This requirement was adopted as part of the 12th package of EU sanctions against Russia in December 2023 and aims to combat the circumvention of existing sanctions against Russia.
The Article 12g Requirement: Who must comply
Article 12g obliges EU exporters to contractually prohibit the re-exportation to Russia and the re-exportation for use in Russia of certain goods when exporting, selling, supplying or transferring those goods from the EU to certain third countries (the No Russia Clause). From an aviation perspective, in-scope goods include aircraft, engines and other aircraft parts. “Supplying” in this context includes the leasing or subleasing of aircraft or engines.
While EU exporters are, in general, expected to comply with financial sanctions regardless of which third country a counterparty is based in, the Guidance exempts EU exporters from the requirement to include a No Russia Clause in contracts with counterparties based in certain “partner countries”. The “partner countries” are currently the United States, Japan, the United Kingdom, South Korea, Australia, Canada, New Zealand, Norway and Switzerland.
Article 12g also imposes a reporting obligation on EU exporters to inform their national competent authority (NCA) as soon as they become aware of a breach or circumvention of a No Russia Clause.
Key Dates for EU Exporters to be aware of
The requirement to include a No Russia Clause depends on the contract’s date of conclusion (meaning the date the contract was entered into or takes effect).
Contract concluded before 19 December 2023
For contracts concluded before 19 December 2023, the obligation to include a No Russia Clause applies from 20 December 2024 (unless the contract has already expired by that date with no obligations remaining to be performed). Where a pre-19 December 2023 contract continues after 20 December 2024, amendments to include a No Russia Clause will be required.
Contract concluded on or after 19 December 2023
- For contracts concluded on or after 19 December 2023 and which are ongoing as of 20 March 2024, a No Russia Clause must be included.
- For contracts concluded on or after 19 December 2023 but which have executed / implemented before 20 March 2024, the Guidance is silent. However, it may be advisable to consider inclusion of a No Russia Clause given the Commission’s expectation of robust due diligence frameworks to counteract the circumvention of Article 12g.
Contracts concluded on or after 20 March 2024
Contracts concluded on or after 20 March 2024 must include a No Russia Clause.
Form of No Russia Clause
The Guidance clarifies that EU exporters are free to draft their own form of No Russia Clause as long as it fulfils the requirements of Article 12g. One such requirement is the inclusion of “adequate remedies” for breach of the No Russia Clause. While the nature of such remedies is not prescribed by Article 12g, the Guidance refers to both the termination of the contract and the payment of a penalty as options. The key point to note is that the remedy should be “reasonably strong and aim to deter non-EU operators from any breaches”.
While the Guidance includes a template clause as a suggested starting point for negotiation, EU exporters will need to carefully consider how they can best address the Article 12g requirements for their individual transactions. This is likely to involve a tailored, case-by-case approach and nuances specific to the governing law of the contract will need to be considered. Regardless of what form a No Russia Clause takes, the Guidance recommends that it is made an “essential element of the contract”.
Key Action Points for Clients
With 20 March 2024 fast approaching, it is important that EU exporters are already considering the application of Article 12g to their business. Key steps that EU exporters should be taking now include:
Reviewing new and existing transactions
The impact of Article 12g requires consideration on all existing and contemplated transactions involving the sale of aircraft or leasing arrangements where the counterparty is based in a third country (other than a “partner country”) to see where No Russia Clauses need to be included.
Considering measures to prove compliance
EU exporters will need to be able to prove compliance with Article 12g where requested to do so by their NCA. From a governance perspective, all steps taken to assess whether a No Russia Clause is required should be documented in detail.
Updating internal policies
From a risk management perspective, EU exporters should consider whether internal sanctions compliance policies and procedures need to be updated to address the reporting obligation to the relevant NCA if the EU exporter becomes aware of an Article 12g breach.
For more information, please get in touch with our Aviation and Asset Finance Group.
The post Aviation: Guidance on ‘No Re-Export to Russia’ clauses appeared first on Arthur Cox LLP.
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