Russia Sanctions – snap-shot of the Key UK Legislative Developments
- This 18 August 2022 does not catalogue each and every piece of legislation but is intended to summarise the key legislative developments concerning the UK sanctions regime targeting Russia.
1. Following the UK's departure from the European Union (EU), the Sanctions and Money Laundering Act 2018 ('SAMLA') was the legislation through which the UK established its own sanctions framework, allowing it to make and enforce its own sanctions. After Russia's annexation of Crimea in 2014, the UK adopted sanctions regulations targeting Russian individuals, entities and key sectors of the Russian economy, which was implemented (following the UK's departure from the EU) into UK law via the Russian (Sanctions) (EU Exit) Regulations 2019 (the 'Russian Regulations').
2. The territorial scope of SAMLA and the Russian Regulations captures all individuals and entities within or undertaking activities in the UK's territory and all UK persons wherever they are in the world.
3. Since 2014, the UK has imposed various sanctions on Russia. As a result of Russia's military invasion of Ukraine, the UK has ramped up its sanctions on Russia with over a thousand individuals and a hundred entities having so far been designated.
4. The Russian Regulations were made for the purpose of encouraging Russia to cease actions "destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine" .
5. They impose a wide range of sanctions, including financial and trade sanctions (covered in more detail below), aimed directly and indirectly at restricting the activities and interests of sanctioned persons and those that may interact with them.
6. A series of amendments to the Russian Regulations have since come into force. These amendments have gradually tightened the UK's grip on specific Russian targets by restricting, amongst other things, access to certain markets, investment activities and professional services.
Overview of Sanctions
6. SAMLA sets out the different types of sanctions that can be imposed (against Russian targets) through the Russian Regulations, as summarised below.
- Financial sanctions (section 3 of SAMLA), covering targeted asset freezes, restrictions on a wide variety of financial markets and services, and directions to cease all business.
- The Office of Financial Sanctions Implementation (OFSI) is the authority responsible for implementing the UK's financial sanctions on behalf of HM Treasury.
Immigration sanctions (section 4 of SAMLA) covering powers to refuse leave to enter or to remain in the UK.
- The Home Office is the authority responsible for implementing travel bans.
Trade sanctions, aircraft and shipping sanctions (sections 5 (and Schedule 1), 6 and 7 of SAMLA, respectively), covering powers to restrict imports, exports, transfers, sales and acquisitions, as well as services relating to the same.
The Department for International Trade (DIT), through the Export Control Joint Unit (ECJU), implements trade sanctions and embargoes, and generally regulates the UK's export control regime, including controlling the movement of ships and aircraft in UK waters and airspace.
7. The legislation outlined below should be considered in conjunction with various guidance issued by the above mentioned authorities, including:
a) OFSI guidance on the financial and investment restrictions imposed by the Russian Regulations and its subsequent Amending Regulations.
b) OFSI statutory guidance on Russia sanctions.
c) OFSI financial sanctions general guidance.
d) Department of International Trade guidance on trading under sanctions with Russia.
8. The legislation outlined below should also be considered in conjunction with various other important announcements and legislation, including:
a) 10 March 2022 announcement by the Foreign Secretary of a full asset freeze and travel ban on seven of Russia's most influential oligarchs, closely associated with the Russian Government.
b) 15 March 2022 announcement by the DIT of the imposition of additional tariffs of 35% on various Russian goods and a ban on exports of luxury goods to Russia.
c) The Economic Crime (Transparency and Enforcement) Act 2022 (ECA), which came into force on 15 March 2022. The ECA made amendments to the sanctions process to make it easier for authorities to prosecute anyone who is the target of sanctions, and strengthened the enforcement of sanctions related offences.
9. As referred to above, the Russian Regulations have subsequently been widened through various amendments (collectively referred to below as the 'Amendment Regulations') to the Russian Regulations, originating with the Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022 (the 'Amendment 1 Regulations') which came into force on 10 February 2022.
10. The Russian Regulations were made for the purpose described above and originally only provided for the designation of persons involved in such actions.
11. As a result of the Amendment 1 Regulations, the UK can now also designate persons who are or have been "involved in… obtaining a benefit from or supporting the Government of Russia" . This includes persons:
a) (1) carrying on business as a government of Russia-affiliated entity;
b) (2) carrying on a business of economic significance to the government of Russia;
c) (3) carrying on business in a sector of strategic significance to the government of Russia; and
d) (4) owning or controlling directly or indirectly, or working as a director, trustee or equivalent of any of (1) to (3).
Financial Instruments and Correspondent Banking Relationships
12. The Amendment 2 Regulations entered into force on 1 March 2022. They amend the Russian Regulations by adding new financial sanctions to Part 3 (Finance). Existing restrictions (under the Russian Regulations) on dealing with certain financial instruments and providing loans and credit are also amended to extend the sanctions prohibitions to a broader range of transferable securities and money market instruments, and loans and credit.
13. Further restrictions on correspondent banking relationships have been introduced, prohibiting a UK credit or financial institution to establish or continue a correspondent banking relationship with a designated person, or a credit or financial institution (UK or non-UK) which is owned or controlled directly or indirectly by a designated person.
14. Restrictions on a UK credit or financial institution processing sterling payments have also been introduced.
15. The Amendment 2 Regulations provide for exceptions to, and for licencing powers in relation to, the above prohibitions.
Dual Use and Critical Industry Goods
16. The Amendment 3 Regulationsentered into force on 1 March 2022. They amend the Russian Regulations by extending the existing prohibition on the export, supply and delivery or making available of military goods to now cover dual-use goods and critical-industry goods and technology. Schedule 2A sets out what amounts to critical-industry goods and technology.
