European Union countries have collectively endorsed the implementation of the 12th sanctions package against Russia, which encompasses a range of measures, notably the prohibition of Russian diamond imports. The decision, set to be effective from January 1, underscores the EU's ongoing commitment to address geopolitical concerns.

"The European Council welcomes the adoption of the twelfth package  of sanctions," stated the official announcement, highlighting the unity of EU nations in implementing these restrictive measures.

At the same summit the EU cleared the way to release €10bn of funds to Hungary that was blackmailing Brussels by threatening to block signing off on the formal start to Ukraine EU accession talks.

But almost immediately Hungarian Prime Minister Viktor Orban came up with a new threat to block a separate vote to approve a four-year €50bn aid package, adding the deal should be for less money and last only one year.

Orban is holding out for the release of a larger €30bn of EU funds that were frozen by the European Commission executive last year over fears the government in Budapest was undermining the independence of country’s judiciary and claims of rampant corruption in Orban’s administration.

The EC executive remains committed to supporting Ukraine and bringing it into the European club at the earliest opportunity. European Council President Charles Michel announced the landmark decision to start the accession process, stressing the bloc's commitment to engaging in accession negotiations with both Ukraine and Moldova, which will also start accession talks.

Sanctions enforcement

The new sanctions package is mainly focused on enforcing the existing sanctions more effectively. As bne IntelliNews has reported, the oil sanctions have failed and are largely a spent cannon, while the technology sanctions have also largely failed to cut Russia off from Western technology.

The key component of the sanctions involves a comprehensive ban on the import of Russian diamonds, with additional measures scheduled to unfold in a phased manner. Starting in March, a phased ban on diamond imports from third countries will be enforced, aligning with the stance of the G7 nations.

In addition to the diamond embargo, the sanctions package introduces measures to enhance the scrutiny of companies claiming adherence to the G7 Russian oil price cap sanctions. This move aims to ensure that companies dealing with certain products prevent their partners from reselling goods to Russia, particularly in the context of dual-use technologies.

Following the failure to make Western control of the international maritime insurance business to enforce the oil price cap sanctions, the West has been drawn into a game of whack-a-mole where it has been imposing  secondary sanctions on individual tankers and shipping companies without much effect. Russia’s many friendly countries in places such as Turkey and Central Asia have also been complicit in helping reroute Western technology to Russia in order to avoid sanctions.

One notable aspect of the sanctions is the effort to impede Russia from accessing dual-use technologies. Amongst the proposals is a tracking system that follows the goods from the producer to their final destination in order prevent the on-shipping ruses. Companies dealing with such products will be obligated to ensure that their partners sign contracts explicitly preventing the resale of these goods to Russia.

The sanctions package encountered unanimous agreement among EU nations on December 13, except for Austria, which sought additional time to conduct a final legal examination before providing its approval. Sources familiar with the matter indicated that Austria's delay was linked to an attempt to have Raiffeisen Bank International, the largest Western bank in Russia, removed from a Ukrainian blacklist.

Hungary had a similar complain, when its leading bank OTP was placed on Ukraine’s “international sponsors of war” list this summer for failing to close down its large Russian franchise. Since then, as part of Kyiv’s attempts to placate Budapest, the bank has been removed from the list and also language laws that prevent the Hungarian language being used in Ukrainian schools in the Carpathian region, where there is a large Hungarian population, have also been watered down.

Ukraine has put Raiffeisen on the same list, as despite repeated promises, the Austrian bank has also failed to sell its large Russian subsidiary.

Despite Austria's reservations, the sanctions move forward, signalling the EU's unwavering commitment to holding Russia accountable for its actions. Raiffeisen Bank International remains on Ukraine's blacklist, underlining the intricate diplomatic considerations surrounding the imposition of sanctions.

What didn’t make the list

The negotiations on what to include in the twelfth package of sanctions have been torturous and many measures didn’t make the final cut.

The most controversial point that disappeared from the draft version was the requirement to co-ordinate with regulators any money transfer from the EU in favour of Russian companies or resident individuals. All that remains from this proposal is a requirement to notify national EU regulators about any transfers of over €100,000.

The new package will also not include a ban on the sale of tankers to the Russian “shadow fleet” thanks to lobbying by Greece. As reported by bne IntelliNews in a sanctions leakage report last year, Greek tankers expanded their business shipping Russian oil and other commodities shortly after the war started, but more recently Greek shipping magnates have been making a fortune from selling their vintage tankers to Russia for huge profits, but Cyprus and Malta both also have significant shipping fleets working with Russia.

The new-old tankers have allowed Russia to expand its shadow fleet to the point where it can ship most of its oil to non-aligned countries entirely outside the sanctions regimes.

Another point that is missing from the final version is a clause banning re-export to Russia for all export contracts of EU companies and a tracking regime to enforce the rule. Moreover, the original version also suggested applying the rule retroactively, but that was considered a bridge too far by most European countries and dangerous to their international trade. What remains of the proposal are limits on the export of military and dual-use items.

There is also still no agreement on whether to include in the sanctions package a ban on the imports into the EU of sanctioned goods for personal use from Russia, such as cars. Earlier this year some customs officials began confiscating privately owned cars registered in Russia that were crossing the border into the EU.

 

US moves first

The EU has also voted to tap part of the $300bn of Central Bank of Russia (CBR) reserves that were held in the EU, mostly by Euroclear in Belgium, that were frozen at the very start of the war. While European property right laws make this money hard to seize without undermining the EU’s own rule of law, Brussels has proposed taking the profits earned from that money’s investments and redirecting them to Ukraine, estimated to be worth some €3bn a year.

Washington appears to have become impatient with the EU’s dithering over implementing the twelfth package of sanctions and has imposed its own new package without co-ordinating it with the new EU package.

The lists of persons subject to blocking sanctions included 23 people and over 200 companies. As explained in a detailed press release from the US Treasury, most of those on the list are participants in schemes for the supply of weapons produced in China, and electronics and other dual-use goods from third countries to Russia. A significant part of the companies are foreign: there are four Chinese, seven Turkish and eight Emirati companies on the lists. This is yet another clear confirmation that the sanctions confrontation has moved into the phase of a cat-and-mouse game between the sanctions departments and the authors of circumvention schemes.

The US list includes not only the perpetrators of Russian-Chinese and Turkish sanction-busting schemes unknown to the general public, but also targets two large Russian businessmen.

The first is number 43 on the Russian Forbes list, Zarakh Iliev and his Kyiv Ploshchad holding company, the largest owner of commercial real estate in Russia. Kyiv Ploshchad is home to the Europa Centre, the largest and most profitable mall in Europe. The second co-owner of Kyiv Ploshchad, God Nisanov, has been under American sanctions since June 2022 as an “oligarch associated with numerous Russian officials,”  reports The Bell.

The second businessman on the list is the owner of the Kismet Capital fund, former CEO of mobile phone giant MegaFon and media investor Ivan Tavrin. The State Department press releases did not explain why Tavrin had ended up on the sanctions list, but he actively participated in the purchase of assets of foreign companies leaving Russia after the war started. Forbes has named Tavrin the biggest buyer of foreign assets and he has also been named as a possible buyer of Russia’s internet giant Yandex along with a who’s who list of Russian oligarchs.