As part of its ongoing efforts to strengthen sanctions against Russia and prevent the circumvention of export bans, the EU has introduced legal provisions, such as the 'no re-export to Russia' clause, effective as of 20 March 2024.
Background
Among the measures adopted by the EU in its 12th package of Russia sanctions in December 2023, it is now a requirement for exporters and suppliers to third countries of certain goods restricted under the EU's Russia sanctions to insert what has been termed a "no re-export to Russia" clause into both new and existing agreements. These measures, aimed at key sectors of the Russian economy and political elites, have posed challenges in implementation due to the complexity of global trade routes and therefore, this measure highlights the determination of the EU to further extend the effective impact of EU restrictions and to reduce sanctions circumvention.
Scope of the 'No Re-Export to Russia' Clause
Mandated under Article 12g of Regulation (EU) No 833/2014, this clause applies to contracts concluded on or after 19 December 2023. It aims to prevent sanctioned goods from reaching Russia through indirect channels. However, goods destined for 'partner' countries with similar export bans are exempt from this requirement.
Exempt Destinations and Adequate Remedies
Goods destined for 'partner' countries, such as the US, UK, Japan, South Korea, Australia, Canada, New Zealand, Norway and Switzerland, are exempt from the clause, as these countries have similar export bans to the EU. To ensure effectiveness, the clause must contain adequate remedies for breaches, such as contract termination and penalty payments. Additionally, exporters must promptly inform national authorities of any breaches.
Covered Contracts and Goods
Article 12g requires the inclusion of the clause in contracts involving the sale, supply, transfer, or export of goods to third countries. This requirement applies to contracts concluded after 19 December 2023, with a transition period until 19 December 2024 for existing contracts. Sensitive goods subject to the clause include items related to aviation, jet fuel, firearms, and additionally the items listed in relevant Annexes to the Regulation, such as Common High Priority items.
Relevance for Cyprus companies
Cyprus companies must conduct thorough checks to determine the applicability of the clause to their goods and contracts. Existing contracts should be reviewed, and negotiations initiated for necessary amendments. For new contracts, compliance with Article 12g should be ensured through the use of corresponding templates. Cyprus businesses must remain vigilant due to Russia's efforts to procure sanctioned goods through alternative supply routes.
In addition to legal obligations, companies should implement robust due diligence frameworks, to mitigate sanctions-related risks effectively. This includes ongoing monitoring of trade flows, staff training, and adherence to sanctions legislation. Compliance with Article 12g does not negate the need for continuous due diligence, as identified red flags may trigger further obligations to prevent circumvention.
Conclusion
Compliance with the 'no re-export to Russia' clause demands meticulous attention to contractual obligations, goods classifications, and due diligence practices. Proactive measures are essential to navigate evolving regulatory landscapes and mitigate potential liabilities effectively. Harris Kyriakides offers tailored guidance in achieving compliance with these complex legal requirements.
For more information, feel free to contact any member of our AML Compliance and Sanctions team.
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