‘No Russia clause’ – Western sanctions and the need for action by companies

The ‘No Russia clause’  

In order to curb exports to Russia, the EU member states notably assented to introduce a requirement for exporters to agree a re-export clause for supplies to third countries (Article 12g of EU Regulation 833/2014). Under this clause, the contractual partners based in third countries have to give a commitment not to export the purchased goods and technology onwards to Russia. The background to this is that, in the first nine months of 2023, Russia imported €450m worth of technology that had been produced in the EU. At the same time, EU officials had found that following the Russian invasion of Ukraine the export of these goods from the EU to third countries had increased substantially.

The legal requirement to implement this clause has resulted in a considerable need for action by companies in terms of reviewing their own situation in this respect and formulating an appropriate clause that is adapted to the individual needs of the respective contracts.

The newly added regulation provides that when selling, supplying, transferring or exporting certain goods and technologies to third countries exporters have to contractually prohibit the re-exportation of those goods to Russia or their use in Russia. Besides such a clause, the respective contract would also have to include provisions that would apply in the event of a contractual breach.

Affected goods

The controlled goods are itemised on the lists of goods that can be found in the Annexes to the Regulation. The clause affects 

• the goods and technology referred to in Article 12g that are listed in Annexes XI (especially, goods used in the aerospace industry), XX (especially jet fuels and fuel additives) and XXXV (firearms) as well as
• common high priority items as listed in Annex XL to Article 12g (including circuits, semiconductor components and certain electrical devices).

Temporal scope of application and exceptions

The requirement to use such a clause does not apply to contracts concluded prior to 19.12.2023 that have to be fulfilled by 20.12.2024 at the latest or that expire before then (one-year transitional period). Consequently, there is notably a requirement to implement the clause subsequently if the contract does not fall under this transitional period. Sales or supplies to partner countries listed in Annex VII (currently the USA, Japan, the United Kingdom, South Korea, Australia, New Zealand, Norway and Switzerland) to the Regulation are excluded from the scope of application.

Ensuring compliance and the notification requirements in the event of breaches

Besides the requirement to use this clause, exporters also have to ensure that it is complied with. According to the guidance published by the EU, contracts also have to include reasonably severe consequences for a breach with the aim of deterring companies based in third countries from any breaches. For example, appropriate contractual penalties or special rights of cancellation could be considered. If a contractual partner learns about breaches, then this partner would have to report these to the competent authority. In Germany, the competent authority is the Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, BAFA).

Guidance and the EU’s model clause

The guidance provided by the EU states that companies are themselves free to formulate their own appropriate wording for the ‘No Russia clause’, as long as the wording fulfils the requirements of Article 12g of the Regulation. Nevertheless, a model clause in English has been made available that, in the opinion of the EU Commission, meets the requirements.

Please note: If the model clause is used for contracts that would be subject to German law there would however be special requirements notably with respect to the use of general terms and conditions. For example, if the determination of the level of the contractual penalty is not clear in the model clause, then this would conflict with German law pertaining to general terms and conditions. 

Recommendation: On account of such specificities and in view of the possible sanctions, we would recommend that before using the model clause it should be adapted to the individual requirements of the respective contracts.

Penalties for a failure to enforce

If a ‘No Russia clause’ is not included in the contract with a customer then under German civil law the customer would be under no corresponding obligation and there would thus also be no penalty should the customer supply to Russia insofar as there is no embargo under the jurisdiction applicable to the customer. The EU-based exporter however would, in this case, be in breach of its obligation under the EU Regulation and this could result in administrative and criminal penalties for the company as well as for the persons acting on its behalf. If the non-EU foreign customer refuses to accept the clause, then it may not be supplied.

Conclusion: In view of the scope of the affected goods, companies need to check whether and if so, which contracts will be affected by the requirement to implement a ‘no Russia clause’. In view of the risk of penalties in the event of a breach and the fact that such a clause will depend on the requirements of the respective contracts, careful and case-specific formulation of the appropriate wording would be advisable.