Sanctions against Russia: EU to hit subsidiaries of its own companies to isolate Kremlin – FT

The EU is considering expanding sanctions against Russia to include foreign subsidiaries of European firms to further isolate the Kremlin from supplying goods to its military machine. However, this initiative is causing controversy among member states and businesses because of the possible economic consequences.

The Financial Times writes about it. The introduction of new sanctions is being discussed against the backdrop of efforts to stop the illegal re-export of European goods of strategic importance to Russia.

Why new sanctions are needed

Today, most of the goods that come to Russia via China originate from subsidiaries of Western firms located in Southeast Asia. While the European companies themselves are already subject to sanctions, their foreign subsidiaries continue to operate outside the restrictions, which allows them to circumvent the current sanctions regime. According to the EU Sanctions Commissioner David O'Sullivan, the European Union has focused its efforts on stopping such transit of goods.

At the same time, O'Sullivan emphasized the importance of this problem during his speech at an event in Brussels, noting that the EU plans to expand bans on the resale of goods to Russia and include subsidiaries of European firms in third countries in the sanctions list. According to him, such an initiative may be reflected in the future package of sanctions.

Business reaction and implementation challenges

The proposal to extend sanctions to foreign branches of European companies is being opposed by businesses. Many companies claim that such restrictions will negatively affect their operations in countries that have not joined the EU sanctions. This initiative was discussed during a meeting between business representatives and European Commissioners Valdis Dombrovskis and Máiread McGuinness.

The application of sanctions to foreign branches of European companies may create an additional burden on businesses in third countries that do not support sanctions against Russia. However, the European Commission continues to work on assessing the impact of this step, which may form the basis for new restrictive measures.

Disputes among EU countries

Discussions on the expansion of the sanctions regime, which requires the unanimous support of all 27 EU member states, are becoming increasingly difficult. Some EU countries fear that new restrictions will harm their own economies. Previous proposals to extend re-export bans to Russia have already faced difficulties. EU diplomats note that these initiatives have not been very popular among member states, making them difficult to implement.

Despite these controversies, the EU remains committed to finding new ways to strengthen sanctions against Russia. An assessment of the impact of expanding re-export controls may become the basis for new sanctions measures to be discussed in future packages of restrictions.

As OBOZ.UA previously reported, the EU plans to tighten sanctions against financial institutions that support the supply of military products to Russia, in particular through Southeast Asia. The purpose of these sanctions is to make the Russian military machine less efficient and more expensive by stopping access to dual-use goods.

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