Today the UK government has adopted the “first barrage of UK economic sanctions against Russia” as UK Prime Minister Boris Johnson warned that Russian President Vladimir Putin is “bent on a full scale invasion of Ukraine”.
In summary, UK asset freezing measures have been imposed on five Russian banks and three high-net worth individuals, with the UK retaining the option to impose further sanctions as the situation in Ukraine develops.
The PM’s latest announcement follows the Kremlin’s recognition of the independence of the self-declared people's republics of Donetsk and Luhansk in eastern Ukraine, which Western leaders have condemned as a flagrant breach of the 2015 Minsk Agreements. Diplomatic efforts have intensified and Western leaders are coordinating sanctions packages in a final attempt to deter Russia from invading Ukraine.
Following Russia’s “continued aggression” in the Eastern region of Ukraine, the PM chaired a meeting of the UK’s emergency Cobra committee this morning to discuss the developments in Ukraine and to sign off on a package of sanctions to be introduced immediately against Russian targets. In addition, and as noted above, the PM has suggested that this is just an initial set of measures and that the UK government will impose further sanctions if Russia extends its operations beyond Donetsk and Luhansk.
The PM has said that the latest package of sanctions is intended to not only target those entities within Donetsk and Luhansk but also those Russian economic interests that have been “supporting Russia’s war machine”.
New asset freezing measures
The UK government has now sanctioned five Russian banks:
- Bank Rossiya
- IS Bank
- Joint Stock Company Genbank
- Public Joint Stock Company Promsvyazbank
- Black Sea Bank for Development and Reconstruction
As a result, all UK individuals and entities will be prohibited from providing funds and/or economic resources to those targeted banks.
Note that Bank Rossiya and Black Sea Bank are already subject to US sanctions as they have been previously designated as specially designated nationals (SDNs) by the US Treasury Department’s Office of Foreign Assets Control (OFAC).
In addition, three high net-worth individuals have been designated:
- Boris Romanovich Rotenberg
- Igor Arkadyevich Rotenberg
- Gennady Nikolayevich Timchenko
Consequently any assets these individuals hold in the UK will be frozen. Further, UK persons and entities will be now prohibited from making funds available, directly or indirectly, to or for the benefit of these individuals, and it is a criminal offence to contravene the financial sanctions prohibitions or to seek to circumvent the prohibitions.
Note that all of these Russian individuals are already subject to US sanctions as they have been previously designated as SDNs.
These latest announcements come as the UK put in place new legislation, The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022 (SI 2022/123) amending the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855) (the “Amended Regulation”), to strengthen its Russian sanctions legislation by extending its sanctions designation criteria to target Russian businesses and individuals in a wide range of strategically significant sectors (for further details on the scope of the UK’s updated sanctions designation criteria please see our client alert here). The sanctions announced today have been issued under the extended designation criteria pursuant to the Amended Regulation.
In an official notice published by the Office of Financial Sanctions Implementation (OFSI), UK individuals and entities have been instructed to:
- check whether they maintain any accounts or hold any funds or economic resources for the newly sanctioned banks and individuals;
- freeze such accounts, and other funds or economic resources and any funds which are owned or controlled by these individuals and banks;
- refrain from dealing with the funds or assets or making them available to such individuals and banks (unless licensed by OFSI);
- report any findings to OFSI, together with any additional information that would facilitate compliance; and
- provide any information concerning the frozen assets of designated persons that OFSI may request.
Extra-territorial effect of UK sanctions
Importantly, UK financial and economic sanctions have an extra-territorial effect. UK financial sanctions apply to all persons within the territory of the UK and to all UK persons, wherever they are in the world. Essentially, this means that:
- all individuals and legal entities who are within or undertake activities within the UK’s territory must comply with UK financial sanctions; and
- all UK nationals and legal entities established under UK law, including their branches, must also comply with UK financial sanctions that are in force, irrespective of where their activities take place.
In practice, this means that UK businesses (based in the UK and abroad) will need to assess any potential links with and consider their exposure to the newly sanctioned Russian entities and individuals to ensure that they are prepared to effectively and quickly respond to the fresh sanctions issued by the UK government and to put in place safeguards.
These new measures may have an impact on UK companies that have exposure to dealings with Russia or Russian entities, who will need to comply with the relevant restrictions. Companies doing business in or with Russia are required to assess their risk exposure to the new measures and take appropriate due diligence measures to allow them to remain compliant.
Hogan Lovells is available to assist you in assessing your exposure and in ensuring compliance with UK sanctions measures in your transactions.
Authored by Aline Doussin, Imogen Brooks, and Simi Malhi.