New Sanctions by the EU against Russia – What does this mean for Malaysian businesses?

As EuroCham Malaysia’s exclusive Legal Knowledge Partner for Malaysia, Aqran Vijandran provides weekly legal insights tailored for EuroCham members. This article was prepared in that capacity by Dr. Harald Sippel (admitted in Austria, European Union).

The European Union has adopted its 19th package of sanctions against Russia. For Malaysian businesses, the key legal point is simple – EU sanctions do not, as a matter of principle, apply to Malaysian-incorporated companies merely because they operate in Malaysia or are even 100 per cent EU-owned. In principle, the same baseline rules apply to all Malaysian companies. What changes the analysis is the presence of EU touchpoints – EU-origin goods or technology, EU financing or clearing, EU insurers or ports, or EU counterparties – which can pull particular transactions within scope or trigger EU counterparties’ own compliance duties.

This article explains what is new, why it matters to Malaysian firms, where the practical exposure lies, and how to structure a sensible compliance response that protects deal-flow while satisfying counterparties’ expectations.

Do EU sanctions apply in Malaysia?

In principle, EU measures do not apply to Malaysian companies, even when they are 100% owned by an EU company or EU national: EU measures apply within EU territory and airspace; on EU-flag aircraft and vessels; to EU nationals wherever they are; to entities incorporated under the law of an EU Member State; and to any business done in whole or in part within the EU – for example, clearing a payment via an EU bank, calling at an EU port, or performing services insured in the EU. These triggers explain why Malaysian deals with an EU nexus attract more questions, more documents and sometimes tighter contractual terms.

However, sanctions apply to all citizens of EU member states - irrespective of where they are: EU sanctions apply fully to citizens of EU member states, regardless of where they act. If EU nationals sit on your board or perform key roles in Malaysia, they must comply – and that obligation can cap what the enterprise may do through those individuals.

Anti-circumvention rules apply at all times: in addition, EU anti-circumvention rules prohibit EU parents and EU persons from using non-EU subsidiaries to perform prohibited activity, which is why group-wide policies often extend EU-equivalent standards to Malaysian affiliates even when Malaysian law does not require it.

How Malaysian companies can be affected even when there is no EU-link: even where a Malaysian subsidiary is not directly bound as a matter of EU law, EU links can cause practical effects – shipment holds, payment delays, enhanced screening or contractual undertakings – because banks, insurers, carriers and EU customers have their own obligations.

This article focuses on those practical exposures and sets out a pragmatic playbook for keeping business moving while meeting counterparties’ expectations.

What is new – the big themes

Energy and shipping: the EU further restricts Russian energy revenues and targets shipping practices used to bypass existing measures. This includes tighter controls on liquefied natural gas-related activity and a sharper focus on so-called “shadow fleet” operations – vessels, flags, ownership chains and insurance practices associated with sanctions evasion. For companies in maritime services, bunkering, port agency, broking or chartering, screening vessels and counterparties is now a front-line task.

It is well-known that ship-to-ship transfers regularly take place off the cost of Malaysia. While the oil that's transferred there is often from the Middle East (regularly causing problems in its own way because it comes from sanctioned Iranian companies), such ship-to-ship transfers would equally be problematic, especially for companies providing ancillary services, if it regarded oil from Russia.  

Finance and crypto: the 19th package expands financial restrictions and closes channels that facilitated payments and asset movements. It increases pressure on third-country financial institutions and crypto-intermediaries that support Russia-linked transactions. For Malaysian businesses, this means more frequent due-diligence requests from EU banks, more intense know-your-customer documentation, and heightened scrutiny of payment routes – especially where correspondent banking or clearing passes through the EU.

Trade and technology: additional items are brought within export controls, particularly dual-use and advanced-technology goods. Dual-use goods are items, software or technology with legitimate civilian applications that can also serve military or intelligence purposes, while advanced-technology goods are high-performance, strategically sensitive components and systems – for example leading-edge semiconductors, precision machine tools, aerospace equipment, quantum and AI-related hardware or software.

Stricter anti-circumvention rules: the EU also strengthens measures against circumvention – re-exports via third countries, trans-shipment schemes and the use of distributors or integrators to mask end-use in Russia. Malaysian companies that source EU-origin components or sell into hubs serving wider Eurasian markets need to assume that end-use, end-user and routing questions will become more probing and more frequent.

Governance and listings: the package adds new designations of individuals and entities and reinforces compliance expectations for EU-based partners – which, in turn, flow down to non-EU suppliers and service providers. Contracting with entities located in certain Russian special economic zones or with sanctioned counterparties becomes materially riskier from a legal and reputational perspective.

Why Malaysian companies should care – the EU link principle

Sanctions compliance is no longer just about “do we sell to Russia." The operative question is “do we touch the EU in a way that imports EU obligations or triggers EU counterparties’ controls.” Common EU links include:

• EU-origin goods or technology – components, firmware, design files, CAD packages, measurement equipment and test rigs.
• EU finance or insurance – correspondent banking, trade-finance, receivables finance, marine insurance and P&I cover.
• EU logistics – EU ports, EU-flag or EU-insured tonnage, EU freight forwarders and customs brokers.
• EU counterparties – customers, distributors, service providers or group companies subject to EU law or policies.

