On 23 June 2023, the European Union (EU) adopted a new package of economic sanctions against Russia1. In addition to other measures, the 11th sanctions package has specifically widened prior financial restrictions applicable to investment funds and their managers, administrators and other service providers. The changes took effect on 7 August 2023.
Pursuant to the revised Article 5f, it will be prohibited to sell transferable securities2 denominated in any currency to any (i) Russian national, (ii) natural person residing in Russia or (iii) legal person, entity or body established in Russia (the Financial Restrictions). It is also prohibited to sell units of any denomination in any collective investment undertaking (i.e. a fund) giving exposure to such securities to those categories of investor. The Financial Restrictions do not apply to nationals of, or to natural persons having a temporary or permanent residence permit in, an EU Member State, a country member of the European Economic Area or Switzerland.
With respect to securities denominated in the official currency of an EU Member State, the Financial Restrictions have been in place for all such securities issued after 12 April 2022. For securities denominated in any other currency, the Financial Restrictions apply to securities issued from 7 August 2023 (or units in collective investment undertakings providing exposure to such securities).
The practical application of the Financial Restrictions for investment funds and their service providers will depend on the specific facts and circumstances for each such investment fund and relevant service provider. It should be noted, however, that the EU has extremely wide provisions preventing circumvention of the Financial Restrictions, and other economic sanctions against Russia. These provisions prohibit any conduct, the object or effect of which, is to circumvent EU sanctions prohibitions.
Footnotes
1. Council Regulation (EU) 2023/1214 of 23 June 2023 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destablising the situation in Ukraine.
2. Defined in Article 1(f) of Council Regulation (EU) 2014/833 of 31 July 2014 concerning restrictive measures in view of Russia's actions destablising the situation in Ukraine (as amended) to mean: "the following classes of securities, including in the form of crypto-assets, which are negotiable on the capital market, with the exception of instruments of payment: (i) shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares; (ii) bonds or other forms of securitised debt, including depositary receipts in respect of such securities; (iii) any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash settlement determined by reference to transferable securities."
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