According to the Council for Foreign Relations over 50,000 people have died in Ukraine since 2014 and over 2 million people have fled the country since the 24th of February 2022.
The European Shippers Council believes it is fundamental to keep non-sanctioned goods accessible to those who have not chosen the conflict, but are, unfortunately, victims of it.
EU sanctions on Russia are very large and cover public and private institutions, media, identified persons, their assets, several classes of goods and to some extent, travel. As a result, Russia is now the most sanctioned country in the world surpassing Iran, Syria or North Korea.
A frequent question posed to EU shippers in an EU jurisdiction is whether it is, at least in theory, possible to ship non-sanctioned goods (outside humanitarian operations) through Russia by railway, recurring to Russian Railways or other operators.
The Russian rail market for freight:
Russian Railways retains a monopoly in the provision of rail infrastructure. However, third-party rail operators have the right to access this infrastructure on a non-discriminatory basis following legislative change. As a result, Russian Railways share of overall freight turnover volume plummeted from 78% in 2003 to 13% in 2016.
Nature of the sanction:
Article 5 (4) (a) of Council Regulation (EU) 2022/328 states that it is “prohibited to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments (…) by:
- a legal person (…) (with) which Russia has (…) substantial economic relationships, as listed in Annex XIII; or
- a legal person (…) whose proprietary rights are directly or indirectly owned (…) by an entity listed in Annex XIII; or
- a legal person, entity or body acting on behalf or at the discretion of an entity referred to in point (a) or (b) of this paragraph.
Annex XIII: Russian Railways.”
Thus Russian Railways is subject to a financial sanction covering (the purchase of, sell of, investment services for, assistance in the issuance of, dealing with) securities and money-market instruments defined as excluding instruments of payment (Art. 4 – MIFID Regulation).
Impact of the sanctions on the operators:
The financial sanction described covers Russian Railways and all operators whose proprietary rights are directly/indirectly owned by Russian Railways or operators acting on behalf or at the discretion of Russian Railways or other organisations named in the sanctions regime. All other operators not specifically named in the sanctions regime as such and whose activities are not restricted by the sanctions regime are not, in principle, impacted by sanctions.
Furthermore this financial sanction does not appear to cover activities not involving transferable securities and money-market instruments, the latter which do not include instruments of payment, normally used by shippers for economic operations. As such, a shipper would not, in principle, be refrained from using Russian Railways services or operators connected to it, insofar as the economic relation did not contravene the limits set by this sanction (i.e.: use of transferable securities or money-market instruments, defined in Article 4 of the MIFID Regulation) or other sanctions.
Economic operators are well advised to pay particular attention to the nature of their economic relations (in general) and, in this case, the instruments used for payment (i.e.: is it an instrument used simply for payment or one serving other purposes, such as financing?) and thus, enact economic operations, as these (instruments) will be paramount in determining the lawfulness of the operation. (paragraphs 35 and 36 of Commission Notice C(2015) 6477 read in conjunction with Article 5 (4) (a) of Council Regulation (EU) 2022/328).
Shippers must ascertain themselves that current economic operations and instruments do not seek to circumvent directly or indirectly, in object or effect, the nature of sanctions (Article 12 of Regulation 833/2014). Shippers should do this by seeking specialised advice as, in case of litigation, the sanction instruments will, most likely, be strictly interpreted by the Court.
Trading with Russia is becoming harder as a large number of Russian banks have now been sanctioned and selected banks have been disconnected from SWIFT. This reality adds to the (already) numerous reputational issues arising with trading with Russian (private or public) organisations. In the end, shippers should pose the following question: is it risk-worthy to trade with or maintain economic relations with, otherwise, sanctioned organisations?
Further information on restrictive measures here and here.
Written 14th of March, 2022, Transport Intelligence
Mr. Godfried Smit – Secretary General of the European Shippers Council:
With a career spanning more than 35 years, Mr. Godfried Smit has extensive knowledge and experience in the transport, logistics and customs fields.
Mr. Smit currently holds functions as Secretary-General of the European Shippers Council, the European umbrella organization of national shippers´ associations, retailers and wholesalers and as Policy Director at Evofenedex, the ESC´s member organisation in the Netherlands.
Previously, Mr. Smit was Lecturer in Customs and International Taxation Law at Leiden University and a senior member of staff at the Tax and Customs Administration of The Netherlands.
The European Shippers Council (ESC) is a non-profit European organisation created in 1963 with the mission to represent cargo owners – manufacturers, retailers, wholesalers (import and export, including intercontinental flows) – collectively referred to as ‘shippers’. The ESC represents freight transport interests of around 100.000 companies throughout Europe.
The global ESC network consists of national shippers’ associations, European commodity trade association (e.g. chemical, steel, paper), and corporate members amongst which are well-known multinational brands in various sectors.
The European Shippers Council (ESC) carries out its main activities in Brussels. Here is a quick look at what we do:
– Reach out to European policy-makers, including the European Commission, the European Parliament and the Council of Ministers, on matters of interest to shippers: international trade, climate change and emissions, technology, industrial relations, transport, energy, etc.;
– Analysis of European and international initiatives of relevance to the European Shippers Council (ESC);
– Organisation of specialised events and discussion forums, open to members and invited organisations, on matters of particular interest to members;
– Participation in large scale European projects of interest to shippers on diverse areas such as digitalisation, emissions calculation, capacity building, financing, etc.;
– Dissemination events on key issues to shippers;
– Participation in international fora, namely via the World Shippers Council.