Aki Corsoni-Husain and Peter Tarn of Harney's take us through all the EU's anti-Russian sanctions to date.

Aki Corsoni-Husain and Peter Tarn of the global law firm of Harney's take us through the latest European Union sanctions against Russia. The new measures, which are causing particular suffering to the German economy, are relevant not only to EU states but also to offshore centres such as the British Virgin Islands and the Cayman Islands.

Concurrent with the conclusion of the North Atlantic Treaty Organisation Summit meeting in Wales on 5 September 2014, the President of the Council of the European Union, Herman Van Rompuy, announced that the EU would take a number of new restrictive measures on Russia in response to American accusations that it - and not the CIA and M15 - is destabilising eastern Ukraine.

Although there was some ambiguity as to the precise date for the onset of the new regime, they were eventually adopted on 8 September 2014, with the publication date in the EU's official journal (a kind of EU 'gazette of record') being 12 September 2014. They come into force one day after publication in respect of the capital market restrictions and for all other restrictions on the publication date itself.

In summary, the new measures add to the EU sanctions against Russia in the following ways.

• They go farther in restricting Russia's access to EU capital markets by banning the citizens and companies of EU countries from providing loans and credit to five major Russian state-owned banks, and placing further restrictions on trade in bonds, equity or similar financial instruments issued by those same banks, with restrictions extended to some major Russian defence and energy companies.

• They add 24 persons to the "designated persons list" of peoplesubject to travel bans and asset freezes, bringing the total to 119 people and 23 firms.

• They make it harder for EU persons and companies to co-operate with Russian industrialists involved in oil and gas exploration and production - principally in deep-water and arctic oil exploration.

• They add a new sectoral sanction to prohibit the export of "dual-use" goods and pieces of kit to certain 'designated' persons and entities and restrict the insurance and reinsurance of Russian items on the EU "Common Military List."

These new restrictive measures are in Council Regulation (EU) 959/2014, Council Regulation (EU) 960/2014 implementing Council Decision 2014/659/CFSP and Council Regulation (EU) 961/2014 implementing Council Decision 2014/658/CFSP.

As far as British and colonial legislation is concerned, the new and pre-existing EU rules have lately been augmented by The Export Control (Russia, Crimea and Sevastopol Sanctions) Order 2014 of 2 September 2014 and The Ukraine (European Union Financial Sanctions) (No. 3) (Amendment) Regulations 2014 of 17 September 2014, both of which are relevant to varying degrees to the British Virgin Islands and the Cayman Islands.

In Cyprus, the Securities and Exchange Commission has issued a revised Circular Cl144-2014-10 of 17 September 2014 instructing all Cyprus-regulated financial institutions to take note of, and comply with, these new sanctions.

Further restrictions on access to EU capital markets

Most importantly to the financial services sector, the new restrictions on access to EU capital markets increase and supplement the prior regime in two significant ways:

Firstly, by restricting the grant of new loans or the extension of credit arrangements with a maturity in excess of 30 days to (but not from) the following.

• Five major state-owned Russian banks, being: Sberbank, VTB, Gazprombank, Vnesheconombank (VEB) and Rosselkhozbank and their non-EU based affiliates and subsidiaries;

• Three major state-owned Russian gas producers, being: Rosneft, Transneft and Gazprom Neft and their non-EU based affiliates and subsidiaries; and

• Three major Russian defence firms, being: OPK Oboronprom, United Aircraft Corporation and Uralvagonzavod.

Secondly, the maturity period for the prohibition under the prior regime (covering transferable securities and money market instruments) has been reduced from 90 to 30 days. This means that it is now forbidden to deal in, or provide investment services in respect of, transferable securities or money market instruments with a maturity in excess of 30 days issued by Sberbank, VTB, Gazprombank, Vnesheconombank (VEB) and Rosselkhozbank and their non-EU based affiliates and subsidiaries. Additionally, this restriction has been extended to the gas firms of Rosneft, Transneft and Gazprom Neft and their non-EU based affiliates and subsidiaries; and the defence firms, OPK Oboronprom, United Aircraft Corporation and Uralvagonzavod.

