The EU-Russia Sanctions in the Context of Business with the United Arab Emirates

Last week I had a case with an extremely interesting international context. A company from Germany is active in the field of plant engineering of cooling systems. In order to position itself even more broadly on the market, the German company also offers the construction of plants in Russia. However, the company does not do this itself, but through a Russian business partner who is also active in plant construction and acts here as a subcontractor. In the wake of the Russia-Ukraine war, the Russian business partner has now registered an office in Dubai, UAE. Any business relations of the Russian business partner with the German company shall now be conducted through this office.

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The German company has now contacted me to do due diligence on the deal in light of the EU sanctions against Russia.

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The core of the analysis is a comprehensive assessment of EU Regulation 269/2014 (which deals, in particular, with the exclusion of ten Russian and four Belarusian banks – including the largest Russian bank Sberbank – from the SWIFT system and includes the so-called personal sanctions) and EU Regulation 833/2014 (which deals with import and export restrictions on various goods and technologies). Lastly, possible trade and investment restrictions imposed by the United Arab Emirates must also be considered.

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First of all, the SWIFT exclusion will probably not be problematic, after all the transaction is not done through one of the sanctioned banks. Indeed, the list of banks through which payments can no longer be processed to and from the EU (Art. 5h in conjunction with Annex XIV) is exhaustive and does not concern banks from the UAE.

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Also included in EU Regulation 269/2014 is the so-called persons sanctions list. If a natural or legal person is listed in the Annex to this regulation, the so-called sanctions list, its funds and economic resources are frozen. The listed persons may not benefit, directly or indirectly, from any funds or economic resources. The EU sanctions list alone includes over 1,000 natural persons and over 100 legal persons and entities. In a check of the specific list the name of the Russian business partner could not be found. A direct effect by the so-called sanctions list can thus be basically dismissed. In addition, however, it must also be examined whether the person sanctions list can still be applied here indirectly – namely via the so-called indirect provision prohibition. In this case, it is examined whether the sanctioned party may be indirectly affected, i.e. through sanctioned shareholders. Foreign companies must also be examined. In this specific case, however, this could also be ruled out. In the case of the contractual partner, the entity under Emirates law, the Russian natural person was obviously identifiable, but was not on the sanctions list.

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Further to be examined was EU Regulation 833/2014. The specific issue to be investigated was whether the service, namely the broker service here could be regulated by the regulation. The regulation specifically lists defense equipment, dual-use goods, goods for oil exploration and production, high-tech (technological and military strengthening/security technology), luxury goods, and still other items from various segments. And not only the goods themselves are affected, but also services related to these goods. It is also prohibited to provide tax, management consulting and auditing services to Russian companies. Specifically for plant engineering and construction and (confirmed upon request by the German control authorities) also for brokerage services covered by the regulation, there might indeed be an affectedness. Therefore, we have given the company the advice to go deeper into the examination on this point.

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The last thing to consider was whether there might be any restrictions with regard to UAE laws. In a personal conversation with a major German law firm operating in the UAE, my assumption was confirmed that there are no barriers here.

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