EU sanctions update: Guidance published on the 'No Russia Clause'

• From 20 March 2024, EU aircraft lessors, airlines, and manufacturers must include a "No Russia Clause" in contracts with non-EU countries to prevent re-exportation to Russia
  
  
• The clause is not required for trade with certain partner countries, including the US, UK, Japan, South Korea and Canada
  
  
• Contracts must have strong remedies for breaches, such as termination and penalties
  
  

Of particular relevance from an aviation perspective, the 12th sanctions package has introduced an obligation on EU based aircraft lessors, airlines and manufacturers when selling, supplying, transferring or exporting aircraft, engines and parts to a third (i.e. non-EU) country, with the exception of certain partner countries (listed below), to contractually prohibit the re-exportation to Russia and re-exportation for use in Russia of such goods (the “No Russia Clause”)¹.

The purpose of the No Russia Clause is to combat the circumvention of EU export bans and, more specifically, the situation where goods exported to third countries are re-exported to Russia. In practical terms, "re-exportation" would include the sale, leasing and sub-leasing of aircraft, engines and parts.

In conjunction with the 13th sanctions package, the European Commission has published FAQ guidance on the No Russia Clause (the "Guidance").

Key Dates

• The No Russia Clause must be included in relevant contracts from 20 March 2024
• For contracts concluded pre 19 December 2023, the No Russia Clause obligation does not apply until 19 December 2024 or until the contract's expiry, whichever is earliest. For contracts ongoing as of 20 December 2024, the No Russia Clause must be included in such contracts
• The Guidance provides that contracts concluded after 19 December 2023 must contain the No Russia Clause as of 20 March 2024
• Whilst it is not clear whether contracts concluded after 19 December 2023 and which have expired or been implemented before 20 March 2024 must contain the No Russia Clause, best practice would suggest that the inclusion of the clause is advisable in this scenario

Partner countries

The No Russia Clause is not required for trade with certain partner countries which are currently the US, Japan, the United Kingdom, South Korea, Australia, Canada, New Zealand, Norway and Switzerland.

Breach

The No Russia Clause must also contain adequate remedies to be activated in case of its breach. These remedies should be reasonably strong and aim to deter non-EU operators from any breaches. The Guidance provides they can include, for instance, termination of the contract and the payment of a penalty.

The Guidance also provides that as soon as the EU party becomes aware of a breach, it must inform the competent authority of the Member State where they are resident or established.

Action points

Careful consideration of the No Russia Clause obligation will be required in the context of new and existing leasing arrangements and the sale of aircraft with counterparties located in relevant third countries. A review of relevant sale and leasing arrangements, with the above key dates in mind, should be carried out and amendments made to relevant contracts where necessary.

The obligation of an EU party to inform the competent authority of the relevant Member State where they are resident or established is noteworthy from a risk and sanctions compliance perspective also.

Company officers should be mindful of appropriately documenting steps taken to comply with these new obligations from a corporate governance perspective.

Please do not hesitate to contact us should you have any queries.

 

¹ Article 12(g), Council Regulation (EU) No 833/2014