Update on sanctions developments: The EU's 11th package of sanctions against Russia implemented in Norwegian law – with some exceptions

The 11th package was enacted in the EU on 24 June 2023. The main focus of the package was on combating circumvention of pre-existing trade sanctions as Russian parties have become increasingly well-adapted to the sanctions, finding creative solutions to overcome their effects e.g., by using third countries and companies as transaction vehicles to circumvent the restrictions on trade of goods and technologies, or to bypass the import ban and price cap for Russian crude. As will follow below, two of the key mechanisms that were incorporated in the EU to prevent these types of circumvention have been left out of the revised version of the Norwegian regulations for now.

The strengthened focus on anti-circumvention calls for a reminder that even indirect links to Russia or Russian persons could result in sanctions violations. Thus, anyone should assess whether its contracting parties could be merely acting as an intermediary on behalf of a sanctioned principal, e.g. a Russian end customer, Russian exporter or a non-Russian sanctioned entity. Such risk assessments are becoming ever more challenging, considering the increasingly broad scope and complexity of the sanctions and inventive bypassing constellations. Businesses generally have to adopt a tailored approach and consider a range of factors related to the other party or the transaction, such as any Russian nexus, links to regions associated with higher circumvention risk, general transparency of the counterparty's country of incorporation, nature of the products/technology involved, etc.. Schjødt's corporate compliance team is experienced in all aspects of such risk assessments and associated review of projects, business partners and M&A-activities that may entail an increased sanctions or other compliance related risk, and we remain ready to assist.

Below follows an overview of certain relevant additions to the Norwegian sanctions against Russia based on the EU's 11^th package.

Restrictions on goods and technologies have traditionally been on export, sale, supply and transfer, combined with restrictions on technical assistance, brokering services, other services, financing and financial assistance. There has reportedly been a trend that European persons with subsidiaries located outside Europe have relocated their production of restricted goods and technologies to such subsidiaries to overcome – or bypass – the effects of such restrictions. To avoid such circumvention, a separate prohibition is implemented in the relevant export related prohibitions, against the sale, licensing, and transfer in any other way of IPR and trade secrets. The prohibition further extends to the mere granting of rights to access or re-use [of] any material or information covered by the IPR or constituting trade secrets, and to the provision, manufacture, maintenance and use of the restricted goods and technologies.

Until this addition, manufacture and export to Russia or Russian persons of restricted goods and technologies have been permitted by e.g., subsidiaries of Norwegian companies incorporated outside of Norway/the EU, to the extent the contract is not placed with the third country subsidiary in an effort to circumvent the sanctions, and provided the parent company continues to comply with the sanctions. The latter has caused challenges in practice, and with the new restrictions, it is now in any event clear that goods and technology cannot be transferred (directly or indirectly) to Russia or Russian persons by a third country subsidiary of a Norwegian company if the goods and technology in question are comprised by IPR or trade secrets of the EU company.

Other new restrictions include:

• Further restrictions on restricted iron and steel products - importers must from now on be able to document the country of origin for restricted iron and steel products that have been processed in a third country.
• Export prohibition for dual-use and advanced goods and technologies etc. to 87 new entities, which includes certain entities in China, Uzbekistan, the United Arab Emirates, Syria and Armenia that are known or suspected of acting as circumvention vehicles.
• Further categories of goods and technology have been added to the already existing lists of restricted goods and technology, in particular the list of "Advanced technologies" in annex IX, which calls for another re-visit of the sanctions lists for any entity engaged directly or indirectly with Russia or Russian persons.
• The transit ban for goods and technologies through the Russian territory is expanded to tech products, aircraft and space parts and jet fuels.
• The prohibition on the transport of goods by road in the EU now includes semi-trailers and trailers registered in Russia, even if they are connected to a non-Russian vehicle.
• As of 15 November 2023, the prohibition against selling transferable securities denominated in Norwegian or any EU currency, to any Russian person or person residing in Russia will be expanded to cover transferable securities in any currency.

The 11th package also included approximately 100 additional entries to the so-called asset freeze list. These have already been implemented in Norwegian law.

Oil price cap related restriction
On order to overcome circumvention of the import ban and price cap on Russian crude, the EU further restricted access to EU ports for vessels (of any nationality) suspected of bypassing the restrictions. Specifically, the EU restrictions prevent such vessels from access to EU ports if they are suspected of participating in ship-to-ship transfers of Russian crude, and also for vessels that have failed to give 48 hours' notification of a ship-to-ship transfer within an EU country's economic zone or which have turned off the AIS tracking or are suspected to have interfered with the AIS tracking when transporting Russian crude.

This restriction has not yet been incorporated into Norwegian law. According to the press release in connection with the enactment, this is to allow further time to assess how to best incorporate this into Norwegian law. 

Export prohibition to certain third countries
The main strategy of the EU and G7 countries to combat circumvention activities in third countries remains engaging in diplomatic dialogue with such countries to get them to cooperate. The latest EU sanctions package emphasized the need to strengthen such cooperation, and to provide third countries with relevant technical assistance to enable them to act against such activities. In order to enable the EU to swiftly implement measures against such countries if such cooperation efforts fail, a separate tool prohibiting export, sale and transfer of dual-use and other advanced goods and technologies to countries that are associated with a high risk of being used for circumvention transactions, such as Armenia, Kazakhstan, China, Turkey and others. For the time being, the restriction is merely a legal basis to add listings if and when necessary, with no countries actually subject to the restriction and the EU refers to the mechanism as "exceptional, last-resort measures" if such countries continue to "systematically and persistently" fail to prevent export of restricted goods and technologies to Russia/Russian persons.

Although Norwegian authorities have proclaimed their support of such a mechanism, the restriction is not yet implemented in Norwegian law.

The descriptions herein are general in nature, other restrictions than those mentioned exist, new items on the lists of restricted goods and technologies are implemented and exemptions are introduced. Further, the EU regulations are accompanied by extensive recitals, guidance and practice which are relevant to assess in order to understand the scope of the similar restrictions under Norwegian law. This provides for a comprehensive and fragmented set of rules that is challenging to manoeuvre. Norwegians must continue to exercise caution with respect to business partners and ensure that sanctions compliance programmes, policies etc. are up to date and appropriately adapted to manage the increasingly complex sanctions risk picture.

Schjødt's corporate compliance team is experienced in all aspects of sanctions and export control-related matters, including risk assessments and associated review of projects, business partners and M&A-activities that may entail an increased sanctions risk. We have an extensive global network consisting of leading compliance and white-collar crime specialists and can efficiently include relevant local knowledge in our assistance.

Please note that these updates do not constitute legal advice, nor do they provide an exhaustive description of all sanctions in place and the exemptions. Any person or entity involved, directly or indirectly, in business activities in any way directly or indirectly related to Russia, Belarus or Ukraine should carefully assess how they are affected by the sanctions. Schjødt's team is ready to assist in this regard.