UK Introduces Further Sanctions Measures Relating to Russia

UK Introduces Further Sanctions Measures Relating to Russia

July 4, 2022, Covington Alert

On June 23, 2022, the UK introduced a series of further trade restrictions in relation to Russia, including in connection with certain security-related goods and technology, iron and steel products, communications interception and monitoring services, jet fuel and fuel additives, UK or EU currency banknotes and a broad category of “revenue generating goods” which includes a range of items used by various industries. The UK supplemented these measures with additional asset-freezing sanctions on June 29.

This alert summarizes these new sanctions measures and touches upon further recent UK sanctions developments, including proposals for further restrictions on the import of gold into the UK and Russian access to UK trusts services.

New Trade Restrictions

The Russia (Sanctions) (EU Exit) (Amendment) (No. 10) Regulations 2022 further amended the UK’s Russia sanctions Regulations (the “UK-Russia Regulations”) to introduce the new trade restrictions outlined, which came into force on June 23, 2022.

Defence and security goods and technology

It is prohibited for persons subject to UK sanctions jurisdiction to export, supply, deliver or make available certain defence and security goods to Russia or for use in Russia, or to a person connected with Russia (i.e., an individual or group of individuals ordinarily resident or located in Russia, or an entity incorporated under Russian law or domiciled in Russia). The category of “defence and security goods and technology” comprises:

• Communications interception and monitoring goods and technology (as listed at Part 2, Schedule 3C of the UK-Russia Regulations);
• Internal repression goods and technology (as listed at Part 3, Schedule 3C of the UK-Russia Regulations); and
• Goods and technology relating to chemical or biological weapons (as listed at Part 4, Schedule 3C of the UK-Russia Regulations, subject to an exception for listed items used of medical purposes).

Interception and monitoring services

The new UK measures also render it prohibited to provide (directly or indirectly) interception and monitoring services to or for the benefit of the Russian Government, where “interception and monitoring services,” which is defined to include “any service that has as its object or effect the interception of a communication in the course of its transmission by means of a telecommunications system.” 

Maritime goods and technology

It now similarly prohibited under the UK sanctions to export, supply, deliver or make maritime goods and technology, or associated services, available for placing on a Russian-flagged vessel.  Maritime goods and technology are defined with reference to Chapter 4 and 5 of Annex 1 of the Merchant Shipping Notice 1874. The new regulations include a defence in circumstances where a given person did not know and had no reasonable cause to suspect that the relevant goods or technology was to be provided to a Russian-flagged vessel. 

The regulation also includes exemptions in relation to the provision of maritime goods and technology for: non-military use for a non-military user; humanitarian assistance activity; addressing a health emergency; urgent prevention or mitigation of an event likely to have a serious or significant impact on human health and safety or on the environment; or, providing a response to a natural disaster.

Iron and steel products

The existing restrictions on the import or acquisition from Russia or the supply or delivery to Russia of iron and steel products (as listed at Schedule 3B to the UK-Russia Regulations) have been extended to also include a prohibition on the provision of related technical assistance, financial services and funds and brokering services.

Banknotes

The new regulations render it prohibited to supply or deliver to a person connected with Russia, or make available to a person connected with Russia or for use in Russia, banknotes denominated in UK pounds sterling or any other official currency of the EU.

Jet fuel or fuel additives

It is now similarly prohibited to make available to a person connected with Russia or for use in Russia jet fuel or fuel additives (as listed in Part 8, Schedule 2A to the UK-Russia Regulations).  The provision of related technical assistance, financial services or funds or brokering services is also prohibited.

Revenue generating goods

Restrictions have also been introduced on a broad range of items that fall under the category of “revenue generating goods” that originate in or are consigned from Russia. It is prohibited to import such items from Russia or acquire those which originate in Russia, or are located in Russia, or to supply or deliver such items from Russia to the UK. The provision of related technical assistance, financial services or funds or brokering services is also prohibited. There are exceptions from these restrictions for relevant goods consigned from Russia prior to June 23, 2022, and those imported into the UK before July 10, 2022.

“Revenue generating goods” subject to these restrictions are set out in Schedule 3D to the UK-Russia Regulations and include a wide range of items listed with reference to customs codes, including for example: crustaceans; caviar; cement; certain chemical products, phosphates and hydrocarbons; fertilisers; wood; glass; silver; aluminium; propellers; gas turbines (and parts); various vessels (cruise ships, ferries, cargo ships, tugboats, and light vessels); and, furniture.

Further restrictions on the non-government controlled Ukrainian territory

A number of restrictions have also been extended to apply to the non-government controlled territory in Ukraine (Crimea and non-government controlled parts of Donetsk and Luhansk), including (1) the foregoing restrictions concerning the export, supply, delivery or making available of defence and security goods and technology (and related services); and trade restrictions relating to military goods and technology (as listed in Schedule 2 to the Export Control Order 2008).

