EU Court of Justice Confirms Validity of Economic Sanctions against Russia
April 27, 2017
On 28 March 2017, the European Court of Justice (“ECJ”) rendered its long-awaited judgment on the Rosneft challenge of the validity of the EU and UK sanctions against Russia.  While the Court confirms the validity of the contested provisions, it also sheds light on lingering legal ambiguities with regard to the ban on the provision of financial services related to the supply of equipment for the Russian oil sector.
 
Adopted on 31 July 2014 in response to Russia’s destabilizing actions in Ukraine, Council Regulation 833/2014 (“the Regulation”) subjects the provision of financing or financial services related to the supply of certain equipment for the Russian oil sector to prior authorization.  According to the Regulation, restricted financial services include grants, loans and export credit insurance.  In addition, the Regulation prohibits transactions involving investment services, transferable securities and money-market instruments issued by certain Russian state controlled entities active in the crude oil or petroleum sector, including Rosneft, Transneft and Gazprom Neft.  While the Regulation has EU-wide application and requires no national transposition, Member States are responsible to carry out its enforcement (e.g. through penalties) in their national legal orders.   
 
On 20 November 2014, Rosneft brought an application for judicial review before the High Court of Justice (England & Wales), claiming the invalidity of both the above EU restrictions and the UK implementing measures on the basis of alleged violations of the EU-Russia Partnership Agreement, the EU constituting treaties and principles of equality and proportionality.  Incompetent to ascertain the validity of EU law, the High Court referred Rosneft’s challenge, which entailed a series of questions pertaining to the interpretation of the EU law, to the ECJ for a preliminary ruling.  Among others, the High Court raised questions with regard to the interpretation of ‘financial assistance’, as it was unclear whether this covered the processing of a payment by a bank or other financial institution.
 
The ECJ sees no reason to invalidate neither the EU Regulation nor the national measures adopted thereunder.  Among others, the Court states that the EU-Russia Partnership Agreement is without prejudice to the adoption of measures necessary for the protection of security interests, particularly in time of war or serious international tension.  The Court is also of the view that the economic sanctions adopted against Russia were sufficiently motivated by the EU legislator, and, in light of the international tensions surrounding Russia’s controversial activities, rules that interference with Rosneft’s freedom to conduct business and its right to property cannot be considered disproportionate.  Contrary to views expressed by the European Commission and the UK government, the Court rules that “financial assistance” does not include the processing of a payment by a bank or other financial institution.  Despite the Court’s rejection of the large majority of Rosneft’s claim, the latter may be of little comfort for Russia’s largest oil producer.