Already in June this year, the European Union introduced an obligation for EU economic operators to take further measures to avoid the circumvention of export controls and sanctions against Russia and Belarus in connection with so-called Common High Priority Items (“CHP items”). This shall help to improve the effectiveness of EU sanctions and to hold EU economic operators more accountable.
The corresponding provisions in Art. 12gb of the Russia Embargo Regulation (Regulation (EU) 833/2014) and Art. 8ga of the Belarus Embargo Regulation (Regulation (EC) 765/2006) each provided for a transitional period, which is now ending:
The mandatory measures to avoid circumvention of the embargoes must be implemented from 26 December 2024 (Russia) and from 2 January 2025 (Belarus).
CHP items in the focus of export controls and sanctions
The obligation to take further measures to avoid circumvention applies exclusively to CHP items. CHP items are of great importance for the development, production or use of Russian military systems and have already been found on the battlefield in Ukraine.
The CHP list, jointly developed by the EU, Japan, the UK and the USA, can be found in the respective EU embargo regulations as Annex XL (REGULATION (EU) 833/2014) and Annex XXX (REGULATION (EC) 756/2006). It currently contains 50 positions, to be identified by 6-digit HS codes, from different areas:
- Integrated circuits,
- electronic items for wireless communication,
- electronic components, navigation devices and digital cameras,
- mechanical components, such as bearings, and optical components,
- equipment for the production and quality testing of electrical components and circuits,
- CNC machine tools for the production of complex, high-precision metal parts.
Mandatory measures to prevent the circumvention of export controls and sanctions
Art. 12gb of Regulation (EU) No. 833/2014 and Art. 8ga of Regulation (EC) 765/2006 stipulate measures to avoid circumvention of the EU embargoes on Russia and Belarus, which must now be implemented from 26 December 2024 (Russia) and 2 January 2025 (Belarus).
The measures to avoid circumvention are mandatory for EU economic operators if they themselves or their third-country subsidiaries sell, supply, transfer or export CHP items to third countries (except for the partner countries Australia, Iceland, Japan, Canada, Liechtenstein, New Zealand, Norway, Switzerland, South Korea, UK, USA). These requirements are closely aligned with the due diligence requirements in traditional export control.
On the one hand, they include the documented identification and assessment of the risks of exporting CHP items to or for use in Russia or Belarus (risk analysis). On the other hand, they require the use of appropriate strategies, controls and procedures to mitigate and effectively manage these risks (risk minimization).
Guidance on improving export control and sanctions compliance
Valuable assistance for EU economic operators concerned in implementing the mandatory export control and sanctions compliance measures is provided by the so-called “G7 Industry Guidance” of 24 September 2024 (“Preventing Russian Export Control and Sanctions Evasion: Updated Guidance for Industry“). In addition to an explanation of the CHP items, it contains a list of indicators for “red flags”, a presentation of “best practices” and various links to further guidance at international and national level.
German economic operators can also refer to two guidance papers issued by the German Ministry of Economy (BMWK) on 1 October 2024:
- “Guidance paper on helping businesses deal with trade-related sanctions“
- “Sanctions Evasion – Note: War-Related Goods Are Increasingly Coming to Russia from Foreign Subsidiaries of EU Companies“
In addition to information on sanctions-related due diligence obligations and the relevance of actions of foreign subsidiaries under sanctions law, these contain an exemplary list of customer-, product- and transaction-related as well as geographical risk indicators. However, the BMWK’s guidance papers are not to be understood as concrete guidance on the mandatory measures to avoid circumvention pursuant to Art. 12gb of Regulation (EU) No. 833/2014 and Art. 8ga of Regulation (EC) 765/2006 (Belarus) but are intended to provide non-binding and non-conclusive support to economic operators in the design and implementation of their company-specific export control and sanctions compliance.
Currently there is no criminal or fine provision in Germany for violations of Article 12gb of Regulation (EU) No 833/2014 or Article 8ga of Regulation (EC) No 765/2006 (Belarus) due to failure to implement the measures provided for therein. However, their mandatory requirements now specify the standard of care to be applied and thus the resulting obligations of EU economic operators to act in connection with CHP items. At least the accusation of negligence will hardly be refuted in the future in the case of alleged violations of the restrictions of EU sanctions if the legally prescribed standard of diligence to avoid circumvention has not been met and the mandatory measures have not been taken.
No-Russia-Clause and No-Belarus-Clause: Amendment to the BMWK-FAQS and No-Russia-Clause for IP Rights Will Soon Be Mandatory
The obligation to include a No-Russia clause (Art. 12g of Regulation (EU) No. 833/2014), which had already been introduced in December 2023, was supplemented in June 2024 by the obligation to include a No-Belarus clause (Art. 8g of Regulation (EC) 765/2006).