Expansion of existing restrictions

Finally, a number of changes have been made to categories of goods subject to existing restrictions under the UK-Russia Regulations:

• Restrictions relating to “critical-industry goods and technology,” as listed at Schedule 2A to the regulations, have been expanded to include new restricted items, including for example specified types of equipment relating to: the handling of microorganisms and toxins (including certain cartridge power devices, oil well cartridges, and pyrotechnic devices among others, which are listed in Part 1A of Schedule 2A); and “materials processing” items, which include a range of items relating to manufacturing and processing products (such as explosives detection equipment, ball bearings, pressure tubes and pipes, valves, pumps, electric generators, machine tools for turning, grinding and milling, welding machines, etc., as listed in Part 1B of Schedule 2A).
• Oil refining goods and technology (as listed at Schedule 2D) have been expanded to include specified LNG-related goods, such as cold boxes, pumps and process units for the liquefaction of natural gas.
• Energy-related goods (as listed at Schedule 3) have been expanded to include goods related to hydraulic fracturing and collection and processing of exploration data, including oil and gas exploration data itself and hydraulic fracturing design and analysis software and related equipment.

New UK Sanctions Designations

On June 29, 2022, UK HM Treasury’s Office of Financial Sanctions Implementation (OFSI) designated eight individuals and five entities for the purposes of UK asset-freezing sanctions under the UK-Russia Regulations. The new designations target businesspeople that hold leadership positions in a number of major Russian and Belarussian companies in the construction, energy, financial and mining sectors and certain companies in those sectors. Significant designations include:

• Sait-Salam Gutseriev and Said Gutseriev — related Russian businessmen with interests in the Russian financial and energy sectors, among others. Said Gutseriev’s father, Mikhail Gutseriev was designated by the UK in August 2021 on the basis that he “is one of the main private investors in Belarus and a longstanding associate of President of Belarus, Alexander Lukashenko. Together the Gutseriev family own a number of companies in Russia and Belarus.
• Vladimir Potanin — Russian businessman and president of the Interros conglomerate, which holds interests in Russia’s mining, food and agriculture, media, real estate and banking sectors, including Russian bank Rosbank. Following the designation of Vladimir Potanin, OFSI has issued a General Licence allowing the “wind down of positions involving Rosbank”, which permits persons or entities other than Rosbank or its subsidiaries to wind down transactions with Rosbank (including closing out positions, repaying loans, withdrawal of deposits and closing of accounts) up to July 30, 2022 (i.e., one month from the date of issue).
• Anna Tsivileva — first cousin of Russian President Vladimir Putin and president of Russian coal mining company, JSC Kolmar Group, which has itself also been designated.

Further UK Sanctions Developments

Restrictions on gold imports from Russia

On June 26, 2022, the UK Government announced that the UK (alongside Canada, the U.S. and Japan) would introduce restrictions on new exports of Russian gold in order to prevent Russian “oligarchs rushing to buy gold bullion in an attempt to avoid the financial impact of western sanctions”. The announcement confirmed that the restrictions will apply to newly mined or refined gold and will not impact Russian-origin gold previously exported from Russia. At present, the legislation implementing this proposed restriction has not been introduced but the government announcement indicates the ban “will come into force shortly”.

Restrictions on Russian access to UK trusts services

On June 29, 2022, in a press release confirming the further designations imposed (outlined above), the UK Government announced plans to work “alongside international allies” to impose new measures designed to “prevent Russia from accessing UK trusts services”, whereby persons (individuals or entities) can manage the assets of another. The announcement did not provide further details concerning the precise nature of the measures that would be introduced in order to deny Russia access to UK trust services and it remains unclear when this restriction will be implemented. (The EU has already implemented a restriction on trust services in relation to Russia, set forth in Article 5m of Council Regulation No. 833/2014.)

OFSI Update

On June 22, 2022, the Director of OFSI, Giles Thomson, appeared before the House of Commons Treasury Committee to give evidence on the effectiveness of the UK’s Russia sanctions regime. Commenting upon plans to increase OFSI’s resources (outlined in our previous alert), Thomson confirmed that OFSI currently has a staff of “approximately 70 people” and that there are plans for this number to further increase to around 100 employees by the end of the current financial year at the end of March 2023. Thomson also stated that “enforcement cases will increasingly become a priority for [OFSI]” and that he anticipates litigation in relation to such enforcement actions. Thomson said that he is aware that there have already been legal challenges to sanctions designations under the UK-Russia Regulations and that OFSI and others responsible for administering the UK sanctions regimes are planning for further such challenges. 

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We are closely monitoring developments concerning the U.S., UK, and EU sanctions against and export controls targeting Russia, and will issue further updates in the event of material developments. In the meantime, we would be happy to address any questions you may have.

Covington’s International Trade Controls team—which includes lawyers in the firm’s offices in the United States, London, Brussels, and Frankfurt—regularly advises clients across business sectors, and would be well-placed to provide support in connection with the evolving Russia sanctions and export controls.

Our trade controls lawyers also work closely with Covington's Global Public Policy team which consists of over 120 former diplomats and policymakers in the United States, Europe, the Middle East, Latin America, Africa, and Asia. Many of the members of the Public Policy team have had substantial government experience in sanctions and export controls matters, and regularly advise our clients on emerging trade controls policy matters and related engagements with government stakeholders.

If you have any questions concerning the material discussed in this client alert, please contact the members of our International Trade Controls team.