Blog: An Overview Of The UK’s Russia Sanction Regime – Part 1 … – Mondaq

An overview of the UK’s Russian Sanction Regime

The Russia (Sanctions) (EU Exit) Regulations 2019
came into force on 31 December 2020 to replace the previous EU
sanctions regime relating to Russia’s actions in the Ukraine.
This instrument is made under the Sanctions and Anti-Money
Laundering Act 2018 to encourage Russia to cease actions which
destabilise Ukraine or undermining or threatening the territorial
integrity, sovereignty, or independence of Ukraine.¹

Upon Russia’s invasion of Ukraine on 24 February 2022, the
UK introduced the amended legislation, the Russia (Sanctions) (EU Exit) (Amendment)
Regulations 2022. Since then, 16 additional amendments have
been made to the regulations on financial, trade, and other
sanctions. The most recent legislation came into force on Friday,
16 December 2022 as the Russia (Sanctions) (EU Exit) (Amendment) (No.17)
Regulations 2022. This article therefore aims to summarise the
various measures of restriction under the Regulations.

The territorial extent of the Regulations covers the entirety of
the UK (i.e., any person – either natural or legal person) in
the UK and its territorial sea), as well as to conduct by UK
persons where that conduct is wholly or partly outside the UK. In
terms of measures, the Regulations outline different types of
sanctions in the areas of financial, trade, aircraft, shipping, and
immigration. Several exceptions to each of the sanction categories
are provided under Part 7 of the Regulations. No exemption however
is provided for small businesses, given the possible circumvention
or evasion of the sanctions.²

Financial Sanctions

Within the financial sanctions, in addition to asset freezes as
a common sanction regime, there are also restrictions related to
capital markets, loans and credit arrangements, clearing services,
investments, and trust services. Generally, the Regulations
prohibit several financial activities related to any person or
entity with connections to Russia and non-government controlled
Ukrainian territory. The specific sanction measures are provided
below:

• Asset freeze and prohibition on making funds or economic
  resources available: The measures involve the freezing of
  funds and economic resources or not making funds and economic
  resources are available to or for the benefit of designated
  persons, either directly or indirectly.
• Transferable securities and money market instruments:
  The Regulations prohibit direct or indirect dealing with a
  transferable security or money market instrument which has a
  maturity exceeding 30 days, and was issued after specified dates by
  (i) entities listed in Schedule 2 of the Regulation (“Listed
  Entities”), or an entity owned by or acting on behalf or at
  the direction of the Listed Entities; or (ii) a person connected
  with Russia, or an entity owned or acting on behalf or at the
  direction of that person. Furthermore, it is also prohibited in
  dealing with transferable security or money market instrument,
  directly or indirectly, on or after 15th December 2022 for the
  purposes of making an investment in relation to Russia.
• Loan and credit arrangements: The Regulations prohibit
  the granting or entering into any arrangement to grant a new loan
  or credit, with a maturity exceeding 30 days to Listed Entities, or
  an entity owned by or acting on behalf or at the direction of the
  Listed Entities, or a person connected with Russia, or the
  Government of Russia. Furthermore, it is also prohibited to provide
  funds to a relevant entity for the purpose of (i) making an
  investment in relation to Russia; (ii) making those funds or
  economic resources available to enable a relevant entity to grant a
  loan as prohibited above.
• Clearing services: The Regulations prohibit a UK
  credit or financial institution from (i) establishing or continuing
  a correspondent banking relationship with a Designated Person;
  ³ or (ii) processing a sterling payment to, from or via,
  a Designated Person, or a credit or financial institution
  (domiciled anywhere including the UK) owned or controlled by the
  designated person, if the UK credit or financial institution knows,
  or has reasonable cause to suspect, that the correspondent banking
  relationship is with a Designated Person.
• Investments: The Regulations prohibit directly or
  indirectly acquiring, extending a participation, or acquiring any
  ownership interest in land or in an entity located in
  non-government controlled Ukrainian territory (“Relevant
  Entity”). Furthermore, the Regulations also prohibit directly
  or indirectly granting any loan or credit; entering any arrangement
  to grant a loan or credit or otherwise provide funds to a Relevant
  Entity; establishing any joint venture in non-government controlled
  Ukrainian territory or with a Relevant Entity; or providing
  investment services directly related to the activities above.
  Similar prohibitions on investment applied to Russian land and
  persons connected with Russia.
• Financial services for the purpose of foreign exchange
  reserve and asset management: The Regulations 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, or a person owned or controlled directly or indirectly
  by or acting on behalf of or at the direction of any of the above
  entities.
• Trust Services: The Regulations prohibit the provision
  of trust services to or for the benefit of (i) persons designated
  for the purposes of this measure; or (ii) persons connected with
  Russia unless those services were provided immediately prior to the
  day the regulations come into force pursuant to an arrangement that
  has effect at that time.
• Suspension of the Bank of England’s duty under the
  Banking Act 2009 Section 89(H)(2): the Bank of England will
  not make a decision in respect of a notification of third-country
  resolution action in respect of designated persons or persons owned
  or controlled by Designated Persons, for as long as the resolved
  institution in question is designated as subject to an asset freeze
  or is owned or controlled directly or indirectly by a Designated
  Person under the Regulations.

Consequences of breach of sanctions prohibitions

Breaches of sanctions are considered serious criminal offences
which may result in imprisonment and/or monetary fines. Breaches of
the main financial prohibitions in the Regulations may result in a
maximum sentence on indictment of 7 years’ imprisonment or a
fine, or both.

Furthermore, the Regulations also provide for reporting
obligations and obligations to provide information related to
finance, trade, and internet services activities. The failure of
which may constitute an offence and may subject to a court order
requiring that person, within a specified period, to comply with
the request from the relevant authorities.

What businesses should be mindful of?

As the Regulations comprise long lists of regulated activities
and exceptions, businesses should check whether their business
activities, including financial activities and trading of goods,
technology, or services may fall under the regulated categories.
Under certain circumstances, licences can be obtained from relevant
authorities, as provided for under the Regulations.

To ensure compliance with the Regulations, UK businesses should
have in place a sanctions compliance plan, including risk
assessments across a broad scope of business functions, internal
control procedures, as well as regular training for employees. For
dealing with partners and suppliers, a strong due diligence
process, including know-your-counterparty (KYC) policy and supply
chain monitoring system are necessary. Lastly, businesses whose
operations fall under the scope of the regulated categories should
obtain licences if eligible and follow the reporting and
information requirements.

Footnotes

1. GOV.UK (2023, Jan 3). UK Sanctions relating to Russia.

2. Explanatory Memorandum to the Russia (Sanctions)
(EU Exit) (Amendment) (No. 17) Regulations 2022.

3. A “Designated Person” means
a person who is designated by the Secretary of State under
regulation 5 for the purposes of imposing the sanctions under the
Regulations. The names of Designated Persons are not included in
the Regulations but are provided on the administrative list on
gov.uk.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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