According to this provision, EU economic operators must contractually prohibit their business partners in third countries from re-exporting to or for use in Russia or Belarus, in particular in the case of transactions with CHP items involved (as well as also in transactions with goods listed in certain other annexes to the respective EU Embargo Regulation involved) and must secure this with appropriate remedial measures. Exceptions exist for business with business partners in the partner countries Australia, Iceland, Japan, Canada, Liechtenstein, New Zealand, Norway, Switzerland, South Korea, UK, USA. In addition, for certain old contracts, for public contracts with authorities or international organizations (but then there is an obligation to inform), as well as for transactions with CNC machine tools.
On 29 November 2024, for the first time in many months, the BMWK supplemented the FAQs on the EU-Russia embargo (“Questions and answers on Russia sanctions“) and added questions 65 et seq. on the No-Russia Clause and the No-Belarus Clause. In the context of avoiding circumvention, the statement of the BMWK on question 69 should be emphasized in particular:
- Question: “Is the inclusion of the No-Russia clause in my contract already sufficient to fulfill my due diligence obligations under sanctions law?”
- Answer: “No, compliance under sanctions law must be evaluated on a company- and product-specific basis in accordance with all sanction obligations and included in the corresponding processes (see BMWK guidance paper on corporate due diligence). In addition, increased due diligence obligations (see Art. 12gb of Regulation (EU) No. 833/2014 are provided for particularly critical goods, which are listed in Annex XL of Regulation (EU) No. 833/2014 and are often referred to as Common High Priority Goods.”
Even though only the Russia Embargo Regulation is mentioned, this statement also refers to the Belarus Embargo Regulation, which has the same content in the relevant areas.
Art. 12ga of the Russia Embargo Regulation (Regulation (EU) No. 833/2014), which was newly introduced in June 2024, also obliges EU economic operators, inter alia in the case of the transfer of intellectual property rights or trade secrets, to contractually prohibit their partners from third countries from using such rights and information in connection with CHP items for export to Russia or for use in Russia from 26 December 2024 and to allow the partners to pass on this prohibition.To date, in Germany there is no criminal or fine provision for violating the obligation to include a No-Russia clause or a No-Belarus clause. However, Art. 12g and, in the future, Art. 12ga of Regulation (EU) No. 833/2014 and Art. 8g of Regulation (EC) 765/2006 have the effect that, in the case of re-exports by third-country contracting parties to or for use in Russia or Belarus that would be prohibited from leaving the EU under the respective EU Embargo Regulation, this can be prosecuted as a criminal offence or administrative offence on account of the German parent company’s own violation of an indirect prohibition with the argument that violation of the duty under Art. 12g or Art. 12ga of Regulation (EU) No. 833/2014 or Art. 8g of Regulation (EC) 765/2006 was significantly facilitated because the legally prescribed minimum measure for the fulfilment of the duty of diligence has not been taken
Conclusion: Act now to avoid being vulnerable and to avoid consequences
Transitional periods in legal provisions in the area of export control and sanctions are treacherous: There is always the risk of losing sight of the time of “arming”. This shows the relevance of forward-looking export control and sanctions compliance to minimize legal and economic risks.
Increasing the effectiveness of EU sanctions through the consistent implementation of the regulations to avoid circumvention is the declared top priority of political decision-makers in the EU and many member states. Accordingly, the competent national and EU authorities in the areas of customs, export controls and sanctions will set up a close-knit control net to detect and, if necessary, prosecute non-compliance with these requirements by obligated economic operators. If it were to be established in individual cases for CHP items that they had reached Russia or Belarus because – at least partly – the export control and sanction-related due diligence obligations under sanctions law were not complied with and implemented by an EU economic operator, there is likely to be a high level of prosecution and sanctioning zeal on the part of the investigating authorities.
All companies with CHP items in their own portfolio or in the portfolio of their subsidiaries should now urgently analyze the risk of involvement in the circumvention of the EU sanctions against Russia and Belarus both for themselves and for their third-country subsidiaries, take the necessary avoidance measures on the basis of the result of this analysis and anchor them in the internal export control system. The risk analysis must be carried out with a view to the relevant risk indicators (customer, product, transaction-related), and the CHP items per se trigger increased due diligence obligations. The avoidance measures to minimize risk must be defined, documented, implemented and tracked.
Vischer Voss be happy to help you with risk analysis and, if necessary, risk minimization by implementing the necessary measures to ensure your company-specific export control and sanctions compliance and thus avoid unpleasant investigations and, if necessary, consequences as best as possible.
