Part 1: Financial Sanctions
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 undermine or threaten the territorial integrity, sovereignty, or independence of Ukraine.
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.
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;  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.
Paul Baker |+230 263 33 24 | email@example.com
Loan Le |+84 763 281 367 | firstname.lastname@example.org
Alistair Elder | +44 7492 230 668 | email@example.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about specific circumstances.
 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.
This article has also been published on the Mondaq website.