UK publishes new Russia sanctions legislation expanding designation grounds

As mentioned in our previous post, in recent weeks the UK has issued various statements in relation to the possibility of additional sanctions on Russia in response to the current situation in Ukraine, including an announcement that new sanctions would come into force by 10 February. On 10 February, new legislation was published which expands the available designation grounds in relation to the UK's existing Russia sanctions regime, introducing the possibility of the imposition of sanctions on additional Russian targets.

The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022 (the "New Regulations") came into force at 5pm on 10 February and amend the Russia (Sanctions) (EU Exit) Regulations 2019 (the "2019 Regulations") which set out the UK's post-Brexit Russia sanctions regime. In announcing the New Regulations, the Foreign Commonwealth & Development Office stated that they provide "the framework for the strongest sanctions regime the UK has had against Russia".

Under the 2019 Regulations, a designation decision required reasonable grounds to suspect that the person in question is an "involved person", namely a person who is or has been involved in "destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine" or is owned or controlled, acting on behalf of, a member of, or associated with such a person. The New Regulations expand the definition of "involved person" to also cover a person who "is or has been involved in… obtaining a benefit from or supporting the Government of Russia". This comprises the following:

• carrying on business as a Government of Russia-affiliated entity;
• carrying on a business of economic significance to the Government of Russia;
• carrying on business in a sector of strategic significance to the Government of Russia; and
• owning or controlling directly or indirectly, or working as a director, trustee or equivalent of any of the above.

For these purposes, the "Government of Russia" means: (i) the Presidency of the Russian Federation, (ii) public bodies and agencies subordinate to the President of the Russian Federation, (iii) the Chairman of the Government of the Russian Federation and the Chairman's deputies, (iv) any Ministry of the Russian Federation, (v) any other public body or agency of the Government of the Russian Federation, and (vii) the Central Bank of the Russian Federation.

A "Government of Russia-affiliated entity" means a person other than an individual: (i) which is owned or controlled directly or indirectly by the Government of Russia, (ii) in which the Government of Russia holds directly or indirectly a minority interest, (iii) which receives, or has received, financing directly or indirectly from the Russian Direct Investment Fund or the National Wealth Fund, or (iv) which otherwise obtains a financial benefit or other material benefit from the Government of Russia.

The New Regulations list the following as sectors of "strategic significance": (i) chemicals, (ii) construction, (iii) defence, (iv) electronics, (v) energy, (vi) extractives, (vii) financial services, (viii) information, communications and digital technologies, and (ix) transport.

The designation grounds in the New Regulations also capture persons who are owned or controlled, acting on behalf of, a member of other otherwise associated with a person who is or has been involved in the above activities.

The breadth of these new designation grounds gives the UK the power to expand its current list of asset freeze targets to a wide range of new individuals and entities. However, it is important to note that no new designations have been announced at the time of writing and so there is no practical change to the current sanctions position. The impact of any new designations will of course depend on precisely which individuals and entities are added to the list; any such new designations could potentially take place at very short notice as no further legislative action would be required. Of particular note are the ability to impose sanctions on entities owned or controlled by the new categories of "involved person" and the breadth of the definition of "Government of Russia-affiliated entity" (which captures entities in which the Russian government has only a minority interest). There is therefore the potential for a wide range of non-Russian companies to fall within scope of the sanctions due to their ownership or control.

As mentioned in our previous post, statements by the UK Foreign Secretary and others have mentioned a broad package of Russia sanctions as being under discussion. Previous statements have suggested that this would potentially go beyond the changes introduced by the New Regulations; although no details of other elements of the package have been announced, commentators have speculated that these could include, for example, an extension of the current Russian sectoral sanctions regime in addition to the broader asset freeze powers introduced by the New Regulations. The extent to which additional sanctions measures remain under debate within the UK and/or with its international partners is not currently clear.  During the debate in Parliament on 10 February, MPs commented on press speculation that the proposed sanctions package had fallen through due to the delay in publishing the New Regulations in advance of the 10 February deadline set by the Foreign Secretary, and noted that, due to timing restrictions imposed by the recess of Parliament, there would not be time to debate or scrutinise the new measures.