The following article was commissioned by the EU SME Centre to shed light on the new legal requirement under Article 12g of EU Regulation 833/2014, or “No Russia Clause”, and its implications for European SMEs. The article was written by legal experts from Dewit Law Office. Please note that this article is provided for general information purposes only and that any views expressed in this publication do not necessarily reflect the views of the European Union.
Since Russia’s full-scale invasion of Ukraine in 2022, the European Union has responded with a series of significant sanctions designed to weaken the Russian economy and significantly reduce its ability to finance military operations. The EU sanctions can be broadly classified into three principal categories:
The implications of these sanctions go beyond Russia, extending to Belarus, Iran, and North Korea for their support of Russia.
As a result of the implementation of these unprecedented restrictive measures, Russia began employing various tactics to evade them (e.g., complex financial arrangements or falsifying the nature of the origin of goods exported). In light of these attempts, the European Union introduced anti-circumvention measures, including the “No Russia Clause” established in 2023.
Following the 12th package of sanctions, the EU introduced a new legal requirement under Article 12g of EU Regulation 833/2014. This article, referred to as the “No Russia Clause,” mandates EU exporters to prohibit the re-export of goods to Russia in their contracts with third countries. The ‘no Russia clause’ also aims to deter non-EU countries from redirecting sanctioned goods to Russia, exposing them to potential financial penalties. This provision applies solely to specific types of sensitive goods classified as common high priority and economically critical goods.
The list of prohibited items includes:
After the establishment of the “No Russia Clause,” the European Commission published FAQs concerning Article 12g (updated regularly) and Guidance for EU operators on improving due diligence to protect against sanctions circumvention. Due diligence, not explicitly mentioned in Article 12g, is advised to ensure compliance with sanctions (refer to the European Commission notice of April 1, 2022). This guidance emphasises that due diligence must be tailored to specific business circumstances, as there is no one-size-fits-all model, and it outlines general best practices.
Exporters and importers must incorporate provisions into their contracts to ensure compliance. These might include:
While specific wording for the “No Russia Clause” is not specified, templates are available in the FAQs. To ensure effectiveness, EU exporters should incorporate robust remedies—such as the ability to terminate contracts or impose financial penalties—in case of violations. It is essential to refrain from partnering with entities unwilling to incorporate the clause, and exporters must demonstrate compliance to competent authorities upon request. Moreover, it is mandatory to notify relevant authorities within member states in the event of violations.
The implementation of the “No Russia Clause” may lead to significant challenges in trade relationships with Chinese businesses. Heightened scrutiny on sensitive goods increases risks and could cause resistance from Chinese partners, who may cite national interests or enforcement limitations. Differing compliance perspectives between European and Chinese entities could create friction, strain negotiations, and complicate partnerships. Legal disputes may arise if Chinese partners perceive the clause as overreaching or clashing with local regulations. Furthermore, operational delays might occur due to additional compliance checks, particularly for newer or unfamiliar business relationships.
From a cost perspective, the clause will likely necessitate substantial investments in legal oversight, training, and technology. Businesses will need to develop tailored compliance programs, conduct enhanced due diligence, and ensure continuous partner monitoring, all of which increase operational costs. Training on compliance processes and robust internal systems to track trade flows and report violations will also be essential. Additionally, IT systems or external advisory services will help minimize compliance risks. These measures, while costly, are crucial for ensuring adherence to the clause without disrupting global trade operations.
A mid-sized European machinery manufacturer, “EuroMach,” relies heavily on Chinese suppliers for specialized components used in its production line. The company exports its products globally, including to regions with stringent EU-sanction compliance requirements. Following the introduction of the “No Russia Clause,” EuroMach encountered resistance from its Chinese suppliers, who were wary of how the clause might conflict with their own trade policies and partnerships.
The application of the “No Russia Clause” provides European businesses with critical lessons on navigating regulatory complexities in a globalized trade environment. The key takeaway is the importance of balancing compliance with operational efficiency and maintaining international partnerships.
Firstly, transparency and proactive communication with foreign suppliers are essential to understanding and addressing potential resistance. By establishing clear channels of dialogue and providing training or clarifications, companies can align their compliance goals with supplier expectations, reducing friction.
Secondly, flexibility in contracts is vital. Including phased deadlines, mutual audits, proportional penalties, and allowances for rectifications ensures fairness and adaptability while maintaining regulatory adherence. This approach fosters trust and collaboration, especially with partners from jurisdictions that may not fully align with EU regulations.
