Navigating Article 5ah: Sanctions Exposure and Due Diligence Duties for EU Businesses

Introduction

On 23 October 2025, the European Commission adopted its 19th package of sanctions against Russia, introducing Article 5ah to Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine (Regulation 833/2014). This provision specifically targets Russian Special Economic Zones (SEZs).

The adoption of Article 5ah marks a notable evolution in the European Union (EU) sanctions framework, as it reflects an increased strategic focus on countering circumvention practices by extending the restrictions to activities linked to territories that are integral to Russia’s economy and its military capabilities.

SEZs, by design, entail more “loose” regulatory environments, tax benefits and lighter customs procedures, which attract foreign investment and economic growth. However, due to these same features, Russian SEZs have made themselves appealing for circumvention practices by acting as hubs for obscuring supply chains and supporting dual-use production.

Article 5ah prohibits EU operators from conducting business with entities established in the 11 designated Russian SEZs, which include prominent zones such as Alabuga and Technopolis Moscow.

Following the introduction of this provision in Regulation 833/2014 and considering the surrounding uncertainty in respect of its implications, this chapter of the guide aims to clarify the prohibitions contained in Article 5ah, its purposes and the compliance challenges for EU operators. Furthermore, it provides a forward-looking analysis and discusses which future prohibitions may be expected as the European Commission announces the adoption of new packages of sanctions against Russia.

Background on SEZs

General

According to the United Nations Conference on Trade and Development (UNCTAD), SEZs are geographically delimited areas within which governments promote economic growth and attract foreign investment. As of 2022, the UNCTAD indicated that there were more than 7,000 SEZs in 145 countries.

SEZ is an umbrella term that covers recent iterations of traditional commercial zones. According to the World Bank, the concept of SEZ has several specific characteristics:

• its territory is geographically demarcated;
• it has a single administration;
• it offers tax benefits within the area;
• it provides an autonomous customs zone with simplified procedures and duty-free benefits; and
• it offers more liberal economic and juridical regulations than the rest of the country.

There are a number of different types of special economic zones. The following are the most common types.

• Free trade zone – These are specially secured areas that are designated for the processing of imported and exported goods.
• Export processing zone – These zones are meant for commercial and industrial exports.
• Industrial park – These areas are meant to be used for industrial purposes, rather than commercial. One of the common benefits is tax-related incentives.
• Specialised zone – Common uses for these zones include technology hubs or airport-based zones.

Russian SEZs

The legal basis for SEZs in Russia is established under Federal Law No 116 “Establishment of special economic zones in the Russian Federation”, which provides the framework for the creation and governance of Russian SEZs. Russian SEZs are structured into four main types: industrial, innovation, tourism, and port and logistics zones.

As of 2025, Russia hosts 59 SEZs with the major hubs being in Tatarstan, Moscow and Kaluga. The Russian government approved three new SEZs in the Moscow region, Vologda and Novosibirsk in 2026.

The advantages of SEZs are clear: a lightened regulatory environment and an openness to foreign investment that creates thousands of jobs and tax benefits. However, these advantages also carry their own risks.

A more relaxed regulatory environment can facilitate business operations, yet it also lowers oversight and, as a result, increases the risk of illicit activities. The organisation Civilian Research and Development Foundation Global has noted that such regulatory leniency may facilitate smuggling, money laundering or evasion of trade controls, such as repackaging and relabelling goods to conceal origin and end-use. As such, SEZs can become attractive hubs for state or non-state actors that seek to circumvent restrictions on prohibited or dual-use goods, which are those that can be used for civilian and military purposes.

Reasons for Article 5ah’s introduction

The European Commission introduced Article 5ah to strengthen its ability to detect sanction-evasive practices, by tightening its oversight on potential circumvention routes and practices used by economic operators. According to the European Commission’s FAQs, Article 5ah targets specific Russian SEZs that “play a key role in supporting Russia’s military-industrial base”. In this manner, EU operators must be prevented from contributing, directly or indirectly, to the economic or technological environment of the listed Russian SEZs, which could in turn reinforce Russia’s capabilities.

