Sanctions tracker – latest developments in respect of UK and EU sanctions imposed on Russia

Following several weeks of significant changes to both the UK and the EU sanctions imposed in respect of Russia in response the Russian invasion of Ukraine in late February (last week's developments are summarised in our Sanctions Tracker), no new UK or EU restrictive measures had been introduced or announced  until this morning (24 March 2022) when the UK designated a further 65 persons under its Russian and Belarussian sanctions regulations.

Further measures co-ordinated with the US and other G7 nations are expected to be announced on 25 March, however. The US indicated that President Joe Biden will "join our partners in imposing further sanctions on Russia and tightening the existing sanctions" during a visit to Europe, which includes attending a NATO meeting and a summit of the European Council. The details of any further sanctions packages are not yet known but reports indicate that they are expected to include measures to tackle sanctions circumvention.

In addition, whilst the law has not changed, there have been significant developments in terms of the issuance of guidance to assist in the interpretation of recently introduced laws and general licences to mitigate these effects. As companies continue to maintain best efforts to comply with the rapidly changing sanctions landscape, such guidance and licences are to be welcomed.

UK developments

The Office of Financial Sanctions Implementation ("OFSI") has made an important update on 22 March 2022 to its general guidance to include advice in respect of the aggregation of interests held by designated persons. OFSI has also published General Licence INT/2022/1381276 allowing for the winding down of certain transactions involving the Central Bank of the Russian Federation ("CBR"), the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation. A separate general trade licence in respect of vessels was published by the Department of International Trade on 16 March 2022. On 24 March 2022, OFSI announced the designation of 33 individuals and 26 entities under both the Russian and Belarussian sanctions regulations We discuss these developments below.

Guidance on aggregation

Asset freezing sanctions apply to the designated person and regulations made under the UK's Sanctions and Anti-Money Laundering Act 2018, including the Russia (Sanctions)(EU Exit) Regulations 2019 (the "UK Regulations") expressly provide that funds or economic resources are to be treated as owned, held or controlled by a designated person if they are owned, held or controlled by a person who is in turn owned or controlled, directly or indirectly, by the designated person (we first discussed the ownership and control test in a briefing after the UK's autonomous sanctions regime came into effect post-Brexit in January 2021).

In contrast to the US position, which is clear that the funds or economic assets of a company or entity in which multiple designated persons have an interest should be frozen if the designated persons have an aggregate interest of more than 50%, the UK had, until recently, been silent on the position of aggregation of interests. However, following the designation of a significant number of persons in recent weeks, OFSI updated its general guidance on 22 March to clarify that the interests of different designated persons in a company should not be aggregated unless there is some evidence of co-operation or co-ordination between the relevant designated persons, which would suggest that one designated person controls the rights of another (eg a joint arrangement in respect of shares or rights in the company).

As a result, in the absence of evidence of a joint arrangement, a company will not be considered to be directly or indirectly owned by a designated person, such that the asset freeze would apply, if each individual designated person's interest falls below the 50% threshold for ownership (regardless of whether the aggregated interests of designated persons in the company surpass this threshold).

Other elements of control should still be considered, however, such as whether a designated person holds more than 50% of voting rights or has the right to appoint or remove the majority of the board of directors, or if it is reasonable to expect that the designated person would be able to ensure that the affairs of the company are conducted in significant respects in accordance with their wishes.

The EU has also recently issued guidance on this point, as discussed further below.

Also on the topic of sanctions guidance, some readers may have attended the UK government's webinar on sanctions on 17 March. A recording of that webinar has now been made available "for a short time".

New designations

The UK has designated a further 33 individuals and 26 entities identified as being involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine, or obtaining a benefit from or supporting the Government of Russia under the Russian regulations. A further six persons have been designated under the Belarus regulations.

Many of these persons have previously been designated by Canada and/or Australia and have now been designated by the UK pursuant to the new powers introduced by the Economic Crime (Transparency and Enforcement) Act 2022 (discussed in our previous blogpost).

New general licences

OFSI issued General Licence INT/2022/1381276 on 23 March, which allows for the provision of financial services for the purposes of winding down of any derivatives, repurchase and reverse repurchase transactions entered into prior to 1 March with (i) the CBR; (ii) the National Wealth Fund; or (iii) the Ministry of Finance of the Russian Federation (together the "Regulation 18A Entities") until 2 May 2022. The publication notice in respect of this general licence is available here.

