The new amended Russia sanctions in the context of cross-border service activities

An ongoing topic of the last year, which still dominates my legal advice, are the Russia sanctions, which the EU has imposed / tightened after the Russian invasion of Ukraine. Legally, this regards EU Regulation 833/2014 (Link).


Specifically, the case involves a German construction investor who has been active in Russia for more than 10 years, and in the case specifically, the construction of a major residential complex in a Russian city. The legal basis for the construction project is a framework agreement between the Russian subsidiary of the German construction investor and a Russian partner company in the city of the construction project. Within the structure of this framework agreement, individual definable construction projects are and were repeatedly undertaken and paid for.


During the preparation of the consultation, the suspicion that our company could be specifically affected by the Russia sanctions based on EU Regulation 833/2014 arose quite quickly. We first took a closer look at the regulation and in particular at the associated sanctions apparatus.


The EU Regulation 833/2014 was first issued in 2014 in the wake of Russia’s annexation of Crimea. However, it did not stop there. The standard was tightened again and again and especially after the invasion in 2022. Currently, we are in the ninth so-called “sanctions package”. As far as the possible legal consequences are concerned, the German authorities can impose fines of up to half a million euros per offense under Sections 18,19 AWG – even in the case of a negligent violation. In the case of an intentional offense, penalties of up to 5 years imprisonment are possible.


The focus of the specific case was now the so-called “ban on services”, which was inserted in the ninth sanctions package in Article 5n of the Regulation. Specifically, it concerns the ban on the provision of services for advertising, market and opinion research as well as product testing and technical monitoring for Russia and an extension of the ban on new investments in the Russian energy sector and the mining sector. The only exceptions to this are activities in the extraction of stones and earths involving certain critical raw materials. There is also an exception for humanitarian purposes and the mandatory preservation of local infrastructure. In the overall context of the norm, however, it can be seen that this exception must be interpreted quite narrowly. There is also a “legacy contract exception” and an exception for services directed exclusively at Russian subsidiaries. In addition, there was also the sanction risk of so-called “indirect provision” under the sanction packages already issued before.


In the specific consultation, we came to the conclusion that the business is most probably affected by the aforementioned ban on services. With regard to the third party reference, a use of the “subsidiary exception” was not possible. Due to the time limit and the fact that only a general framework agreement was available, it was also not possible to invoke the “old contract regulation”.


In the end, we had to advise the company against the deal in view of the concrete risk of sanctions. There was also the point that it would also have been difficult for the company to involve external service providers in the project (banks, insurance companies, etc.) due to the compliance risks.


However, it was important for the company to know that all those factors basically only affect the German company. Actions of the (independent) Russian subsidiary are generally not subject to the sanctions regime – at least as far as it has no assets in Europe. However, due to the contractual relationship with Germany, there may be its own liability risks under Russian law (keyword: business with “unfriendly states”).

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