As mentioned in the section above, SEZs generally offer a more lightened regulatory environment, which presents economic operators with potential legal loopholes such as re-routing, concealing and enabling transactions that would violate EU sanctions law. Article 5ah addresses these gaps by restricting economic operators from engaging in new contractual relationships with parties located within SEZs and requiring full withdrawal from those areas. This should ensure that no further investment opportunities are available within those areas, which is fundamentally detrimental to their purpose of economic growth and development.

As such, the EU is attempting to cut the cord on potential sources that help in facilitating Russia’s war economy. For example, the European Commission identified that certain SEZs, notably Alabuga and Technopolis Moscow, were linked to production or development of dual-use or military goods. These findings are also mirrored by the US Treasury, which called the Alabuga SEZ a crucial hub for the assembly of Iranian attack drones, as part of Russia’s plan to build thousands of Geran-2 drones by the end of 2025.

As SEZs can be particularly helpful gateways due to their customs leniency and lower oversight, the EU aims to ensure, via Article 5ah, that western goods are not aiding Russia’s war efforts against Ukraine.

A descriptive breakdown of Article 5ah

Article 5ah, as above-mentioned, was introduced by the 19th package of sanctions against Russia in an effort to target additional sources of revenue to Russia, while, at the same time, assisting European operators in divesting from the Russian Federation. With this main purpose in mind, the following discussion is divided between prohibitions, exceptions and derogations, which are outlined in this section.

Prohibitions

Article 5ah’s first paragraph introduces certain prohibitions on acquiring new businesses when these are located in the listed SEZs or to enter into arrangements that could economically benefit these areas.

More specifically, item (a) of the paragraph establishes an immediate prohibition in acquiring any new or extending an already existing participation in “ownership or control” of legal persons, entities or bodies registered in or with their principal place of business or permanent establishment located in the SEZs.

“Ownership or control” is understood to have the same meaning as explained in the EU Best Practices for the effective implementation of restrictive measures, according to which “ownership” shall mean owning 50% or more of the shares of a company. “Control” involves a broader category, including elements such as:

• having the right to appoint or remove a majority of members of leadership bodies;
• controlling members’ voting rights through a shareholder agreement;
• having the right or power to exercise dominant influence over the company;
• having the right to use all or part of the assets of the entity;
• managing the business while publishing consolidated accounts; and
• sharing jointly and severally the financial liabilities of the entity, or guaranteeing them.

Item (b) bears a similar structure to item (a), with the difference in prohibiting the creation of any new joint venture, branch or representative office in the SEZs, or with one of the persons referred to in item (a).

The following item (c) restricts the entering into a new “contract or arrangement” for the supply of goods or services, or of related intellectual property rights (IPRs) or trade secrets to, from, or for use in the zones, or with a person referred to in item (a).

In this matter, the article does not directly indicate the meaning of “contract or arrangement”. In that case, the interpreter will likely be guided by the definition of “contract” found in the European Commission’s FAQs on Regulation 833/2014. However, as the definition found therein relates directly to Article 11 of Regulation 833/2014, EU operators may find difficulties in assessing whether their contractual arrangements could be regarded as falling under this prohibition and the derogation that follows. This point will be assessed in more detail in the following section.

Paragraph 2 introduces certain prohibitions which started to be effective upon EU operators as of 25 January 2026, therefore nearly three months after the 19th package was adopted.

Items (a), (b) and (c) of the paragraph mirror the prohibitions set out under paragraph 1, with the modification of prohibiting the “maintenance” of already existing (a) ownership or control, (b) joint venture, branch or representative office, or (c) contract or arrangement. This prohibition is also limited to the SEZs listed in Part A of Annex LII only and therefore reduces its scope from 11 zones to only two zones.

