EU sanctions on Russia's oligarchy

The European Union has imposed sanctions on Russia in response to its actions in Ukraine since 2014. The objective of these sanctions is to pressure the Russian government into respecting Ukraine's territorial integrity. The long-term goal is to create an economic siege crippling the country’s finance sector, ultimately weakening Russia’s ability to finance the war. 

Snapshot of EU sanctions on Russia  

Sanctions are intended to deny Russia access to essential software, spare parts, technology, supplies, and equipment, including semiconductors, with the aim of preventing the country from upgrading and maintaining its refineries, aircraft, and other critical infrastructure. The EU has introduced the following economic sanctions:

Main package 

• Targeted major state-owned or affiliated entities operating in strategic industries such as energy, natural resources, banks, aircraft, transportation, technology and other strategic industries.  
• Imposed an embargo on both Russian oil and gas, which is considered the biggest economic weapon available, as it limits Russia's ability to export its most valuable commodity. Nord Stream 2, for instance, a pipeline designed to transport Russian gas through the Baltic Sea into Germany, has been sanctioned.  

• Targeted up to 80% of the Russian banking market by banning key Russian banks from the SWIFT network, effectively denying them access to international markets.  
• Imposed individual sanctions on Vladimir Putin, his family, allies and other pro-Kremlin insiders. 

Export controls 

• The 9th EU sanctions adopted on December 16, 2022, extended the list of restricted items, the sale, supply, transfer, or export of which might contribute to Russia's military and technological enhancement or the development of its defense and security sector.

Air transport and travel restrictions 

• In addition to forbidding the sale of replacement parts to Russian airlines, many EU nations have also restricted them from using their airspace, while an EU-wide ban is being discussed.  
• Travel restrictions have been imposed on Putin's allies and those involved in the annexation of Crimea. 

Sanctions and oligarchy 

 The power sanctions hold over oligarchy and corruption is equally consequential – after all, you don’t allegedly induce an FBI official to remove your name from a sanctions list if it has no effect on your life. More sanctions are sure to follow as new oligarchs come to prominence.  

Political instability and corruption can create opportunities for oligarchs to rise to power. In some cases, oligarchs may use their wealth and influence to manipulate the political system and gain prominence in new contexts, such as control over government policies or decision-making.   

For instance, Yevgeny Prigozhin, a Putin confidant who heads the controversial Wagner private military company, has gained significant power in recent months, taking on responsibilities that are normally reserved for senior government officials or the president himself. Despite having no official legal function in the government or the military, Prigozhin has been able to operate with relative impunity, even though the Wagner company is technically illegal, as private military companies are outlawed in Russia. Nevertheless, Prigozhin has been subject to Western sanctions in relation to the Ukraine crisis. 

Recently, the EU has started to adopt a more targeted approach to these sanctions, focusing on specific individuals and companies deemed to be involved in undermining EU interests. This targeted approach is aimed at minimizing the unintended consequences of broad-based sanctions while still exerting pressure on those responsible for harmful activities. 

Moreover, the EU has recognized the importance of cooperation in implementing effective sanctions regimes. To this end, the EU has been ramping up its efforts to coordinate its sanctions policies with other countries and organizations, such as the US, Canada, and NATO. This increased cooperation aims to ensure that the impact of sanctions is more significant and that they are more difficult for targeted entities to circumvent. 

Nevertheless, criminals will often try to circumvent sanctions screening by using various tactics, such as setting up shell companies, using third-party intermediaries or aliases, and exploiting loopholes in the sanction’s regime.  

To prevent these types of circumvention, financial institutions and law enforcement agencies use robust tools and technologies to enhance their screening capabilities. These tools use advanced data analytics and machine learning algorithms to identify suspicious patterns and behaviors, and provide real-time alerts to flag potential violations, patterns or anomalies in financial transactions. 

The EU's growing roster of sanctions against Russia 

Additional designations of nearly 200 individuals and entities were adopted by the EU in December 2022, which targets specific individuals and entities.  

This encompasses Russian officials and entities involved in the annexation of Crimea and the conflict in eastern Ukraine, as well as those responsible for human rights abuses, cyber-attacks, and disinformation campaigns. The EU has also imposed asset freezes and travel bans, effectively isolating them from the international financial system and making it difficult for them to travel or conduct business abroad.  

In January 2023, the EU announced that it will extend its current sanctions regime to July 2023. One month later, nearly a dozen EU member states expressed support for a proposal that would intensify the EU's sanctions against Russia. The new measures will be directed towards individuals or corporations, both inside and outside of the bloc, who are found to be aiding Russia in circumventing the already established sanctions.  

Considering previous sanctions packages, member states are positioned to escalate their enforcement efforts and will aim to compel non-compliant nations, as well as the responsible companies, to abide by the sanctions and trade restrictions. The proposal itself outlines several key actions, including expanding the basis for sanctioning firms and individuals in third countries, as well as improving the coordination and reporting mechanisms to ensure sanctions are applied uniformly across member states. It aims to close any loopholes in the existing restrictions that could potentially be exploited.  

Current Ukraine-Russia panorama 

In recent years, the Russian government has taken a number of steps to crack down on political dissent and limit freedom of expression. This has led to criticism from the EU, which has expressed concern about the erosion of democratic values in Russia.  

With the current tensions persisting over the invasion of the Ukraine, the issue of the downing of Malaysia Airlines Flight MH17 in 2014 has remained a subject of contention.  

The Netherlands filed a case with the ECHR in 2020, alleging that the shooting down of Malaysia Airlines Flight MH17 by Russia violated the European Convention on Human Rights. In January 2023, ECHR ruled that the cases brought by Ukraine and the Netherlands against Russia over alleged human rights violations in the separatist regions of Ukraine and the shooting down of MH17 are admissible, allowing them to proceed to the next stage where evidence will be presented.  

While Russia's decision to cease recognition of the ECHR in 2022 may make this ruling appear inconsequential to President Putin and his government, it could nonetheless serve as the catalyst for further sanctions by other nations, who may choose to use human rights violations as the basis for such measures.  

What’s next for Russia and the EU? 

Sanctions have become the preferred punitive method of both foreign and national security policies and are being employed in novel ways. As tensions between the EU and Russia persist, it is probable that sanctions will continue to be a fundamental weapon in the EU's arsenal. Ergo, the likelihood of additional sanctions being imposed is increasing. 

Overall, the evolving nature of EU sanctions on Russia underscores the importance of keeping abreast of the latest developments, as new measures are being issued nearly every day and without warning.  

For businesses, this means remaining vigilant in terms of compliance and conducting due diligence on third parties to avoid engaging with sanctioned actors or in prohibited activities. Implementing robust sanctions monitoring mechanisms and effective screening on third-parties allows businesses to navigate social, regulatory and reputational risks. 

Uncover how your business could better protect itself from the threat of sanctions in our comprehensive guide to sanctions screening below.