After the outbreak of the Russia-Ukraine conflict this year, the United States, the European Union and their allies escalated against Russia. The industry has conducted in-depth discussions on the economic sanctions and export controls imposed by the United States on Russia. Although the EU's sanctions policies have no extraterritorial effects, Chinese enterprises also pay attention to EU related sanctions policies, especially transactions and related contracts with EU elements. The following is a brief introduction to the EU's sanctions policy in the form of question and answer.

Q: Why do Chinese companies need to pay attention to the EU sanctions policy against Russia?

A: Generally speaking, Chinese enterprises or people are not directly subject to the EU sanctions policy. If a Chinese citizen immigrates to the EU and holds a passport from an EU member state, or a Chinese enterprise conducts certain business operations in the EU, it will directly become the target of EU sanctions. However, usually large enterprises, when making certain significant investments, especially projects with EU or US elements, want to ensure that they and their counterparties are sanctioned and compliant to protect their business reputation, even if they are not directly governed by EU law. In addition, the financial or trade contracts of Chinese enterprises are likely to be subject to EU sanctions. Based on our experience, Chinese financial institutions and banks often pay great attention to project sanctions compliance and are unwilling to provide financing services for projects with sanctions risks. Considering the current dominant position of the US dollar in international settlements, while attempting to ensure compliance with EU sanctions policies, ordinary enterprises will also verify to ensure compliance with US sanctions policies.

Q: Why would the EU sanction Russia?

A: Russia sent troops to the Crimea region and occupied the region. The European Union and the United States believe that Russia has violated Ukraine's territory and sovereignty and harmed Ukraine's democratic regime. The European Union has therefore formulated a policy of sanctions against Russia, hoping to achieve the following goals: 1) weaken Crimea's ability to finance war; 2) Let the political elite of Russia pay the economic and political price for aggression; 3) Strike the economic foundation of Russia.

Q: Who does the EU's sanctions policy really concern?

A: EU sanctions apply to all "EU individuals", including: 1) citizens of EU member states; 2) Companies or other legal entities established in EU member states (including their non EU branches). Activities carried out by residents of non EU member states on EU territory are also subject to jurisdiction, but EU sanctions have no extraterritorial effect of the United States. According to this principle, the EU does not recognize the extraterritorial effects of third countries in the EU. Therefore, the Russian subsidiaries of EU companies are not subject to the EU sanctions policy, but EU companies cannot evade compliance with the sanctions policy through their Russian subsidiaries.

Q: What is the system of EU sanctions against Russia?

A: There are two levels of EU sanctions against Russia. 1) Firstly, in accordance with Article 29 of the European Union Treaty, "the Council should formulate EU guidelines for the practice of a specific region or topic. Member States should ensure that their national policies are consistent with the EU's position." The Council of the European Union can, with the unanimous consent of member States, make a Council Action Decision on behalf of the European government to impose sanctions on a specific country. This means that the EU has reached political consensus at the level of member states. Then, in accordance with Article 215 (2) of the Treaty on the Functioning of the European Union, the European Council should formulate a Council Sanctions Regulation by a specific majority vote. Specifically, on March 14, 2014, the European Union adopted Council Decision 2014/119/CFSP against Russia, strongly condemning the violence that has occurred in the Ukraine region, and agreeing to adopt sanctions to freeze and recover the assets of those who have misappropriated Ukrainian national funds or are responsible for human rights violations in the country. Similarly, any regulations, decisions, or amendments adopted by the European Council on sanctions also require unanimous vote. 2) Each member state then formulates specific laws at its national level to ensure the implementation of EU sanctions decisions and specific regulations within their respective sovereignty. It should be noted that the most severe arms embargoes and travel bans in the sanctions policy are not further stipulated at the level of sanctions regulations.