Investment services – a new classification

In a helpful vein, the new amendments clarify the meaning of “transferable securities” for these purposes – as a consequence, negotiable securities giving rise to a cash settlement have been excluded from the sanctions. They also jettison the phrase “brokerage services” in preference to “investment services”, the latter term being more consistent with EU terminology as used in the Markets in Financial Instruments Directive (MiFID).

It should also be emphasised that although loans and credit provided to these institutions are now restricted, loans and credit from these institutions are not restricted in any way by these measures. Equally, deposit-taking services or other financial services that they might offer to high-net-worth EU customers remain unaffected. Lastly, loans or credit which have a specific and documented objective to provide financing for non-prohibited imports or exports or in respect of non-financial services are excluded from scope.

Nevertheless, complex corporate finance transactions often comprise of various related or interwoven transactions and can require counterparties to act in a diverse array of capacities. It will be very important for EU firms to ask themselves whether transactions involving such Russian credit institutions may be banned, especially in respect of collateral arrangements which may be structured as back-to-back loan arrangements, subordinated debt arrangements, intragroup lending or stock lending arrangements where these credit institutions are classed borrowers.

The amended regime came into force one day after the publication of Council Regulation (EU) 960/2014, i.e. from 13 September 2014 onwards.

EU capital market restrictions: implementation in Cyprus

Cyprus is a state of the European Union and consequently the EU council regulations referred to above apply directly to all persons and businesses based in the jurisdiction as well as to Cypriot-domiciled companies carrying on business anywhere in the world and to Cypriot citizens and those of all EU countries, wherever they are in the world. In addition national law in Cyprus provides for criminal liability in the event of a breach of such sanctions.

Further, the Cyprus Securities and Exchange Commission has instructed all Cyprus regulated financial institutions to take note of, and comply with, these new sanctions under Circular Cl144-2014-10 of 17 September 2014. It can therefore be expected that banks and other financial services providers in Cyprus will be on heightened watch for activities which may contravene these restrictions.

EU capital markets restrictions: implementation in the BVI and the Cayman Islands

The British Virgin Islands and Cayman Islands are overseas territories of the United Kingdom. Although the UK is a member state of the EU, its overseas territories are not. Because of this, express British legislation, known as Orders in Council, is required in order to enshrine the Council Regulations referred to above in the jurisdictions' laws. At present, such legislation has not arrived but will probably come in October. However, it should be recalled that the regulations above apply to the citizens of EU countries, wherever they live in the world (the overseas territories included).

Furthermore, many HNW residents of the British Virgin Islands and the Cayman Islands are British citizens and as such the regimes above apply to them as individuals. This position has been further strengthened through the application of The Ukraine (European Union Financial Sanctions) (No. 3) (Amendment) Regulations 2014, enshrining Council Regulation (EU) 833/2014 in British law, and The Ukraine (European Union Financial Sanctions) (No. 3) (Amendment) Regulations 2014, enshrining Council Regulation (EU) 960/2014 in British law.

Additions to the asset-freezing and travel ban list

Independently of the sectoral sanctions on access to EU capital markets mentioned above, the annexation of Crimea by Russia in March 2014 caused the EU to impose asset freezing and travel ban restrictions on various Russian and Crimean individuals and companies. This regime was implemented initially under Council Regulation (EU) 269/2014. A separate asset freezing and travel ban regime applies with respect to officials close to former President Yanukovych.

As relevant to financial services firms and their advisors these restrictions effectively prohibit all dealings or arrangements between EU persons and the funds or economic resources of such persons. Under Council Regulation (EU) 961/2014 various separatist rebels, Russian politicians and the Chairman of the Rostec Conglomerate have been 'designated.' The total number of designated persons now comprises 119 individuals and 23 entities.

This list is fully in force in Cyprus, the British Virgin Islands and the Cayman Islands. In the latter two jurisdictions this is ensured through the following UK Orders in Council: The Ukraine (Sanctions) (Overseas Territories) (No. 2) Order 2014 and The Ukraine (Sanctions) (Overseas Territories) (No. 3) Order 2014, both of 28 April 2014.

* Aki Corsoni-Husain is available on +357 25 820020 (Cyprus) or at aki.corsoni-husain@harneys.com and Peter Tarn is available on +44 207 842 6082 (London) or at peter.tarn@harneys.com