Diversifying supply chains is a strategic necessity. Over-reliance on a single region with differing regulatory environments can expose businesses to higher risks. Companies should consider alternative suppliers to ensure continuity in operations.
Lastly, technology is a cornerstone in managing compliance. Investing in advanced tools to streamline due diligence and monitor trade flows ensures efficiency and reduces delays caused by manual processes.
For European enterprises, these strategies underline the importance of proactive planning, adaptability, and innovation to successfully integrate the “No Russia Clause” into their operations while preserving competitive advantage in the global marketplace.
The case of Opera Laboratori Fiorentini SpA v Ministero della Cultura, Gallerie degli Uffizi, A.L.E.S. – Arte Lavoro e Servizi SpA (Case C-313/24) highlights the practical implications of EU sanctions and the “No Russia Clause” in public procurement. The case was referred to the European Court of Justice (ECJ) by the Consiglio di Stato (Italy) on 29 April 2024.
Must Article 5k(c) of Regulation (EU) 833/2014, concerning restrictive measures in view of Russia’s actions destabilizing Ukraine, be interpreted as applying to an Italian company with non-Russian shareholders but two board members who are Russian nationals, including the chairman and CEO, who also directs the parent company holding a 90% stake?
The case of Opera Laboratori Fiorentini SpA (Case C-313/24) highlights critical complexities in interpreting and applying the “No Russia Clause” under EU law. It underscores the vital importance of clear definitions of “ownership” and “control” in compliance assessments, particularly in situations where Russian-linked entities play key roles in corporate governance. This case raises significant questions about how board membership and control stake are evaluated within the context of EU sanctions, especially when national and EU-level regulatory frameworks need to align. Companies facing similar compliance challenges can gain valuable insights from this case, such as the necessity to evaluate corporate governance structures rigorously. Leveraging external legal expertise and proactively engaging with relevant authorities can be crucial to clarifying ambiguities and navigating the regulatory environment effectively. Additionally, businesses must balance operational continuity with strict adherence to sanctions to mitigate compliance risks. This case serves as a precedent for businesses operating under multi-jurisdictional sanctions frameworks.
To evaluate contracts and mitigate risks associated with the “No Russia Clause,” companies should:
Identify all clauses that could conflict with EU sanctions or compliance requirements.
Check for ambiguous terms that may lead to disputes.
Define specific compliance obligations, including adherence to the “No Russia Clause.”
Include detailed breach and remedy provisions, such as penalties or termination rights.
Consult legal counsel to ensure contracts align with EU and local regulations.
Seek advice on handling disputes that may arise from clause enforcement.
Use third-party verification services to confirm compliance.
Establish regular reporting requirements for partners.
Use technology to track and document compliance efforts.
Allow for contract amendments in response to evolving regulations.
Negotiate phased compliance timelines to accommodate partner concerns.
Share compliance expectations with partners early in negotiations.
Offer training or resources to help partners adapt to the requirements.
Assess the impact of potential partner withdrawal on operations.
Develop contingency plans for sourcing alternative suppliers.
To effectively navigate the complexities of the “No Russia Clause,” European companies must adopt advanced strategies that go beyond traditional compliance measures. Leveraging blockchain technology is a critical step for enhancing supply chain transparency and traceability, reducing the risk of non-compliance. Scenario planning, including simulations and contingency plans for supplier withdrawal or geopolitical disruptions, ensures businesses can adapt swiftly to unforeseen challenges.
Collaboration with industry groups presents an invaluable opportunity for staying informed on best practices and influencing regulatory clarity. By joining associations and advocating for clear EU guidance, companies can collectively build resilience against compliance challenges. Tailored training programs are equally important, offering role-specific modules with real-life case studies to equip employees with practical knowledge and application skills.
Ultimately, these strategies—embracing innovative technologies, anticipating disruption through scenario planning, fostering industry collaboration, and investing in workforce training—will empower European businesses to meet compliance requirements while safeguarding operational efficiency and global competitiveness.
The “No Russia Clause” requires companies to make substantial adjustments, including bearing increased costs and addressing potential cooperation challenges with Chinese partners. To mitigate risks and ensure compliance with EU sanctions, companies must prioritise robust due diligence, leverage legal guidance, and foster transparent communication with international stakeholders. These proactive measures will support compliance while maintaining essential trade relationships.
