This week has seen the constant expansion of the UK sanctions regime to a wider set of Russian targets as crisis in Ukraine continues. The newly-announced financial sanctions and economic restrictions cover a wide range of economic and trade activities with additional trade restrictions expected to be announced in the coming days and weeks.
Please see a brief summary of the UK’s most recent measures below.
The UK Government has proposed amendments to the Russia (Sanctions) (EU Exit) Regulations 2019 which come into effect on 1 March 2022. The amendments dramatically extend the UK sanctions regime to a broad range of Russian entities.
The Russia (Sanctions) (EU Exit) (Amendment) (No.2) Regulations 2022 introduce a broad category of “persons connected with Russia” which includes all companies domiciled or incorporated in Russia. A person is regarded as connected with Russia if the person is:
- an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia
- an individual who is, or an association or combination of individuals who are, located in Russia
- a person, other than an individual, which is incorporated or constituted under the law of Russia, or
- a person, other than an individual, which is domiciled in Russia.
Persons connected with Russia will face restrictions in respect of transferable securities or money-market instruments and new loans and credit arrangements – detailed below.
The amendments have also introduced the following restrictions:
- A new prohibition on, directly or indirectly, dealing with a transferable security or money-market instrument with a maturity exceeding 30 days issued on or after 1 March 2022 by:
- a UK person (other than an individual) that is owned by Sberbank, VTB Bank, Gazprombank, VEB, Rosselkhozbank, OPK Obonoronprom, United Aircraft Corporation, Uralvagonzavod, Rosneft, Transneft or Gazpromneft (being “Schedule 2 persons”), or
- a person acting on behalf or at the direction of a person under (a).
- A new prohibition on, directly or indirectly, dealing with a transferable security or money-market instrument issued on or after 1 March 2022 by:
- a person connected with Russia which is not (i) a Schedule 2 person, (ii) a person which on 1 March 2022 is domiciled in a country other than Russia, or (iii) a person which on 1 March 2022 is a branch or subsidiary, wherever located of a person under (ii),
- a person owned by a person falling within (a), or
- a person acting on behalf or at the direction of a person within (a) or (b).
- A new prohibition on, directly or indirectly, dealing with a transferable security or money-market instrument issued on or after 1 March 2022 by, or on behalf of, the Government of Russia.
- A new prohibition on a UK credit or financial institution establishing or continuing a correspondent banking relationship with or processing a sterling payment to, from or via (which includes the clearing and settlement of the same):
- a designated person;
- a UK credit or financial institution which is owned or controlled directly or indirectly by a designated person, or
- a non-UK credit or financial institution which is owned or controlled directly or indirectly by a designated person.
The amendment provides for a number of exceptions to these restrictions, including loans entered into before 01 March 2022, payments for flying over Russia, designated persons using their funds or economic resources for humanitarian assistance, medical goods and services, production/distribution of food, diplomatic missions, and space activities. The full text of the amendment can be found here.
Trade and export control restrictions
The Russia (Sanctions) (EU Exit) (Amendment) (No.3) Regulations 2022 significantly enhance the trade sanctions imposed on Russia by the UK, similarly to the restrictions adopted by the US and the EU last week The amendments now class “critical-industry goods” as “restricted goods”. Previously, the restricted category had consisted only of “dual-use goods” and “military goods”. Critical-industry goods are defined in Schedule 2A of the amendment and include the following sectors:
- telecommunications and information security
- sensors and lasers
- navigation and avionics
- aerospace and propulsion
Prohibitions on the export, supply and delivery and making available of military goods are extended to include dual-use goods and critical-industry goods. Prohibitions on the making available and transfer of military technology are extended to include dual-use technology and critical-industry technology. Related prohibitions on the provision of technical assistance, financial services, funds and brokering services are also extended in relation to dual-use goods and technology and critical-industry goods and technology
The full text of the amendment can be found here.
The UK has prohibited UK exports to Russia in a range of sectors by removing Russia as a permitted destination for nine Open General Export Licences (“OGELs”).
The UK's dual-use regulations have been updated by the Export Control Joint Unit (the “ECJU”) to remove Russia as a permitted destination for nine OGELs including cryptographic development software and technology, chemicals, and equipment relating to the oil & gas industry. Please find the ECJU notice here.
The UK Government has updated its list of “designated entities” to include further Russian targets. They join a growing list of individuals and strategically significant businesses which as designated entities are subject to greater trade restrictions under the Regulations.
The following entities have been designated:
- Bank Otkritie Financial Corporation PJSC
- PJSC Sovcombank
- PJSC Sberbank (Public Joint-Stock Company Sberbank)
- Andrei Burdyko
- Victor Vladimirovich Gulevic
- Sergei Simonenko
- Andrey Zhuk
- JSC 558 Aircraft Repair Plant
- JSC Integral
In addition, the Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations 2022 prohibit a UK individual or entity from providing financial services for the purpose of foreign exchange reserve and asset management to:
- the Central Bank of the Russian Federation;
- the National Wealth Fund of the Russian Federation;
- the Ministry of Finance of the Russian Federation;
- a person owned or controlled directly or indirectly by any of the persons above; or
- a person acting on behalf of or at the direction of any of the persons above.
Strict liability test introduced under the Economic Crime (Transparency & Enforcement) Bill
Lastly and importantly new legislation was introduced to Parliament today will create greater transparency around owners of UK property, with a view to tackling money laundering and introduces a “strict civil liability test” for breach of UK financial sanctions. The strict civil liability test represents a significant departure from the current test which requires for the Office for Financial Sanctions Implementation (“OFSI”) to show that firms had knowledge or a “reasonable cause to suspect” sanctions are being breached to be liable for fines. The proposed amendments under the Bill will amend the current test pursuant to section 147 of the Policing and Crime Act 2017 which provides powers to Treasury to impose financial penalties for breaches of UK financial sanctions. In practice this means that OFSI will not need to conclude that a person acted with any particular state of mind in order to determine liability.
This significantly increases the liability of those subject to the UK sanctions regimes which includes:
- all individuals and legal entities who are, or undertake activities, within the UK's territory;
- all UK nationals and legal entities established under UK law, including their branches, irrespective of where their activities take place; and
- conduct (acts and omissions) both:
- in the UK or in the UK’s territorial sea by any person; and
- by a “UK person” anywhere else in the world.
The strict civil liability test will make it easier for OFSI to take enforcement action in cases involving breaches of financial sanctions laws.
The Bill also aims to implement the following:
- Register of overseas entities: Foreign owners of UK property will have to reveal their identities and may no longer remain anonymous.
- Unexplained Wealth Orders (“UWO”): Reforms under the Bill will aim to enhance existing powers in respect of UWO’s. For example, reforms under the Bill propose to increase the time available for enforcement agencies to review documentation provided in response to a UWO.
The full text of the draft Bill can be found here.
In the current, rapidly changing landscape, keeping on top of international sanctions regimes is more challenging than ever. Our comprehensive Sanctions Navigator collates sanctions regimes from the European Union, France, the United Kingdom, United Nations, and United States in one place, to help our clients answer any questions or address any sanctions-related issues they may have. Explore the Sanctions Navigator here.
The UK sanctions regime is constantly evolving and the UK government is expected to make further announcements in the coming days and weeks.
In the meantime, Hogan Lovells is available to assist you in assessing your exposure and in ensuring compliance with UK sanctions measures.
Authored by Aline Doussin, Simi Malhi and Theo Cornish.