Over recent days, the UK government has implemented a significant series of new sanctions measures relating to Russia, most of which were announced weeks or months ago and which are, in a number of areas, similar to Russia-related sanctions already in force in the United States and European Union. Principal among these include: new prohibitions on investment in Russia and the provision of professional services to Russia by UK persons; trade restrictions relating to Russian gold, coal and oil; various new export controls restrictions; and amendments to the designation criteria under which UK asset freezing sanctions may be imposed. The UK government has also extended UK sanctions reporting requirements with respect to its various sanctions regimes to operators in the cryptoassets sector.
This alert summarizes these and other recent UK sanctions developments, and also touches upon recently announced proposals for possible further EU sanctions measures.
Investment Ban
The Russia (Sanctions) (EU Exit) (Amendment) (No. 12) Regulations 2022 amended the UK’s Russia sanctions Regulations (the “UK-Russia Regulations”) to introduce new prohibitions in relation to investments in Russia.
These new measures restrict UK persons from being involved, directly or indirectly, in:
- acquisitions of land in Russia;
- acquisition of interests in entities incorporated or domiciled in Russia (and, in certain circumstances, non-Russian entities having Russian operations);
- establishing joint ventures with Russian persons and entities;
- opening a representative office or establishing a branch or subsidiary located in Russia; or
- providing investment services in relation to any of the foregoing.
The new restrictions are subject to certain targeted exemptions, including in relation to transactions pursuant to contractual obligations pre-dating 19 July 2022 (subject to a requirement to submit a prior notification to HM Treasury), and transactions relating to certain types of securities. Specific licenses could be applied for and obtained in relation to certain other categories of transactions.
HM Treasury’s Office of Financial Sanctions Implementation (OFSI) has published a limited General Licence allowing parties to undertake certain acts that would otherwise be prohibited by the restrictions imposed under the investment ban. This General Licence is effective, however, for a timeframe of just seven days and expires on 26 July 2022.
OFSI has updated its Russia Guidance on the UK-Russia Regulations (including the FAQs section) to reflect the changes introduced in relation to the new investment ban.
Prohibition on the Provision of Professional Services
The Russia (Sanctions) (EU Exit) (Amendment) (No. 14) Regulations 2022 implement restrictions on the provision by UK persons of professional services, including accountancy, business and management consulting and public relations services. These measures were originally announced by the UK government in May (see our previous alert).
It is now prohibited, subject to certain exemptions, for persons subject to UK sanctions jurisdiction to provide to a person connected with Russia:
- accounting services, including (among other activities) the review of financial statements, compilation of financial statements, valuations, and bookkeeping services;
- business and management consulting services, meaning “advisory, guidance and operational assistance services provided for business policy and strategy and the overall planning, structuring and control of an organisation”, and including human resources services; or
- public relations services, related to “improving the image of their clients and their relationship with the general public and other institutions”, but excluding services relating to advertising or public opinion polling.
The regulations include an exception for the provision of services that are conducted in satisfaction of compliance with UK statutory or regulatory obligations, or for certain prohibited services required under contracts concluded before 20 July 2022 (certain aspects of these exemptions are subject to prior notification requirements). Further exemptions have been introduced for the provision of services to diplomatic missions and international organisations in Russia.
Trade Restrictions
The Russia (Sanctions) (EU Exit) (Amendment) (No. 14) Regulations 2022 impose a number of new trade restrictions, some of which were previously announced by the UK government. In the case of all of the trade restrictions described below, the relevant prohibitions extend also to the provision of technical assistance, financial services or funds, or brokering services with respect to the relevant goods.
G7 dependency and further goods list goods
It is now prohibited for persons subject to UK sanctions jurisdiction to supply or deliver to Russia, or make available to a person connected with Russia or for use in Russia, items included in a new category of restricted goods, termed “G7 dependency and further goods list goods”, which are listed at Schedule 3E to the UK-Russia Regulations. Schedule 3E includes a broad range of items used in various commercial and industrial sectors.
Gold
It is now prohibited for persons subject to UK sanctions jurisdiction to import, or acquire, supply or deliver, gold from Russia. Gold products to which the restriction applies are listed in Schedule 3G to the UK-Russia Regulations.
Coal and oil restrictions
It likewise will be prohibited, effective 10 August 2022, for persons subject to UK sanctions jurisdiction to import, or acquire, supply or deliver, coal or coal products (as listed at Schedule 3H to the UK-Russia Regulations) that originate from or are located in Russia, with the intention of those products entering the UK. Similar prohibitions have been introduced with regard to oil and oil products (as listed at Schedule 3F to the UK-Russia Regulations), effective 31 December 2022.
