Newsletter of the main news 07.10/13.10

1️⃣ Status of frozen Russian assets

Dutch banks have unfrozen about €560 million of Russian assets. The unfreezing was made possible by granting exemptions for outstanding payments and removing sanctioned asset owners. In particular, €230 million of one of the Russian companies is no longer subject to sanctions due to a special legal structure

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A significant part of the unfrozen funds, €430 million, belongs to two Russian companies that have a common owner. According to Dutch Foreign Minister Kaspar Veldkam, mechanisms have been put in place to ensure that the ultimate owner does not influence the companies to avoid funds indirectly falling under the control of sanctioned persons. However, the Dutch Ministry of Economic Affairs is currently checking whether these mechanisms comply with EU sanctions rules.

Hungary has blocked a $50 billion loan to Ukraine, which was to be repaid from future proceeds of frozen Russian assets. The country is waiting for the US presidential election to be held on 5 November. Hungarian Finance Minister Mihaly Varga said that the country considers it appropriate to resolve the issue of extending sanctions against Russia only after the course of the new US administration becomes clear.

Due to the blocking of this decision, the European Union has not yet made a final decision on the duration of sanctions against Russia. While the European Commission has stressed that the US may join the initiative after the elections, it has also stressed the importance of completing legislative work on this issue by the end of October, which requires the approval of the European Parliament.

However, the EU Council approved a macro-financial assistance package for Ukraine worth up to €35bn, which will be used to address the country's immediate needs, which have increased due to Russia's continued aggression. It is important to note that this exceptional loan will be repaid from the proceeds of $300bn of frozen Russian assets. This financial assistance is part of a broader lending cooperation that includes support for Ukraine in repaying loans of up to €45 billion from the EU and G7 partners.

2️⃣Sanctions policy and its weaknesses

The EU Council has decided to extend the new sanctions regime against Russia every 12 months. However, it applies only to the latest package of sanctions aimed at combating hybrid threats. The restrictions will remain in place until 9 October 2025, with the possibility of review at least once a year or at the request of any EU member state or the European Commission in the event of a change in circumstances. This mechanism allows to maintain the asset freeze and sanctions against Russian individuals and legal entities with regular updates, which is important in the current situation.

The UK has imposed sanctions on Russian oligarchs Andrey Melnichenko and Grigory Berezkin, freezing their assets, restricting access to trust services and imposing travel and transport sanctions. Melnichenko, a major beneficiary of such giants as international fertiliser producer Eurochem and coal and energy company SUEK, has already been under EU sanctions since 2022 over Russia's aggression against Ukraine. Berezkin, known for his close ties to Vladimir Putin, is the owner of the USN group of companies, which operates in the oil, electricity, media and venture capital sectors. Both oligarchs are also subject to sanctions imposed by Canada, Australia, Switzerland and Ukraine.

In addition, the UK government is investigating 52 companies for possible circumvention of oil sanctions against Russia, but so far none of them has been fined. The investigation concerns violations of the restriction that prohibits the transportation of Russian oil priced above $60 per barrel. Despite the completion of 15 investigations, another 37 cases remain pending. The anti-corruption organisation Global Witness expressed surprise at the lack of fines and called for decisive action against sanctions violators.

Despite the sanctions, German industrial goods continue to flow into Russia, including equipment used for military production. According to Russian customs data provided to SWR, by the end of 2023, more than 300 shipments from German manufacturers had been imported, including CNC machines that can be used to produce ammunition and aircraft parts. Around two-thirds of the equipment came through Turkey, where local intermediaries often have direct links to Russia. Manufacturers, such as Walter Maschinenbau and Fein GmbH, claim that the violations occurred without their knowledge through the actions of intermediaries.

German prosecutors are also investigating a car dealer who sold luxury cars worth more than €4 million to Russia in violation of sanctions. The independent car dealer from Königswinter near Bonn concealed the real destinations of the exports, claiming that the cars were going to third countries. In late September, investigators conducted searches, collected evidence and seized two luxury cars. The investigation is currently underway on suspicion of violating the Foreign Trade Law.

A court in France acquitted the commander of the Russian ship Baltic Leader, who was accused of violating European sanctions imposed after Russia invaded Ukraine in 2022. The commander faced a €16 million fine and 10 months suspended sentence, but the court ruled that the doubt over the ownership of the ship played in the defendant's favour. The case centred on whether the vessel belonged to the sanctioned Russian company PSB Leasing or to another company, TransMorFlot, which claimed ownership of the vessel a few days before the war broke out.

3️⃣ Sanctions policy of Ukraine

The Verkhovna Rada of Ukraine adopted a resolution calling on the European Union to synchronise sanctions with restrictive measures already in place in Ukraine. In particular, the resolution calls for sanctions against the so-called ‘DPR’ and ‘LPR’ companies engaged in telecommunications and transport, as well as calls for the extension of sanctions to other strategic sectors of the Russian economy, including energy, metallurgy and agriculture. The MPs also call on the EU to support Ukraine by strengthening military-technical cooperation and increasing assistance in modern weapons.

Other demands include introducing additional measures to combat sanctions circumvention, including creating a register of individuals and companies involved in sanctions violations and expanding export controls. The Verkhovna Rada also asked the EU to consider imposing sanctions on Russia's closest allies, such as Belarus, Iran and North Korea, and their political elites.