INTRODUCTION
The EU adopted its 14th sanctions package on 24 June 2024, and Council Regulation (EU) 2024/1745 has introduced several new restrictive measures affecting shipping as well as the energy sector (most notably by targeting the supply and transportation of Russian liquified natural gas for the first time). This article will focus on the inclusion of the novel Article 3s and Annex XLII to the text of Regulation 833/2014 (the "Regulation"), which seek to indirectly curb non-compliant vessels that would otherwise fall outside the jurisdictional scope of the Regulation.
Up until now, one perceived limitation of EU sanctions within the shipping context has been their effectiveness in matters concerning non-EU flagged and non-EU operated vessels, particularly considering the rigid jurisdictional scope of the Regulation, as set forth in Article 13.
At first glance, Article 3s may serve as an innovative measure to dissuade such third-country vessels from risking breaches of EU sanctions and to ostracize and penalize violating vessels. The EU Commission has implemented a general ban on the entry of listed vessels into Member States' territorial waters and, moreover, has introduced restrictions to ensure any person falling within scope, directly or indirectly, does not provide several key maritime services to those ships, wherever they may be.
THE NEW ARTICLE 3S
Paragraph 1 of Article 3s provides that with respect to those vessels identified in Annex XLII, it shall be prohibited to, directly or indirectly, "(a) provide access to ports, anchorage zones, and locks in the territory of the Union, and for such a vessel to access them; (b) import into the Union, purchase or transfer such a vessel; (c) sell, supply, including charter, or export such a vessel; (d) operate or crew such a vessel; (e) provide flag registration for the benefit of such a vessel; (f) provide financing and financial assistance, including insurance, as well as brokering services, including ship brokering; (g) provide technical assistance and other services including bunkering, ship supply services, crew change services, cargo loading and discharge services, fendering, and tug services to the benefit of such a vessel; and (h) engage in ship-to-ship transfers or any other transfer of cargo with, or procure any services from, such a vessel."
The above list of prohibitions appears to cover a wide cross-section of vital maritime services and supplies which a vessel may require as part of its ordinary navigational or operational activities. No EU person, natural or legal, may provide any of the above-cited services or supplies to vessels 'blacklisted' under Annex XLII.
Furthermore, a reading of Article 3s together with the provisions of Article 13 suggests that any EU person, natural or legal, who owns an entity incorporated in a third-country company would also be subject to these prohibitions. Accordingly, any maritime service provider with an EU nexus (which would bring it directly or indirectly within the scope of the Regulation) would be prohibited from providing these services to any listed vessels. Consequently, the repercussions of being listed in Annex XLII could be quite far-reaching and likely transcend the territorial boundaries of the EU.
Paragraph 2 of Article 3s lists the grounds upon which a vessel could end up on the list found in Annex XLII. The said paragraph reads as follows:
"2. Annex XLII shall include vessels that:
(a) transport goods and technology used in the defense and security sector, from or to Russia, for use in Russia or for Russia's warfare in Ukraine;
(b) transport crude oil or petroleum products, as listed in Annex XXV, that originate in Russia or are exported from Russia while practicing irregular and high-risk shipping practices as set out in the International Maritime Organization General Assembly resolution A.1192(33);
(c) are operated in such a way as to contribute or support actions or policies for the exploitation, development or expansion of the energy sector in Russia, including energy infrastructure;
(d) are operated in such a way as to contribute or support actions or policies which undermine or threaten the economic subsistence or food security of Ukraine, such as the transport of stolen Ukrainian grain, or the preservation of the cultural heritage of Ukraine, such as the transport of stolen Ukrainian cultural goods;
(e) transport goods originating in or exported from the Union listed in Annexes XI, XX, and XXIII of this Regulation, or goods originating in Russia or exported from Russia and imported into the Union listed in Annex XXI of this Regulation and thereby enabling Russia's actions destabilizing the situation in Ukraine;
(f) are operated in such a way as to facilitate or engage in the violation or circumvention or otherwise significantly frustrate the provisions of this Regulation or of Regulations (EU) No 269/2014, (EU) No 692/2014, or (EU) 2022/263; or
(g) are owned, chartered or operated by natural or legal persons, entities, or bodies listed in Annex I to Regulation (EU) No 269/2014, are otherwise used in the name of, on behalf of, in relation with, or for the benefit of such persons."
The rather encompassing list does not appear limited to any specific type of vessel or any particular category of restrictive measures. Indeed, the EU Commission has targeted several tanker vessels but also Ro-Ro vessels and general cargo ships in the initial list of 27 vessels in Annex XLII. It is also significant to note that point (b) of paragraph 2 of Article 3s references and chastises those illegal practices identified by the IMO in Resolution A.1192(33) relating to the so-called "Dark Fleet" or "Shadow Fleet" such as switching off their AIS or LRIT transmissions or concealing the ship's actual identity.