Paragraph 3 introduces specific sectoral restrictions, primarily targeting the financial sector. This sector plays a critical role in facilitating the operation of SEZs in a manner designed to attract substantial investment into Russia. With this scope, item (a) prohibits the entering into financing arrangements, including loans, credits or broader categories of financing, including equity capital, to legal persons, entities or bodies referred to in paragraphs 1 or 2, therefore those located in the SEZs listed in both Parts A and B of Annex LII. As for (b), it additionally prohibits the provision of investment services directly related to the activities referred to in item (a) or in paragraphs 1 and 2. Consequently, all forms of investment services that could facilitate any creation or maintenance of businesses and arrangements in the SEZs are restricted.

Paragraph 4 clarifies that the prohibitions laid down in the previous paragraphs extend to legal persons, entities or bodies that, even when located outside the SEZs, are owned or controlled by legal persons, entities or bodies referred to in paragraphs 1 and 2.

Following the prohibitions, paragraphs 5 and 6 provide exceptions to their application, while paragraph 7 is dedicated to the derogations.

Exceptions

The exceptions laid down in paragraph 5 relate, in summary, to:

• human health and safety;
• supply of certain mineral products from or through Russia;
• activities strictly necessary for the supply of oil and refined petroleum products, unless prohibited under Article 3m or 3n; and
• activities necessary for the supply of seaborne crude oil and petroleum products listed in Annex XXV of the Regulation, where they originate in a third country and are not owned by a Russian owner.

Paragraph 6, in sequence, states that paragraphs 1, 3 and 4 shall not apply to the execution of contracts concluded before 24 October 2025, or of ancillary contracts necessary for the execution of such contracts, until 25 January 2026. Here, again, the Regulation does not provide for a definition of what could be understood as “ancillary contracts necessary for the execution of such contracts”, and EU operators might find difficulties in arguing the applicability of such exception. This point, again, will be assessed in more detail below.

Derogations

As for the derogations contained in Article 5ah, therefore authorising the national competent authorities to allow the performance of the primarily prohibited activities under paragraphs 1 to 4, their language finds similarities to other prohibitions already contained in the Regulation. In these terms, paragraph 7 provides for a derogation for:

• humanitarian purposes;
• research, development or manufacturing of key health and food-related sectors (pharmaceutical, medical, agricultural or food);
• legal access in a member state, and for the recognition or enforcement of a judgment or an arbitration award rendered in a member state, if consistent with the objectives of the Regulation and of Regulation (EU) 269/2014;
• divestment and withdrawal from Russia or wind-down of business activities; and
• the provision of communication services by EU operators, when necessary for operation, maintenance and security, including cybersecurity, of electronic communication services, in Russia, in Ukraine, in the Union, between Russia and the Union, and between Ukraine and the Union, and for data centre services in the Union.

Enforcement, interpretation and compliance challenges

As already flagged above, EU operators might face challenges when interpreting the rules set forth in Article 5ah. As the provision is still recent, compliance professionals and businesses still lack support from an established and consistent interpretation provided either by courts or by national competent authorities. The publishing of the European Commission’s FAQs on Article 5ah on 19 December 2025 is helpful. However, it still leaves many questions unanswered for economic operators, both from an interpretation and enforcement perspective.

Interpretation

One example of an unanswered question is the interpretation of the term “contract” and “ancillary contracts” under the exception presented in paragraph 6. Regulation 833/2014 does not define these terms, and reference is usually made to the definition found in the Commission’s FAQs, which states that “contract” refers to a “binding commitment between parties”. This should mean an agreement that contains all elements necessary for its execution, including parties, price, quantities, delivery dates, modalities of execution, etc. Ancillary contracts, in turn, are those necessary for the execution of the principal contract, including insurance and financing contracts.

By providing this definition, the FAQs, however, do not make direct reference to Article 5ah, but rather relate to Article 11 of Regulation 833/2014. This casts doubts on whether the meaning of “contract” could be applied in the same manner within the scope of Article 5ah. Furthermore, the FAQs do not explicitly clarify whether a main contract that is followed by subsequent annexes specifying dates of delivery, quantities and prices would also fall under the definition of “contract” and thus qualify for the exception under paragraph 6. Operators aiming to benefit from this exception therefore face the challenge of interpreting their own contractual arrangements in light of the Regulation’s objectives, even though many of these arrangements were adopted long before the beginning of Russia’s invasion when risks were not fully considered in their design.

