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EU court upholds sanctions against Russia

Sanctions adopted in 2014 against Russian banks and energy companies by the European Council in response to Russian action in Ukraine have been upheld by EU's General Court.19 Sep 2018

The sanctions against Rosneft were already upheld by the Court of Justice of the EU (CJEU) in March 2017. The General Court case, which was brought by state-owned oil and gas exploration company Gazprom and a number of other entities, had been suspended until after the CJEU had handed down its judgment in the Rosneft case.

The EU first introduced sanctions against Russia's energy, defence and financial services sectors in July 2014, along with the US, in response to Russian intervention in Ukraine. Further sanctions were introduced in the following September. Measures particularly affecting the oil and gas industry include a ban on EU companies providing drilling, well testing and logging and completion services for deep water or arctic oil exploration and production and shale oil projects in Russia. The regulations also ban "financial assistance" for such projects.

Current EU sanctions against Russia are due to end in January 2019, however may be extended further. Regulatory law expert Stacy Keen of Pinsent Masons, the law firm behind Out-Law.com, said that the situation remained "fluid", particularly following the poisoning of Sergei and Yulia Skripal in Salisbury, England in March 2018.

"On 5 September 2018, UK prime minister Theresa May stated that she would 'push for new EU sanctions regimes against those responsible for cyber attacks and gross human rights violations - and for new listings under the existing regime against Russia'," she said.

"The following day a joint statement between the UK, US, France, Germany and Canada was published stating that those countries had full confidence in the UK's assessment that the Skripal poisoning was carried out by two officers from the 'Russian military intelligence service, also known as the GRU, and that this operation was almost certainly approved at a senior government level'. The US has already issued a further raft of measures against Russia following the chemical attack in Salisbury," she said.

Gazprom and the other challengers in this case had argued that the EU's sanctions programme lacked an appropriate legal basis, breached the EU legal principle of proportionality and infringed the 1997 EU-Russia Partnership agreement. They also claimed that the EU had failed to provide sufficient reasons for its decision.

In its judgment, the General Court said that it was not necessary for the European Council to provide specific reasons for targeting certain sectors of the economy, or for prohibiting the export of certain goods and services considered 'sensitive'. The Council "has a broad discretion when it determines the purpose of restrictive measures", which were justified on the grounds of maintaining peace and international security, it said.

"The choice of targeting undertakings or sectors that are reliant on cutting-edge technology or expertise mainly available within the European Union is consistent with the objective of ensuring the effectiveness of the restrictive measures at issue and ensuring that the effect of those measures is not offset by the importation, into Russia, of substitute products, technologies or services from third countries," the court said in its judgment.

"The fact that the non-conventional projects targeted by some of those measures may not generate immediate revenues for the Russian state does not call that conclusion into question since, by undermining investment and future revenues of entities active in the oil sector targeted by those measures, the Council could reasonably expect that this would help to put pressure on the Russian government and increase the costs of the Russian Federation's actions to undermine Ukraine's territorial integrity, sovereignty and independence," it said.

"[T]here is a reasonable relationship between the content of the contested acts and their objective. In so far as that objective is, inter alia, to increase the costs to be borne by the Russian Federation for its actions to undermine Ukraine's territorial integrity, sovereignty and independence, the approach of targeting a major player in the oil sector, which is moreover predominantly owned by the Russian state, is consistent with that objective and cannot, in any event, be considered to be manifestly inappropriate with respect to the objective pursued," the court said.