The Regulation 18A entities (and their subsidiaries, and persons acting on their behalf or at their direction) are subject to restrictions relating to the provision of financial services for the purpose of foreign exchange reserve and asset management (as discussed in our previous blogpost).

As with other “wind down” general licences issued in respect of Russian sanctions, the new general licence does not permit any act which the person carrying out the act knows, or has reasonable grounds for suspecting, will result in funds or economic resources being dealt with or made available in breach of the UK Regulations (save as permitted under the general licence or any other licence granted under the UK Regulations).

The Department of International Trade published a general licence in respect of vessels on 16 March 2022, which came into force on 17 March. The licence authorises the export, direct or indirect supply or delivery, making available, transfer or provision of technical assistance, financial services or brokering services in respect of vessels and their component parts (which are now restricted goods and technology by virtue of their inclusion in the UK Regulations as "critical-industry" goods and technology).

Certain conditions are required to be met before the licence can be relied on, namely:

• The vessel must be moving to or from Russia, or transiting Russian territorial waters;
• The vessel must be moving under its own power; and
• The movement of the vessel is not for the purposes of a transfer of ownership of the vessel or its component parts, or a change of the operator of the vessel.

There are additional conditions to be met in respect of the provision of insurance and reinsurance services, which relate to the reinsurance of certain obligations and the continued enforceability of the underlying insurance obligations.

The licence only covers activities that relate to vessels and does not contain a time limit/expiry.

UK measures announced but not yet in force

By way of recap, the UK has announced a number of measures which have yet to come into force. This includes restrictions in respect of deposits exceeding £50,000 (similar to the EU measures introduced on 26 February, discussed in our blogpost here) which were announced at the end of February but have yet to be introduced.

The UK has also announced that it intends to introduce further restrictions in respect of the energy sector, although the details of any future measures have not been announced and it is not clear that UK measures would be as restrictive as those introduced by the EU last week which includes a ban on new investment in the Russian energy sector and the expansion of the existing trade sanctions regarding equipment, technology and services relevant to the energy sector (discussed in our blogpost here).

EU developments

The EU has published a list of frequently asked questions ("FAQs") on various elements of the current Russian sanctions regime, including (among others):

• the jurisdictional scope of EU sanctions;
• the asset freeze, including the question of whether to aggregate ownership stakes held by multiple designated persons. The EU has taken a different approach to the UK, concluding that such holdings should be aggregated (although this remains a rebuttable presumption) – i.e. if one designated person holds 30% of a company, and another holds 25%, the company should be considered as jointly owned and controlled by designated persons and dealing with the company could be regarded as making funds or economic resources indirectly available to those designated persons;
• circumvention and due diligence;
• the restrictions on accepting deposits from Russian account holders; and
• the restrictions on SWIFT access for certain Russian banks.

Within the above FAQ page, the Commission has published freestanding FAQs in respect of restrictions on dual use goods (Article 2, 2a and 2b of Council Regulation 833/2014). These FAQs cover a wide-range of topics and include guidance in respect of the practical operation of the dual-use restrictions, including in relation to continued performance under pre-existing contracts and how the term "contracts" should be interpreted (the term is not defined in Regulation 833/2014 but the FAQs indicate that a contract will be considered concluded when it contains all the necessary elements for the execution of a transaction (eg description of product, price, delivery dates, modalities of performance, etc)).

Response 42 indicates that Articles 2 and 2a of Regulation 833/2014, and the restriction on providing technical assistance in respect of dual use goods and technology extends to non-EU nationals working for a non-Russian company in the EU. The EU considers that the release of controlled technology, including knowledge, to a foreign person is an "intangible technology transfer" which is considered a deemed export. The FAQs suggest that the restrictions on technical assistance in respect of dual use goods extend to cover foreign nationals in the EU, such that EU companies should restrict the access of Russian (and non-EU) nationals to any knowledge and technology covered by the prohibitions in Articles 2 and 2a in circumstances where the knowledge or technology would be used in Russia. This may have implications for how companies chose to structure teams working with dual use goods and technology.

Although they are framed as specific to the restrictions on dual-use goods, some of the concepts dealt with in the FAQs appear in other EU trade sanctions, such that the FAQs may have a broader read across to some of the other Russia-related restrictions.

The Commission also issued dedicated FAQs in respect of aviation restrictions, insurance and reinsurance  and customs related matters, and has indicated that it intends to publish further FAQs in the near future (as indicated at various points on the main FAQ page).