Enforcement

As the European Union adopts a sequence of enhanced and more robust sanctions packages, thereby expanding the limitation of sources of revenue to Russia, operators should also expect a more stringent approach by the national competent authorities, upon analysing authorisation requests as pursuant to the derogations present in paragraph 7 of Article 5ah.

This more stringent approach will entail a detailed analysis of the evidence provided to meet the applicant’s burden of proof, especially considering the authorities’ objective of limiting all sanctions-circumventing activities, which is also one of the main purposes of Article 5ah, as it prohibits companies that “operate through” the SEZs even when not established in these areas.

Additionally, as the volume of restrictions directed at Russia continues to grow, applicants seeking to rely on the derogation set out in paragraph 7 should anticipate extended processing times. This is because the capacity of national authorities to process such requests does not expand at the same pace as the EU’s sanctions activity.

Compliance

The new article also poses new special compliance burdens on operators in the financial sector, which will need to adapt their due diligence procedures to additionally cover all the SEZs. This could be particularly challenging as the restrictions do not merely cover legal persons, entities or bodies operating in the SEZs, but also those owned or controlled by them. This results in the requirement of an in-depth analysis of shareholders structures and contractual arrangements to rule out any red flags that could demonstrate ownership or control from an entity based in the SEZs.

Despite such challenges potentially faced by EU operators in these zones, the intention of Article 5ah is not to harm EU businesses, but rather to limit sources of revenue to Russia. The imposition of these measures is ultimately a balancing act for the Commission, whereby it needs to consider the interests of EU operators. As the Commission’s FAQs state, EU operators are not required to “incur disproportionate or unnecessary losses”, and, where appropriate, national competent authorities may grant authorisations for actions strictly necessary to divestment and withdrawal from Russia or the wind-down of business activities in Russia. This analysis will, nevertheless, consider the overall objectives of the Regulation. Operators, therefore, should take the limitation of revenues to Russia as the main goal to be observed.

Looking ahead: what to expect next and implications for EU operators

As the European Commission proposes a new package of sanctions against Russia, EU businesses operating in the country should remain vigilant as potential new restrictions targeting additional SEZs could be adopted.

At this moment, only 11 zones are listed in Regulation 833/2014, while Russia currently has 59 zones in operation. EU businesses operating in these areas, therefore, should expect new restrictions as Russia continues its aggression over Ukrainian territory.

Yet before any new restriction is adopted, operators could still perform additional risk-based measures to prevent severe compliance issues and significant losses. Any risk-based assessment of operations by EU businesses should take into consideration:

• the goods and services involved;
• all suppliers, buyers, distributors and additional stakeholders involved (including financial services and insurance providers);
• the countries and regions involved in the operation; and
• the contractual arrangements involved.

In this process, keeping a record of all documentation is key to ensuring proof of compliance with all applicable rules.

By carrying out such risk-based assessment of operations, businesses are able to design their own compliance programmes, specifically tailored to their sector and geographical reach. In consideration of Article 5ah, EU operators located in SEZs in Russia that are still not subject to the restrictions set forth in Article 5ah, or which do business with entities located in these areas, should consider reviewing, suspending or even terminating their contracts, based on the risk of the operation. In addition, a retrospective review of past operations should also be performed to ensure minimum risk of indirect exposure through any previous relationship with operators based in the SEZs or controlled by entities based in the zones.

While certain events, and the regulations that follow them, might not be predictable, businesses could benefit from preparing divestment plans when operating in highly sensitive sectors or geopolitical regions.

As the adoption of Article 5ah has shown, adopting strong contractual arrangements could mean, in the future, the application of an exception to restrictions under sanctions regulations. Furthermore, more than ever, closely monitoring geopolitical events should be part of the compliance strategy of all businesses with international operations. In periods such as the current one, economic operators should ensure that their businesses are protected by the right compliance tools, which is only possible when a risk assessment of their activities is properly performed, a robust trade compliance programme is developed and enforced, and the top management is entirely committed to ensuring compliance with the applicable rules.