If any of these apply, Malaysian businesses can experience shipment holds, payment delays or contract renegotiation – even where there is no direct Russia trade – simply because an EU actor in the chain has a sanctions duty to check, block or seek more information.

A pragmatic compliance playbook – seven pillars

Pillar 1 – Map EU touchpoints: Create a simple register that answers: where do EU-origin inputs enter our bill of materials. Which shipments pass through EU ports. Which vessels, insurers and brokers are EU-linked. Which payments clear via the EU. Which group companies or shareholders are EU persons. This map drives everything else.

Pillar 2 – Screen counterparties and assets: implement screening for customers, suppliers, intermediaries, vessels and beneficial owners against EU sanctions lists and maritime advisories. Calibrate frequency – always at onboarding, and again before each high-risk shipment or payment. Keep timestamped screenshots and match-rationales in the file.

Pillar 3 – Strengthen contracts: insert sanctions clauses that:
– require compliance with applicable EU, UN and Malaysian measures (and consider the US too);
– prohibit dealings with listed persons and proscribed sectors;
– mandate provision of end-use, routing and ownership information on demand;
– give audit and termination rights for sanctions concerns;
– include change-in-law and force-majeure language tailored to sanctions developments;
– require subcontractor flow-down of identical obligations.

Pillar 4 – Build an evidence trail: for shipments with EU links, maintain: end-user statements, product classification notes, origin certificates, routing and port calls, vessel screening results, insurance confirmations and bank correspondence. A tidy pack – even if brief – shortens bank compliance cycles and prevents value-chain gridlock.

Pillar 5 – Engage banks and insurers early: share the evidence pack before funds move or a vessel is fixed. Ask the bank or insurer what additional comfort they need. Pre-clearance avoids last-minute surprises when cargo is already alongside or payment value dates are imminent.

Pillar 6 – Educate the front line: sales, logistics and finance teams should recognise red flags: unusual routing via high-risk hubs, pressure to omit end-user details, requests to use non-standard payment rails, vessels with opaque ownership, or counterparties reluctant to sign sanctions undertakings. Empower staff to escalate without fear of “losing the sale”.

Pillar 7 – escalate and document decisions: Where the risk is non-trivial, convene a short internal review – legal, business owner and finance – and minute the rationale. If proceeding, record why the risk is acceptable and what mitigations apply. If declining, document the reasons and notify counterparties professionally.

Working with EU partners – how to keep business moving

EU customers – who are in any event fully subject to EU sanctions – face increasing scrutiny by their national enforcement bodies. They therefore select their suppliers much more carefully in order to avoid potential problems related to sanctions in the first place. The following steps allow Malaysian companies to stay a preferred supplier despite this shift:

Be proactive: send a short sanctions note to key EU customers explaining the steps you have taken – mapping, screening, clauses and evidence trail. This reassures them and reduces duplicative diligence.

Standardise responses: prepare template answers for the most common questionnaires – ownership, governance, export controls, routing, crypto exposure. Keep these updated so your teams can respond within hours, not days.

Negotiate sensible carve-outs: if a customer demands excessive representations (for example, blanket promises that no group company anywhere has any exposure), propose narrower language tied to your business line and the actual transaction. Commercial teams appreciate constructive alternatives.

Use milestones: for time-critical transactions, tie deliveries or payments to milestones that depend on sanctions clearance – for instance, “payment T+2 after bank compliance confirmation”. This protects both sides from schedule slippage caused by factors outside your control.

Governance and ESG – sanctions as part of trust

European buyers increasingly treat sanctions compliance as a board-level governance matter, aligned with broader EU priorities such as supply-chain due diligence and climate-related transparency. For Malaysian firms, the message is clear: treat sanctions like quality and safety – embed them, audit them and show your work. Doing so not only reduces disruption risk – it also differentiates you in tenders where procurement teams score suppliers on resilience and integrity.

Key takeaways – for Malaysian exporters and service providers

• EU sanctions now reach deeper into energy, finance, technology and shipping – and they expressly target circumvention through third countries.
• The operative question is not “do we sell to Russia” but “do we touch the EU in a way that imports EU rules or EU counterparties’ obligations”.
• Map EU touchpoints, screen counterparties and vessels, strengthen clauses, and keep a clean evidence trail.
• Engage banks and insurers before funds move or ships sail – pre-clearance is cheaper than remediation.
• Make sanctions part of your governance fabric – brief the board, train the front line and minute risk decisions.

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Contact Aqran Vijandran’s sanctions team to set up an EU-touchpoint triage – we will map your exposure, upgrade your contracts and prepare a bank-ready evidence pack for your next transaction. Contact our sanctions expert Dr. Harald Sippel today for further assistance.