On 18 December 2023, the EU’s 12th package of sanctions was adopted as a countermeasure to Russia’s continued invasion of Ukraine. The package includes the introduction of Article 12g of Council Regulation (EU) 883/2014 with the aim of countering circumvention of the EU’s export ban and more specifically the situation where goods exported to third countries are re-exported to Russia. Inter alia, the new rules require that, as of 20 March 2024, contracts must include a clause in which the counterparty undertakes not to resell products to Russia. This requirement means that existing agreements must also be reviewed and possibly adapted.
The export ban
Article 12g obliges EU exporters to include a “no re-export to Russia clause” prohibiting re‑export to Russia and re-export for use in Russia. The ban applies to contracts involving the sale, supply, transfer, or export of products or technologies suitable for use in aviation or the space industry or products such as aviation fuel, fuel additives, weapons, and ammunition. Furthermore, the 12th package of sanctions contains a list of goods and technology (common high priority items) (Annex XL of the Regulation) that were not previously subject to sanctions.
Annex XL contains several prohibited dual-use goods and technology used in Russian military systems, inter alia, electronic integrated circuits and machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing, and products necessary for the manufacture of the electronic components. A product that integrates a minor component where the minor component is subject to the export ban because its HS code is listed in Annex XL is also subject to the export ban.
Exceptions and entry into force of the “no re-export to Russia clause”
Exports to EU’s partner countries listed in Annex VIII of the Regulation (USA, Japan, UK, South Korea, Australia, Canada, New Zealand, Norway, and Switzerland) are exempted from the obligation to include measures in commercial agreements.
As of 20 March 2024, the obligation to include a “no re-export to Russia clause” enters into force. For agreements concluded before 19 December 2023, the obligation to contractually prohibit re-exportation to Russia shall not apply until 20 December 2024 or until their last expiry date, whichever is earlier.
Requirements for legal action
Companies are obliged to take appropriate measures to ensure compliance with the obligations set out in Article 12g. The obligations complement previously published lists of critical goods where companies are already expected to take appropriate measures to prevent re-export to Russia.
To ensure compliance with the obligations set out in Article 12g, a “no re-export to Russia clause” should include appropriate legal measures to be taken in case of breach. The measures should be of significant strength and constructed to prevent non-EU operators from committing offenses. For example, measures could include a termination of the contract or liquidated damages. The clause should also be identified as an essential part of the contract.
Duty of notification and criminal liability
In addition to the above, the new rules also impose a duty of notification on exporters if the third-country counterpart breaches any of the contractual obligations imposed by the rules. As soon as an exporter becomes aware of the breach, the exporter must notify the competent authority of the Member State of its residence, or establishment.
The Swedish Government has not yet to this date (15 March 2024) announced which authority that will be responsible for receiving such notices, and, as a consequence, the Swedish Government is the competent authority until the Government delegates the task to another authority.
Violation of the sanctions rules can result in fines and imprisonment for board members or CEOs.
For questions regarding commercial agreements and sanction clauses, please contact Mikael Karlsson, Alexandra Johansson, or Josefine Ljungberg Palm.