Industry EU Russian sanctions updater: shipping

London - The latest rounds of EU sanctions could have a significant impacton the shipping sector, making it imperative that businesses are aware of the scope of these sanctions. Businesses and senior management should be aware of the steps that can be taken to mitigate the risk of being in breach of the sanctions

di Lista M. Cannon*, Philip Roche**, Chris Zavos***, Marianne McMahon**** and Emma Burrage*****

London - The latest rounds of EU sanctions could have a significant impact on the shipping sector, making it imperative that businesses are aware of the scope of these sanctions. In particular, businesses and senior management should be aware of the steps that can be taken to mitigate the risk of being in breach of the sanctions and the possible consequences of violating those sanctions relevant to the shipping industry. In response to recent developments in eastern Ukraine, the EU expanded its restrictive measures against Russia by implementing a third phase of sanctions, which targets specific sectors of the Russian economy, as well as named individuals and entities. Russia’s capital markets, energy and defence sectors were targeted by the sanctions which came into force on 1 August 2014 (Council Regulation (EU) No 833/2014).

The EU has published further sanctions against Russia which came into force on 12 September 2014 (Council Regulation (EU) No 960/2014 amending Council Regulation (EU) No 833/2014). Read more in our general client briefing on the EU, US and Canadian sanctions against Russia.


The Regulation applies:
- To nationals of EU Member States (wherever located).
- To any legal person, entity or body, established in an EU Member State or otherwise constituted under the law of a Member State (including the subsidiaries of non-EU persons, entities or bodies).
- To any legal person, entity or body in respect of any business done in whole or in part within the EU (including the branches of non-EU persons, entities or bodies).
- Within the territory of the EU (including airspace) and on board any aircraft or vessel under the jurisdiction of a Member State.


While the sanctions do not specifically target the shipping industry, they will have knock-on repercussions for EU shipping and export businesses (including the EU subsidiaries of businesses based outside of the EU) that do business with Russia and/or Ukraine as the sanctions prohibit the sale, supply, transfer or export of certain oil and gas equipment and technology and dual-use items. The EU sanctions have focused on the Russian energy industry by prohibiting the sale, supply, transfer or export into Russia of certain oil and gas related equipment and technologies for use in future Russian oil projects (Council Regulation (EU) No 833/2014, Article 3). In addition, the sanctions target Russia’s military capabilities by prohibiting the sale, supply, transfer or export of dual-use items to Russia which are intended for military use or for a military end-user (not simply the entity to whom goods are provided or a contractual counterparty).

Exporters are permitted to apply for authorisation to export these goods. The sanctions state clearly that the competent authorities shall not grant such authorisation if they have reasonable grounds to believe that the dual-use items might be intended for a military end-user or that the goods might have a military end-use. In respect of oil and gas technology and equipment, authorisation will not be given where the authorities have reasonable grounds to determine that it is intended for deep water oil exploration and production, Arctic oil exploration and production, or shale oil projects in Russia. Items which are classed as dual-use goods and technology are listed in Annex I to Council Regulation (EC) No 428/2009.

The types of dual-use goods listed (and hence controlled) are wide ranging, encompassing goods in sectors such as avionics, marine, telecoms and security. Useful guidance, Russian sanctions FAQ’s and Notices to Exporters, has been prepared by the Department for Business Innovations & Skills in relation to the impact of these sanctions on exporters.


The Ukrainian Parliament has attempted to close the ports of Kerch, Theodosia, Sevastopol, Yalta and Yevpatoria. Any shipowner intending to enter into a new charterparty, which does not include a clause excluding calls in Crimea, should seek advice from Ukrainian counsel on potential consequences if they are asked to call at one of these ports. Legal advice should also be taken before a vessel calls at Crimean ports under an existing contract and in these circumstances we would recommend that the shipowner and the charterer seek to reach a mutually acceptable agreement which avoids the ship calling at these ports while the political environment remains unstable.

From an insurance perspective, we are not aware of underwriters in the London market having added these ports to the list of War Risks excluded areas. However, this position could change at short notice and shipowners should keep their hull underwriters fully informed if a vessel is due to call at or enter into any trading limits within Crimea. In light of the uncertainty of this developing situation, shipowners should avoid entering into new contracts which do not contain a trading-limits clause excluding Crimea calls. In addition, Council Regulation (EU) No 810/2014 of 25 July has added 15 individuals and 9 entities to the asset freeze list.

The nine entities are stated to have had their ownership transferred contrary to Ukrainian law, and the list includes the Crimean ports of Sevastopol and Kerch. The effect of these ports being added to the asset freeze list is that, broadly speaking, no company may carry out any trade or transaction which would result in a financial benefit accruing to the port. The obvious sanctions risk relates to the payment of port fees and charges, but in practice we think that it would be difficult for a ship to call at one of these ports without passing on some kind of economic benefit, indirect or otherwise, to the port.