The Annex itself sets out (i) the name of the sanctioned vessels, and perhaps more importantly, (ii) the IMO numbers (as some of the ships on the initial list have already been renamed), (iii) the grounds for inclusion in the list (namely the relevant ground under Article 3s paragraph 2), and (iv) the date of the inclusion.
PERMISSIBLE EXCEPTIONS
The prohibitions in paragraph 1 would not, however, apply when a vessel listed in the said Annex is in need of "assistance seeking a place of refuge, of an emergency port call for reasons of maritime safety, or for saving life at sea, or for humanitarian purposes, or for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment, or as a response to natural disasters, or for the recognition or enforcement of a judgment or an arbitration award rendered in a Member State," as expressly stated in paragraph 3 of Article 3s.
Whilst most of the permissible exceptions can be found in other existing provisions and articles of the Regulation, it is curious to note the addition of a new exemption: "for the recognition or enforcement of a judgment or an arbitration award rendered in a Member State." It may still be too early to comment on the application of this new permissible deviation from the prohibitions under paragraph 1 of Article 3s, but one possible interpretation is that a vessel listed under Annex XLII may be allowed to enter the territorial waters of a Member State where a creditor with an enforceable title may be lying in wait to enforce its judgment or award rendered in a Member State. If so, it is unclear how this would work in practice and whether a Member State suddenly allowing a listed vessel to enter its waters would raise suspicions, leading the vessel to abscond to avoid any enforcement proceedings.
DEROGATIONS UNDER ARTICLE 3S
Moreover, paragraph 4 of Article 3s allows for a derogation, albeit an extremely limited one, from the general prohibition to access EU waters in certain cases. The said derogation is applicable solely to island Member States like Malta and Cyprus.
The competent authorities in such Member States may authorize a vessel listed in Annex XLII under paragraph 2(e), to access ports and anchorage zones, and receive services under paragraph 1(g) under such conditions as they deem appropriate, if two cumulative requirements are satisfied, namely:
(a) where the goods are strictly necessary to satisfy the basic needs of that Member State; and
(b) the import of such goods is not otherwise prohibited under this Regulation.
Any Member State which grants such an authorization must inform the other Member States and the Commission within two weeks of the authorization.
COMMENTARY
While only the passage of time will tell whether this new measure will serve as an effective way to circumvent non-compliance with EU sanctions by third-country vessels, these new prohibitions introduce a novel approach to tackling bad actors in the shipping sector. Article 3s appears to clamp down on abuse by cutting off listed vessels' access to the crucial supply chains and maritime services that can be offered by EU persons, directly or indirectly, to such vessels.
These latest restrictions also mean that any economic operator providing shipping services, which fall within scope directly or indirectly, needs to be extremely vigilant to ensure it does not fall foul of Article 3s, irrespective of their geographical operations.
Furthermore, EU persons should also be conscious that the latest package has amended the circumvention provisions, creating a wider net for any activity to be deemed a possible infraction. Article 12 has been amended to read as follows: "It shall be prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent prohibitions in this Regulation, including by participating in such activities without deliberately seeking that object or effect but being aware that the participation may have that object or effect and accepting that possibility."
The additional wording added to the end of the previous text appears to lower the necessary threshold for any person to be held accountable for the circumvention of any prohibitions under the Regulation.
While the provisions of Articles 3m and 3n of the Regulation have not been amended by Council Regulation 2024/1745, the express restriction to engage in any STS transfers to vessels listed in Annex XLII would arguably also override the permissible exceptions under the existing Russian Oil Price Cap mechanism. This means that no service provider should risk participating in any such operations with a listed vessel, irrespective of whether the cargo is being sold below the price cap.
It is also curious to note that the Regulation does not expressly provide for any mechanism for the owners of a listed ship to seek recourse, for instance, for a possible incorrect listing. Hopefully, some guidance will be given if and when the EU Commission publishes any accompanying FAQs in relation to this Article 3s. However, as things stand, the consequences of being listed are not minimal and, therefore, non-EU flagged vessels owned by third-country nationals should think twice about not complying with EU sanctions.
In conclusion, at first glance, Article 3s could represent an innovative and robust approach by the EU to curb non-compliance by third-country actors in shipping. By imposing comprehensive prohibitions on essential maritime services and supplies offered by EU persons, the EU appears to be trying to mitigate the operational capabilities of vessels associated with activities undermining the purpose and effects of EU sanctions, without disrupting its position on the jurisdictional scope of EU sanctions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.