We refer to our previous sanctions updates which can be found here.
Please find below a recap of notable recent development in the area of sanctions and export control.

Judgement by Swedish court on EU’s asset freeze provision raises questions

The Administrative Court of Appeal was recently asked to decide whether the Swedish Customs should release goods to a company, Sibur International GmbH, on the basis that the company itself was subject to asset freeze pursuant to Article 2(2) in Council Regulation 269/2014. The company was not subject to sanctions but certain individuals that were (or had been) associated with its parent company, Sibur Holding PJSC, were.

The court held that the customs should not release the goods. When doing so it made two rather controversial findings.

• The court concluded that mere influence over a company is sufficient for legal or natural person to be deemed to exercise control over a company for the purpose of the asset freeze provision. This is contrary to the EU Council’s Best Practice document which provides that the influence must be dominant.
• The court concluded that there is no requirement under Article 2(2) that a listed entity must own or control a non-listed entity in order for the asset freeze provision to apply to the non-listed entity, as long as there is an association between the two. From the Commission’s FAQ, however, it is clear that ownership or control is required. Indeed, if a mere association were sufficient, the asset freeze provision would have an extremely wide application, which hardly could be the intention of the legislator (or in compliance with rule of law principles).
  
  

The court also made a presumption that the sanctioned individuals by way of their respective roles (Chairman and Deputy Chairman) exercised control over Sibur Holding PJSC. However, the court made no proper analysis - which generally is required - of the relevant facts whether “control” actually was at hand (but rather seemed to conflate it with the requirements for listing entities in Annex I to the Regulation). This is particularly interesting since an appellate court in Vienna reportedly has held that Sibur Holding PJSC is not controlled by sanctioned individuals. As a result, the Vienna court released assets belonging to Sibur International GmbH.

New guidance to prevent circumvention of Russia sanctions

In September 2023 the EU Commission issued guidelines to exporters of products which have an elevated risk of being re-exported to Russia in breach of sanctions. In September 2024, the G7 issued an Updated guidance for industry. In October 2024, Swedish authorities published a Swedish version of the G7 guidelines to support Swedish entities in their sanctions compliance.

Of particular importance for businesses are the express due diligence obligations in Articles 8i, 12g and 12gb in Council Regulation 833/2014. A summary of these requirements can be found in our previous Sanctions Update. Notably, EUs sanctions against Belarus contain the same type of provisions, see Articles 8g, 8ga and 8i in Council Regulation 765/2006.

As a general precaution, companies exporting products subject to sanctions should be observant of “red flags”. The supply chains created by sanctions evaders to re-route sanctioned products to Russia are becoming more and more complex. Unnecessarily complex supply chain as well as other unexplainable, odd features or requests from the purchaser are obvious red flags.

A new Swedish sanctions law

EU’s Directive for the harmonisation of criminal offences and penalties for sanctions violations is proposed to be implemented in Sweden by way of a new sanctions law. It is proposed that the new law should contain the following novel features compared to the present sanctions law:

• Criminal liability also for minor sanctions offences.
• A new crime, “repeated sanctions offence”, which will cover situations where a company has committed several and related breaches of the sanctions regimes.
• Increased penalties - today the maximum imprisonment is four years with no minimum; with the new law the maximum penalty will be six years with a minimum of two years.
• Criminalisation of inciting, abetting and attempted sanctions breaches. The latter will address the frustration of law enforcement agencies' frustration over the present inability to act when detecting attempted exports of sanctioned goods to Russia by way of e.g. wrongfully declared HS codes.
• Possibility to confiscate property from a person who commits offences under the law even when the person is not the owner of the property.
• Obligation for Swedish authorities to report suspected sanctions breaches to law enforcement authorities.

For more information about the new law, please see New law on international sanctions, The implementation of the EU Sanctions Directive (SOU 2024:46) (in Swedish).

Is the prohibition to provide legal advice to Russian entities valid? Yes.

Access to justice is a fundamental human right. Does it comprise a right to legal advice? In Case T-797/22, several Belgian bar associations, together with a number of lawyers, filed an action before the EU General Court to invalidate the prohibition on providing legal advice to Russian legal entities in Article 5n in Council Regulation 833/2014. The basis for the action was that the prohibition is contrary to the fundamental rights guaranteeing access to legal advice from a lawyer.

The action did not prevail. The General Court stated in its judgement that the contested prohibition does not affect the abovementioned rights since the prohibition does not apply to advice given in the context of judicial, administrative or arbitration proceedings, but only to legal advice unrelated to court proceedings. Finally, the Court noted that legal advice to natural persons is not covered by the prohibition.

A growing Russian shadow fleet

According to a recent report from the Kiyv School of Economics, Russia has spent USD 10 billion over the past two years to build up a “shadow fleet” of about 400 vessels to ship its oil, circumventing EU, US and UK sanctions. About 90 of these vessels are estimated to leave Russian ports in the Baltic Sea every month laden with Russian oil, transiting the Gulf of Finland, Danish Straits, and English Channel. 70% of Russia’s seaborne oil is shipped by vessels in this fleet. Reportedly, Russia’s revenues from oil sales amounts to about USD 15 billion per month.

According to the report, the EU, US and UK have sanctioned 74 vessels in the shadow fleet. The report suggests that this is an effective remedy – about two-thirds of the sanctioned vessels appear to be unable to operate commercially because of being sanctioned.
Notably, EU sanctions prohibit the sale or transfer of second-hand tankers to Russian entities, or for use in Russia pursuant to Article 3q in Council Regulation 833/2014.

However, the Financial Times recently published an article on how Russia is acquiring vessels to its shadow fleet with the assistance of western service providers such as lawyers, brokers and accountants. The article illustrates how parallel systems are created with assistance of so called “enablers”, who may act intentionally or unintentionally. The end result is however that sanctions are undermined or even circumvented.

One major concern is the environmental risks that the vessels in the shadow fleet pose, in particular when vessels lack proper liability insurers to handle e.g. oil spills and wreck removals. This raises the question of to what extent, as a matter of public international law, coastal States can interfere with shadow fleet vessels transiting its territorial waters. The Kiyv report suggests it would not improperly interfere with the right of passage for a coastal State to verify that transiting vessels e.g. carry necessary insurance certificates. The issue is however controversial.

 The area of sanctions is constantly changing. For businesses, sanctions and other trade restrictions impact all kinds of cross-border business activities. Vinge’s Trade Compliance team has extensive experience from providing useful and pragmatic assistance, helping clients to manage these risks and create business value in doing so.