Q: Do the EU's sanctions policies and regulations have teeth? Is it possible that a member country is more sympathetic to Russia and does not implement the sanctions policy in place?
A: EU sanctions regulations need to be implemented in member countries. Therefore, EU sanctions regulations explicitly require member states to formulate effective, appropriate, and corrective penalty provisions when formulating national sanctions regulations, and punish and correct violations of sanctions regulations. Secondly, as a permanent body of the EU, the European Commission has the responsibility of supervising the unified implementation of EU sanctions policies by member states. The European Commission and Member States have an obligation to exchange relevant information on sanctions violations and enforcement. Finally, in accordance with Article 258 of the Treaty on the Functioning of the European Union, the European Commission has the right to initiate an infringement procedure against member States and investigate their failure to perform their duties in the EU. In practice, the European Commission has not yet initiated a precedent for investigating member States for failing to implement EU sanctions policies in place.

Q: Before this year's Russian-Uzbekistan war, what are the specific sanctions regulations formulated by the EU and what are the main contents?

A: Prior to this year, the European Union mainly formulated the following regulations, providing for sanctions against Russia: 1) On March 5, 2014, the Council of the European Union adopted Council Regulation No. 208/201, which completely freezes assets owned, held, possessed, or controlled by those who encroach on Ukrainian national funds or are responsible for human rights violations in that country. The regulations mainly target former Ukrainian government officials and wealthy businessmen. The regulation developed an arrangement similar to the 50% rule in the United States: the assets of entities owned or directly or indirectly controlled by the subject of sanctions will also be frozen. If a sanctioned entity holds minority shareholder interests, the entity is not subject to sanctions under this regulation, but if a change in control results in the sanctioned entity holding shares, the sanctions for asset freezing will be applied to the entity. 2) On March 17, 2014, the European Council adopted Council Regulation 269/2014 to impose sanctions on entities that threaten Ukraine's sovereignty, territorial integrity, and independence, including travel restrictions and asset freezes. 3) In July 2014, the European Council adopted Council Regulation No. 833/2014 to restrict the channels for Russian state-owned financial institutions to obtain funds from the EU's primary and secondary markets. No technical support, intermediary services, financing or financial support may be provided to the subject of sanctions unless prior authorization is obtained. According to Article 5 of the Act, EU banks and credit institutions shall not purchase, sell (directly or indirectly), provide investment services, or trade exchangeable securities and money market instruments issued by Russian financial institutions on August 1, 2014 and September 2, 2014 with a maturity period of more than 30 days, or issued after September 12, 2014 with a maturity period of more than 30 days; B. Directly or indirectly providing new loans or credits to Russian financial institutions for more than 30 days through any means after September 12, 2014.

Q: What are the new sanctions regulations resulting from the current situation?

A: After the special military operation in February this year, according to the description of EU President von der Leyen, the EU adopted the largest sanctions policy in the history of the EU at the speed of light, mainly three sanctions policy packages for Russia, to combat Russia's financial system, its high-tech industries and its corrupt political elites. As the Russian-Uzbekistan war continued, the European Union has launched a fourth sanctions policy package. On April 8, 2022, the EU established the fifth sanctions package against Russia, including an embargo on Russian coal exports, which took effect after the end of the 120 day "transition period".

Q: Can you summarize the sanctions measures adopted by the EU after rounds of sanctions policies?

A: EU sanctions can be summarized as follows: 1) Individual sanctions: sanctions against 1091 individuals and 80 entities, including asset freezing and travel restrictions; 2) Industry sanctions: specific sanctions are imposed on certain industries, including finance, trade, energy, transportation, technology, and defense sectors; 3) Media sanctions: Stopped the broadcasting of two programs in Europe, Sputnik and Russia Today; 4) Diplomatic sanctions: The EU stopped the convening of the EU-Russia summit, and the G8 became the G7 summit. The EU stopped the negotiation of Russia's accession to the OECD and IEA. This year, the EU stopped the convenient visa arrangement for Russian diplomats and executives; 5) Embargoes against Crimea and Sevastopol; 6) Embargo measures against Donetsk and Lugansk regions; 7) Stop economic cooperation with Russia.

epilogue

For Chinese companies wishing to explore EU sanctions compliance, it is most important to explore the impact of specific industry sanctions on transactions and agreements. We look forward to further discussing with Chinese companies the impact of EU sanctions on specific projects and compliance work.