The regulations include an exception from the oil-related prohibitions for activities relating to oil or oil products that originate in a country other than Russia, are not owned by a person connected with Russia and are only being loaded in, departing from or transiting through Russia.
Energy-related goods
The regulations introduce various amendments to existing restrictions in relation to energy-related goods (as listed at Part 2 of Schedule 3 to the UK-Russia Regulations) to render those prohibitions consistent with other export-related restrictions in the Regulations. As revised, the Regulations now include more consistent prohibitions on exporting, supplying, delivering, or making available restricted energy-related goods or associated services to Russia, persons connected with Russia, or elsewhere if intended for use in Russia.
Amendments to Designation Criteria
The Russia (Sanctions) (EU Exit) (Amendment) (No. 13) Regulations 2022 (the “Amendment 13 Regulations”) amend the criteria under which persons may be designated for the purposes of UK asset freezing sanctions to cover a broader range of Russian persons affiliated with government and state-owned entities, and with private individuals who previously have been designated. Those changes do not themselves result in additions to the UK sanctions list, but provide the UK government with a wider legal justification for imposing designations.
Further Amendments to the UK-Russia Regulations
The Russia (Sanctions) (EU Exit) (Amendment) (No. 11) Regulations 2022 (the “Amendment 11 Regulations”) revoked the Russia (Sanctions) (EU Exit) (Amendment) (No. 10) Regulations 2022 (the “Amendment 10 Regulations”) and reorganised, in annexes to the UK-Russia Regulations, many of the trade restrictions previously set down in Amendment 10 on defence and security goods and technology, maritime goods and technology, iron and steel products, banknotes, jet fuel and fuel additives and “revenue generating goods,” subject to certain minor changes and clarifications.
The Amendment 13 Regulations also include further amendments to the UK-Russia Regulations that:
- Introduce a new exception from restrictions relating to prohibited trade, infrastructure-related services or brokering services in relation to non-government controlled Ukrainian territory where such activity relates to the humanitarian assistance provided to the Donetsk or Luhansk oblasts; and
- amend the concept of ownership of a ship or aircraft to specify that for the purposes of the relevant restrictions under the UK-Russia Regulations (which restrict various services in relation to Russian vessels) such ownership will extend to parties that own a ship or aircraft via a majority interest or control over an entity that holds legal title of the relevant ship or aircraft.
OFSI / NCA Red Alert on Sanctions Evasion
On 12 July 2022, OFSI, acting in conjunction with the UK National Crime Agency (NCA), National Economic Crime Centre (NECC) and Joint Money Laundering Intelligence Taskforce (JMLIT) issued a “Red Alert” on Financial Sanctions Evasion Typologies: Russian Elites and Enablers.
The 15-page document sets out information concerning common techniques that designated persons and associated “enablers” are suspected by UK law enforcement to be using to evade sanctions measures imposed under the UK-Russia Regulations, including by transferring assets to proxies (such as family members) while seeking to retain control over those assets. The alert lists a number of “indicators” that might be indicative of attempted sanctions evasion.
Expansion of Reporting Obligations to Cryptoassets Sector
The Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2022 and The Sanctions (EU Exit) (Miscellaneous Amendments) (No.2) Regulations 2022 have introduced amendments to various UK sanctions measures, including the UK-Russia Regulations and other UK sanctions regulations, to expand the definition of “relevant firms” that are subject to financial sanctions government reporting obligations to include “cryptoasset exchange providers” and “custodian wallet providers”.
A “cryptoasset exchange provider” is defined as a firm or sole practitioner that by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved:
a) exchanging, or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets;
b) exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another; or
c) operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets.
A “custodian wallet provider” is defined as a firm or sole practitioner that by way of business provides services to safeguard, or to safeguard and administer:
a) cryptoassets on behalf of its customers; or
b) private cryptographic keys on behalf of its customers in order to hold, store and transfer cryptoassets.
Following the entry into force of this amendment on 30 August 2022, cryptoasset exchange providers and custodian wallet providers will be subject to a requirement to notify OFSI of certain information concerning potential breaches of sanctions, or information indicating that a given person or entity may be subject to asset-freezing sanctions (e.g., due to being owned or controlled by designated persons).
Further EU Sanctions Developments
On 15 July 2022, the European Commission announced a joint proposal for further measures to “maintain and strengthen the effectiveness of the EU’s wide-ranging and unprecedented packages against Russia”. The package, which is focused primarily on “maintenance and alignment” of sanctions measures with allies and partners, including the G7, includes proposals to:
- Introduce an import ban on Russian gold;
- Reinforce dual use and advanced technology export controls;
- Strengthen reporting requirements to “tighten EU asset freezes;”
- Clarify the exact scope of certain existing sanctions; and
- Extend the current EU sanctions on Russia for six months (until the next review in January 2023).
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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 practice.
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