17. The Amendment 3 Regulations also extend the prohibition on the provision of technical assistance, financial services, funds and brokering services in relation to dual-use goods and technology and critical-industry goods and technology.
18. There are a number of exceptions to the prohibitions, including in relation to personal items, consumer communication devices, and the movement of aircraft and vessels. In addition, the licensing regime is extended to cover the new prohibitions.
Movement of Ships
19. The Amendment 4 Regulations entered into force on 1 March 2022. They amend the Russian Regulations by prohibiting Russian ships, and other ships specified by the Secretary of State, from entering ports in the UK.
20. The Regulations provide for certain exceptions to the prohibition on port entry, including in a case of emergency.
Foreign Exchange Reserve and Asset Management
21. The Amendment 5 Regulations entered into force on 1 March 2022. They amend the Russian Regulations by adding new financial sanctions – that being a restriction on the provision of financial services for the purposes of foreign exchange reserve and asset management involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, the Ministry of Finance of the Russian Federation or persons owned or controlled by, or acting on behalf of, or at the direction of any of the above specified entities.
22. These sanctions are broad and aim to restrict the provision of relevant financial services to these significant Russian entities. However, there is also the inclusion of necessary licensing exemptions to protect the stability of the UK's financial system.
Non-Government Controlled Territory
23. The Amendment 7 Regulations entered into force on 30 March 2022.
24. They amend the scope of the Russian Regulations and provide a new power to designate a person by description rather than name, and extend the existing Crimea sanctions to the non-government controlled areas of the Donetsk and Luhansk parts of Ukraine.
24. The Amendment 8 Regulations entered into force on 14 April 2022. They impose new prohibitions and restrictions in relation to oil refining goods and technology, luxury goods, and iron and steel goods.
25. The Amendment 12 Regulations entered into force on 19 July 2022. They introduce new restrictions on investment into Russia and prohibits the following activities:
a) Directly acquiring any ownership interest in land located in Russia;
b) Indirectly acquiring any such ownership interest for the purpose of making funds or economic resources available:
1. (i) directly or indirectly to a person connected with Russia, or
2. (ii) for the benefit of a person connected with Russia (the 'Relevant Purpose');
c) Directly acquiring any ownership interest in or control over a person connected with Russia or indirectly doing the same for the Relevant Purpose;
d) Directly or indirectly acquiring any ownership interest in or control over a "relevant entity" for the Relevant Purpose;
e) Directly or indirectly establishing any joint venture with a person connected with Russia;
f) Opening a representative office or establishing a branch or subsidiary located in Russia; or
g) Providing investment services directly related to any of the above activities.
26. For the purposes of the Amendment 12 Regulations, a person (other than an individual) is connected with Russia if they are incorporated or domiciled in, or constituted under the law of, Russia. A "relevant entity" is a person, other than an individual, that has a place of business located in Russia but is not a person connected with Russia.
27. It is important to note that the prohibited investment activities cover any ownership interest in a person connected with Russia or a relevant entity, and is not limited to land ownership.
28. The above prohibitions are subject to certain exemptions and licensing grounds, including
a) that the prohibition will not be contravened by a person undertaking an act to meet an obligation under a contract that was concluded before 19 July 2022 (or an ancillary contract necessary for the satisfaction of that contract), provided that person notifies HM Treasury no later than 5 working days before the day on which an act is carried out.
Professional and Business Services
1. The Amendment 14 Regulations entered into force on 22 July 2022.
2. They impose new trade restrictions in relation to professional and business services, miscellaneous essential goods required for the functioning of the Russian economy, oil and oil products, gold, coal and coal products.
3. In terms of professional and business services, the direct or indirect provision of the following services to any "person connected with Russia" is prohibited:
a) Accounting services - namely
1. accounting review services (excluding auditing services),
2. compilation of financial statements services (excluding such preparation services of business tax returns when provided as a separate service),
3. other accounting services and bookkeeping services (excluding bookkeeping services related to tax returns).
b) Business and management consulting services.
c) Public relations services, excluding planning and creating services for advertising or public opinion polling services.
4. The Amendment 14 Regulations provide certain exceptions to the new prohibitions. Alternatively, a licence may be obtained from the ECJU to provide services that would otherwise be prohibited.
32. The Russian Regulations and the subsequent Amendment Regulations are intentionally very wide in scope, as they are designed to cause huge economic disruption to the Russian state and any persons that do business with Russia.
33. It is therefore essential for any individual or entity that may have such a trading relationship to assess how the Regulations may affect them, and understand the ultimate destination of relevant funds or economic resources to ensure that they are not being made available, directly or indirectly, to or for the benefit of designated persons.
1. Russia (Sanctions) (EU Exit) Regulations 2019/855, reg. 4 Purposes.
2. The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022, Regulation 3.
3. The Russia (Sanctions) (EU Exit) (Amendment) (No 2) Regulations 2022 (SI 2022/194).
4. The Russia (Sanctions) (EU Exit) (Amendment) (No 3) Regulations 2022 (SI 2022/195).
5. The Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2022 (SI 2022/203).
6. The Russia (Sanctions) (EU Exit) (Amendment) (No 5) Regulations 2022 (SI 2022/205).
7. The Russia (Sanctions) (EU Exit) (Amendment) (No 7) Regulations 2022 (SI 2022/395).
8. The Russia (Sanctions) (EU Exit) (Amendment) (No 8) Regulations 2022 (SI 2022/452).
9. The Russia (Sanctions) (EU Exit) (Amendment) (No 12) Regulations 2022 (SI 2022/801).
10. The Russia (Sanctions) (EU Exit) (Amendment) (No 14) Regulations 2022 (SI 2022/850).