Russia has started to respond to EU sanctions by introducing retaliatory sanctions, which may ultimately affect shipping entities. Importantly, it has been reported that Russia might introduce protective measures in a number of industrial sectors, including the automobile industry, shipbuilding and aircraft production.


In light of the latest round of EU sanctions, there are certain measures that entities doing business in the shipping and export sectors should take to ensure they do not fall foul of the provisions. Firstly, steps must be taken to determine whether the equipment, technology or product being transported is one which may be covered by the sanctions. This will inevitably be a difficult task for shippers who may have limited knowledge of the precise nature of the items being shipped.

The sanctions do provide for a limited defence if the EU entity did not know, and had no reasonable cause to suspect, that its actions would infringe the sanctions. In the context of a company in the shipping sector transporting cargo goods in breach of sanctions, a failure to carry out sufficient due diligence, a failure to have in place adequate systems and controls to detect such a breach, or the wilful turning of a blind eye to breaches of sanctions is unlikely to meet the required standard for the limited defence. While the shipper is unlikely in all cases to be in a position to ascertain through its own investigations whether the goods in question are unlawful (for example, shippers are under no obligation to physically check containers to ascertain the exact contents), shippers will need to ensure that notices are issued to freight forwarders and other contractual counterparties reminding them not to put the shipper in breach of EU sanctions by shipping unlawful goods.

This is particularly important if the freight forwarder itself is not subject to EU or other sanctions in place against Russia and therefore will not have carried out due diligence to check whether the items in question would breach sanctions. Freight forwarders should be requested to provide written confirmations to shippers that they have performed adequate due diligence regarding the items which are being shipped and that the necessary licences have been obtained from the competent authorities such that they do not put the shipper in breach of the sanctions.

More than ever, thorough due diligence of counterparties is key. A review of company structures, shareholdings and management, including of the end user (which often will not be the contracting party) should be carried out before entering into any new agreements. In particular shipowners should exercise caution when entering into charterparties with Russian entities and checks should be carried out to ensure that the counterparty is not subject to an asset freeze. Importantly, where the shipper or exporter does know the precise nature of the goods in question, an inquiry into the intended use of any potentially restricted equipment or technology is vital to ensure that EU entities do not breach the sanctions.

Companies should be alert to issues that are raised through due diligence which then will require further investigation, for instance, a contracting entity which is situated in a jurisdiction which is not subject to EU sanctions and which refuses to sign up to sanctions provisions in the contract, may warrant further investigation. Companies should include appropriate sanction wording in contractual documentation and agree how risk is to be allocated between the parties and the contractual consequences of a sanctions breach. It is also important to consider what procedures the parties need to have in place during the contractual term to monitor any potential risk.

Consideration should be given to all the jurisdictions that may be involved in the transaction; this may relate to the assets involved or to the parties to the transaction. Such other jurisdictions may have their own, possibly different, sanctions regimes that could have an impact on the transaction. EU shipping entities may also be affected by the asset freeze and visa bans which have been placed on specified individuals and entities (Council Regulation (EU) No 269/2014 as amended) and Council Regulation (EU) No 959/2014 which adds targeted sanctions for separatist groups from the Donbas region and by the capital market restrictions which have also been introduced with this latest round of sanctions.

Finally, it is important that shipping and export entities be aware of any changes to the relevant sanction regimes and have appropriate procedures and policies in place to avoid a sanctions breach which may in turn result in contractual breaches.


Although the EU Regulations are directly applicable in all Member States without further national legislation being required, the EU leaves it to each Member State to legislate what the penalties are for breach of the sanctions. In the UK, the penalties for breaching the above trade sanctions contained in the Regulations include a fine and/or a jail term - The Export Control (Russia, Crimea and Sevastopol Sanctions) Order 2014 (the 2014 Order), which came into force on 26 September 2014). Sentences range from 6 months to 10 years depending on the offence.

Note that the 2014 Order has not yet criminalised breaches of the latest trade sanctions under Regulation 960/2014. Amendments to the 2014 Order in this regard are currently being considered by the Export Control Organisation.


EU sanctions are drafted in wide and sometimes imprecise terms with little associated guidance. This means that there is often uncertainty as to how the European Courts will interpret the restrictions set out in the EU sanctions legislation. The use of a widely drawn clause which provides for the owner’s reasonable judgment as to the legality or otherwise of the visit/trade may mitigate the difficulties surrounding this issue, as will carrying out effective due diligence on the counterparty. This briefing is an analysis of EU sanctions. In the context of all sanctions issues, the United States’ framework is extremely significant and should be considered at the earliest opportunity.

We work closely with our colleagues in Washington, DC who have significant experience of advising global corporates and financial institutions in connection with the impact of US economic and trade sanctions. Read more in our more detailed briefing on US sanctions.

Norton Rose Fulbright LLP -

* Global Co-head of Regulation and Investigations; Partner
** Partner
*** Partner
**** Partner
***** Associate