. The GECC countries are Australia, Canada, the 27 EU member states, Iceland, Japan, Liechtenstein, New Zealand, Norway, South Korea, Taiwan, the U.S., and the UK.
  • A new customer whose line of business is in trade of products associated with the nine HTS codes listed in Supplement No. 7 to Part 746 of the EAR (identified by FinCEN as “High Priority Items”), is based in a non-GECC country, and was incorporated after February 24, 2022.
  • An existing customer who did not receive exports associated with the High Priority Items, but who is receiving such items now.
  • An existing customer, based outside the United States, received exports associated with one or more of the High Priority Items prior to February 24, 2022 and requested or received a significant increase in exports with those same items thereafter.
  • A customer lacks or refuses to provide details to banks, shippers, or third parties, including about end users, intended end-use, or company ownership.
  • Transactions involving smaller-volume payments from the same end user’s foreign bank account to multiple, similar suppliers of dual-use products.
  • Parties to transactions listed as ultimate consignees or listed in the “consign to” field do not typically engage in business consistent with consuming or otherwise using commodities (e.g., other financial institutions, mail centers, or logistics companies).
  • The customer is significantly overpaying for a commodity based on known market prices.
  • The customer or its address is similar to one of the parties on a proscribed parties list, such as the BIS Entity List, the SDN List, or the U.S. Department of State’s Statutorily Debarred Parties List.

On 17 May 2023, the European Commission published its proposals to reform and modernise the Union Customs Code. These proposals follow years of discussions and calls for a structural change to the Union Customs Code, which was no longer adequate to meet new challenges and contained weaknesses that led to the emergence of obstacles to the proper functioning of the Customs Union and the internal market. The proposals intend to simplify the Union Customs Code, reduce the administrative burden on operators, strengthened customs supervision, centralise IT and data functions, level e-commerce with traditional trade and facilitate a uniform implementation of customs rules in all member states.

In short, the reform aims to “take the Customs Union to the next level” and prepare the Customs Union for the future. To tackle these current (and future) issues, the proposals implement the following three pillars: (i) a new partnership with business; (ii) a smarter approach to customs checks; and (iii) a more modern approach to e-commerce.

We highlight below 10 key features of these proposals that support these three pillars:

  • The creation of a European Union (EU) Customs Authority
  • The creation of an EU Customs Data Hub (a single EU interface) that will mark (the beginning of) the end of a system based on customs declarations
  • A supply chain-focused approach by customs, imposing additional responsibilities and information requirements on different actors throughout the supply chain
  • The addition of definitions in the Union Customs Code (e.g., ‘importer’, ‘exporter’ and “prohibitions and restrictions”)
  • The introduction of the ‘deemed importer’ for distance sales, making online platforms key actors in customs compliance
  • The introduction of ‘trust and check traders’ (in addition to the AEO status)
  • For low-value goods (€150 or less), the removal of the duty exemption and the simplification of customs duty calculation (the ‘4-bucket method’ – reducing the customs duty categories down to only four)
  • The harmonisation of infringements and minimum sanctions on an EU level
  • The conferral of additional powers upon the European Commission regarding the evidence of the customs representatives’ empowerment
  • The inclusion of all binding information decisions (BTI, BOI and BVI) in the same legal act (the Union Customs Code), subject to the same procedure and rules

Altogether, this European Commission proposal would make EU Customs fit for a greener, more digital era and contribute to a safer and more competitive single market, according to EU President von der Leyen.

Now that this proposal has been officially published, the European Council and Parliament need to adopt their positions so that an agreement is reached by both co-legislators on the final legal text under the brokerage of the European Commission (a process known as a trilogue). This is expected in the second half of 2024 or early 2025. Much could change in the final text, and the coming months and years will be rich in opportunities for stakeholders to make their views and concerns known.

You can view all proposals and related documents.

If you have any questions about this reform, our international trade law team is here to help.