G7, EU Announce Fresh Sanctions Against Russia

April 7, 2022
Russia is facing a new round of sanctions from the EU, UK and the United States, including import and export bans and full transaction bans on key Russian banks.

Russia is facing a new round of sanctions from the EU, UK and the United States, including import and export bans and full transaction bans on key Russian banks.

In response to atrocities carried out against Ukrainian civilians in the city of Bucha, the EU and G7 countries have announced a new set of coordinated measures aimed to increase pressure and tighten the sanctions against Russia.

“The four packages of sanctions have hit hard and limited the Kremlin's political and economic options. We are seeing tangible results,” Ursula von der Leyen, president of the European Commission, said.

“But clearly, in view of events, we need to increase our pressure further. Today, we are proposing to take our sanctions a step further. We will make them broader and sharper, so that they cut even deeper in the Russian economy,” von der Leyen said.

EU sanctions

The EU proposal for the fifth round of EU sanctions includes six key elements.

First, the EU proposes to impose an import ban on coal from Russia, which is the first time that the EU directly sanctions the import of fossil fuels from Russia.

Although the commission said this import is a significant revenue source for Russia, one that generates €4bn a year, Georg Zachmann, senior fellow at European think tank Bruegel, said this is mainly a symbolic move.

Europe produces a significant amount of coal and lignite for itself within the bloc, and even if Russian imports stop, the EU could buy coal from other countries such as Columbia, South Africa, Australia or Indonesia.

The proposal also includes a full transaction ban on four key Russian banks, representing a 23 percent share of the Russian banking sector, including VTB, Russia’s second-largest bank.

Other measures include a ban on Russian and Russian-operated vessels from accessing EU ports and a ban on Russian and Belarusian road transport operators, as well as introducing export bans in areas, worth €10bn, such as advanced semiconductors, machinery and transport equipment.

The commission will also impose new import bans on various products, worth €5.5bn, from wood to cement, from seafood to liquor, in the hope of closing any loopholes between Russia and Belarus. The new package will also prohibit Russian companies from participating in public procurement in the EU and all financial support, EU or national, to Russian public bodies.

Von der Leyen called the sanctions “hard” and “smart”, but she added they are also working on additional measures. These may include sanctions on oil imports, and reflecting on some of the ideas of the member states, such as taxes or specific payment channels such as an escrow account.

Although these sanctions can make funding the war more painful for Russia, it is important to note that they alone will not stop the war, R. Andrew Gómez, managing consultant at Lipis Advisors, told VIXIO.

By widening the net, from targeted sanctions to wider export-import bans, the sanctions will reduce the areas where Russian banks and businesses can operate, which eventually means they will get smaller revenues to conduct business, he explained.

The fact that the sanctions on Russia are getting increasingly far-reaching, however, will likely have an impact on businesses as well.

“Crucially for operators, many of the sanctions are not simple designations of individual or entity names, which are relatively easy to pick up through name screening. The sanctions now include various export/import bans and other prohibitions of activities rather than names,” said Charles Cassar, founder of Shoulder Compliance.

“Operators, therefore, need to look at their Russia exposures through a different lens — an entity or individual that is not sanctioned may still fall foul of sanctioned activities,” Cassar warned.

However, “the goal of the sanctions is not to end the war but to make it more painful for Russia”, Gómez said, adding that “we will not really know the full extent of the impact of these sanctions for years”.

Meanwhile, Ruta Bajarunaite, expert at the Centre of AML Excellence, pointed out that there is still room for the EU to tighten its grip on Russia.

Citing a March CEPS Policy Insight, Bajarunaite said additional sanctions could be imposed in every category, including personal and corporate sanctions, the banking sector, SWIFT restrictions, export controls and energy trade.

She also stressed that for the sanctions to be effective, it is important to put a strict emphasis on enforcement as well to “push jurisdictions like China and other offshore centres to support the implementation of the sanctions regime on Putin’s Russia”.

UK sanctions

In coordination with the G7 and the EU, the UK foreign secretary also announced a “significant ratcheting up” of UK sanctions on Russia.

Commenting on the package, Liz Truss said: “Our latest wave of measures will bring an end to the UK’s imports of Russian energy and sanction yet more individuals and businesses, decimating Putin’s war machine.”

The new sanctions include asset freezes against Sberbank and Credit Bank of Moscow, and an outright ban on all new outward investments in Russia, which in 2020 amounted to more than £11bn.

The UK is also planning to end all dependency on Russian coal and oil by the end of 2022, and end imports of gas “as soon as possible”.

“From next week, the export of key oil refining equipment and catalysts will also be banned, degrading Russia’s ability to produce and export oil — targeting not only the industry’s finances but its capabilities as a whole,” the announcement said.

The UK sanctions also target further eight oligarchs and include a ban on imports of iron and steel products, a key source of revenue for Russia.

“Russia’s military ambitions are also being thwarted by new restrictions on its ability to acquire the UK’s world-renowned quantum and advanced material technologies,” the release added.

US sanctions

On the other side of the Atlantic, US President Joe Biden also announced full blocking sanctions on two Russian banks, namely Alfa Bank, Russia’s top private bank, and Sberbank, which together with Gazprombank facilitates energy payments from Europe.

However, US officials told the media that energy transactions will be exempted from the sanctions on Sberbank.

Commenting on the new sanctions, Sberbank said in a statement that those “will not have a significant impact on the bank's operations and will not affect service to Russians as the system has already adapted to the previous restrictions".

“There have been 8,257 sanctions imposed against Russia. Previously we feared that, but now — working as usual,” Reuters cited Alfa Bank as saying.

The US also prohibited any new investments in Russia, imposed full blocking sanctions on critical major Russian state-owned enterprises and designated family members of President Vladimir Putin and foreign minister Sergey Lavrov.

According to the White House, “these measures are designed to reinforce each other to generate intensifying impact over time”.

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