UK Sanctions: Legal Advisory Services Prohibition

UK Sanctions: Legal Advisory Services Prohibition

September 22, 2023, Covington Alert

As noted in our client alert of June 30, 2023, on June 29, the UK Government issued the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023 (hereinafter, the “Amendments”), which introduced a new prohibition on the provision of legal advisory services in relation to Russia, subject to certain exemptions. This alert summarizes the current state of play with regard to the UK legal services prohibition, including measures that companies and their UK legal advisors can pursue to continue to enable UK lawyers to advise clients concerning matters relating to Russia.

Background

The Amendments expand on pre-existing professional services-related prohibitions in the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Regulations”) by prohibiting UK persons from “directly or indirectly provid[ing] legal advisory services [to] any person who is not a United Kingdom person in relation to, or in connection with” any activity (subject to certain exemptions) that would be prohibited under the Regulations if undertaken by a person subject to UK sanctions jurisdiction. As framed, the Regulations would, for example, prohibit (absent licensing or an exemption) a UK-based lawyer from providing U.S. economic sanctions advice to a non-UK client, if the underlying transaction would be prohibited if undertaken by a UK person. The prohibition applies both to external and to in-house counsel.

The prohibition is subject to exemptions in relation to (1) advice concerning compliance with UK sanctions or, more broadly, the “discharge or compliance with UK statutory or regulatory obligations”; and (2) advice provided before the end of September 29, 2023, pursuant to obligations arising under a contract concluded before June 30, 2023 (the latter is subject to a requirement that persons who act under the exemption must notify the UK Government that they have done so by September 29).

The Amendments were issued by the UK Government with no prior notice, and no prior consultation with the UK legal community. Seven days following the issuance of the Amendments, our firm issued a letter to the UK Parliament—which the relevant Parliamentary committee subsequently introduced into the Parliamentary record (available at the following link)—highlighting the potential impact of the Amendments on the ability of lawyers subject to UK sanctions jurisdiction to provide compliance-related advice, and requesting that the Amendments be revoked or amended. In response to our letter, and similar critiques of the Amendments provided by the Law Society of England and Wales (“Law Society”) (which we consulted with the Law Society on), the UK Foreign, Commonwealth and Development Office and Ministry of Justice acknowledged that the Amendments had the unintended effect of impeding UK lawyers from providing compliance advice, and committed to issue a general licence in the short term to mitigate the issue, while also committing to consider further amendments to the Regulations over the longer term.

Legal Services General Licence

The UK Department for Business & Trade issued the general licence (“GL”) on August 11, 2023. (Working with the Law Society, our firm was involved in framing the text of the GL.) The GL broadly authorizes compliance-related advice, among other types of advice. However, the GL affirmatively requires persons that use the license to register on the Department for Business & Trade’s SPIRE online licensing platform (within 30 days of the first use of the GL), to maintain records of actions undertaken under the authority of the GL, and to make those records available for inspection by the UK Government. That requirement flows from Regulation 76 of the Regulations, which provides that persons who use general licences issued under the Regulations:

“must keep a register or record containing such details as may be necessary to allow the following information, where appropriate, to be identified in relation to each act done under the authority of the licence –

(a)a description of the act;

(b)a description of any goods, technology, services or funds to which the act relates;

(c)the date of the act or the dates between which the act took place;

(d)the quantity of any goods or funds to which the act relates;

(e)P's name and address;

(f)the name and address of any consignee of goods to which the act relates or any recipient of technology, services or funds to which the act relates;

(g)in so far as it is known to P, the name and address of the end-user of the goods, technology, services or funds to which the act relates;

(h)if different from P, the name and address of the supplier of any goods to which the act relates;

(i)any further information required by the licence.”

Those inspection and reporting standards are obviously inapposite in the context of the provision of legal advice, as lawyers should not be expected to disclose information concerning the legal advice they provide to clients to the UK Government. As a consequence, we have stressed to the Government—as has the Law Society and the American Bar Association’s International Law Section (which we consulted with on this matter, and which provided comments to the UK Government concerning the Amendments on September 15)—that the Government must amend the Regulations to exclude from the scope of the legal services prohibition compliance-related advice.

In response, the Government has acknowledged the foregoing concerns and confirmed that Regulation 79(3) of the Regulations—which provides that “nothing” in the Regulations’ recordkeeping and inspection provisions “is to be read as requiring a person who has acted or is acting as counsel or solicitor for any person to disclose any privileged information in their possession in that capacity”—applies in relation to the GL and the legal services prohibition. The Government has further confirmed, in published guidance, that it does not view information subject to foreign legal privilege protection to be subject to disclosure obligations in relation to the GL:

“Under Regulation 79(3), information with respect to which a claim to legal professional privilege (in Scotland, to confidentiality of communications) could be maintained in legal proceedings does not have to be disclosed in relation to this general licence. The Secretary of State does not consider the retention of such information, or information which is protected from disclosure under laws of privilege applicable in other jurisdictions to be “appropriate” under Regulation 76(2) for the purposes of the general licence.”

The Government has further committed to consider amendments to the Regulations that would establish a clear carve-out for compliance-related advice. The Ministry of Justice has convened a working group to consider potential amendments, of which our firm will be a member.

Current Status

Our firm will register for the GL, in order to ensure that our lawyers who are subject to the jurisdictional reach of the Regulations can continue to provide compliance-related advice to our clients that may fall within the ostensible scope of the UK legal services prohibition. In doing so, consistent with the Government’s guidance and Regulation 79(3), we will simply inform the Government that we are using the GL, and intend to provide no further information to the Government. Based on the Government’s guidance, and separate discussions we have had with Government stakeholders on this matter, it is our understanding that the Government does not intend to seek such further information.

Lawyers, companies, and firms that are subject to UK sanctions jurisdiction and provide Russia-related advice—including in-house counsel—should similarly consider registering for the GL. Consistent with the general jurisdictional provisions of the Regulations and associated UK sanctions legislation, the legal services prohibition would extend to the conduct of (1) any lawyers, located anywhere in the world, of UK nationality; or (2) any lawyers, irrespective of nationality, located physically in the UK or working for a UK company or firm.

We will continue to press the Government to introduce amendments to the Regulations to narrow the scope of the legal services prohibition to exclude compliance-related advice, so that lawyers can provide that advice without the need to rely on a general licensing regime. Based on our discussions with the Government, we are optimistic that appropriate amendments will be introduced, although we do not have a reliable sense of the timing of those amendments.

If you have any questions concerning the UK legal services prohibition, please contact the members of our International Trade Controls practice.