Sanctions tracker: new UK sanctions legislation, sanctions enforcement updates and more

This update contains a round-up of recent EU and UK Russia sanctions developments. In particular, we look at a raft of new UK sanctions legislation, as well as other developments in both jurisdictions.

UK

New sanctions legislation

The UK has published three sets of amending regulations in relation to its Russia sanctions legislation:

1. the Russia (Sanctions) (EU Exit) (Amendment) (No. 11) Regulations 2022 (the "No. 11 Regulations"), which came into force on 15 July;
2. the Russia (Sanctions) (EU Exit) (Amendment) (No. 12) Regulations 2022 (the "No. 12 Regulations"), which came into force on 19 July; and
3. the Russia (Sanctions) (EU Exit) (Amendment) (No. 13) Regulations 2022 (the "No. 13 Regulations"), which came into force on 18 July,

(together the "Amending Regulations").

The Amending Regulations all make various amendments to the Russia (Sanctions) (EU Exit) Regulations 2019 (the "Russia Regulations"). We summarise those amendments in the following paragraphs.

No.11 Regulations: Minor and technical changes

The No.11 Regulations revoke and replace the most recent UK Russia legislation: the Russia (Sanctions) (EU Exit) (Amendment) (No.10) Regulations 2022 (the "No.10 Regulations") (discussed in our previous blogpost). The original explanatory note to the No.11 Regulations stated that this was to rectify errors in the No.10 Regulations, including because the No.10 Regulations imposed restrictions which were not permitted under the Sanctions and Money Laundering Act 2018 (although this has subsequently been amended). The No.11 Regulations therefore largely restate the No. 10 Regulations, with the following key changes:

• The No.11 Regulations make certain amendments to the restrictions relating to maritime goods and technology introduced by the No. 10 Regulations. In particular, they remove some (but not all) of the restrictions relating to the export etc. of maritime technology.
• The No. 10 Regulations introduced restrictions on the provision of interception and monitoring services to or for the benefit of the Government of Russia. Those provisions have been amended by the No. 11 Regulations to remove the restriction on directly or indirectly supplying or delivering such services from a third country (although the restriction on providing such services otherwise remains).
• As a result of the minor amendments made, there have also been certain changes to the numbering of the Russia Regulations.

No.12 Regulations: New investment restrictions

More substantively, the No. 12 Regulations introduce new restrictions on investment into Russia (via new Regulation 18B of the Russia Regulations).

The following activities are prohibited:

• directly acquiring any ownership interest in land located in Russia;
• indirectly acquiring any such ownership interest for the purpose of making funds or economic resources available: (i) directly or indirectly to a person connected with Russia, or (ii) for the benefit of a person connected with Russia (the "Relevant Purpose");
• directly acquiring any ownership interest in or control over a person connected with Russia or indirectly doing the same for the Relevant Purpose;
• directly or indirectly acquiring any ownership interest in or control over a "relevant entity" for the Relevant Purpose;
• directly or indirectly establishing any joint venture with a person connected with Russia;
• opening a representative office or establishing a branch or subsidiary located in Russia; or
• providing investment services directly related to any of the above activities.

For the purposes of the Russia Regulations, a person (other than an individual) is connected with Russia if they are incorporated or domiciled in, or constituted under the law of, Russia. A "relevant entity" is a person, other than an individual, which has a place of business located in Russia but is not a person connected with Russia.

Importantly, in respect of the acquisition of securities, the tests are (as described above) different for the acquisition of shares in (a) persons connected with Russia as opposed to (b) relevant entities, and in respect of direct as opposed to indirect acquisitions. In all cases other than a direct acquisition of shares in a person connected with Russia, the Relevant Purpose test applies. The intention is presumably to enable transactions in the shares of non-Russian companies which continue to have some presence in Russia – provided that this will not lead to onward investment into Russia.

The new restrictions in the No.12 Regulations are subject to certain exemptions and licensing grounds including a prior contracts exemption allowing the satisfaction of obligations coming into force prior to the No.12 Regulations provided they are notified to HM Treasury with at least five working days' notice. A further important exemption (in new Regulation 60ZZA) addresses dealing with certain "relevant securities" issued by a person connected with Russia or relevant entity. These are defined to include certain securities (even in a person connected with Russia) admitted to trading on a regulated market or multilateral trading facility prior to the coming into force of the No.12 Regulations.

The Office of Financial Sanctions Implementation ("OFSI") has also issued a "wind-down" general licence (GL INT/2022/2002560) permitting activity which would otherwise be prohibited by Regulation 18B until 26 July 2022.

No.13 Regulations: amended designation criteria

The No. 13 Regulations amend the designation criteria in the Russia Regulations, in particular to give the UK the power to designate various persons associated with the Russian government, military and security services, and to enable the UK to designate immediate family members (as defined) of designated persons.

Reporting obligations of cryptoasset service providers

Finally, on 19 July, the UK also published the Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations 2022 which amend a series of UK sanctions regimes (including Russia) to add cryptoasset exchange providers and custodian wallet providers to the list of "relevant firms" subject to reporting requirements in relation to breaches of financial sanctions and information about designated persons/frozen assets (guidance on which is available here).

This amendment is not unique to the Russia Regulations, and has been made in respect of all current UK sanctions regimes via the above legislation and the Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2022. The expanded definition will come into force on 30 August 2022 and OFSI is hosting a webinar for affected firms next month.

Red alert on financial sanctions evasion

On 12 July 2022 the National Crime Agency (the "NCA"), National Economic Crime Centre, Joint Money Laundering Intelligence Taskforce and OFSI issued a joint red alert in relation to financial sanctions evasion typologies (the "Red Alert").

A more detailed briefing on the Red Alert will follow but, in summary, it notes that the NCA and other bodies have identified that designated persons are using a range of techniques to evade sanctions impacting on their personal and commercial holdings. While this behaviour has generally occurred prior to the imposition of sanctions, it is reportedly also happening shortly afterwards. The Red Alert sets out various methods by which this sanctions evasion is taking place, details of the government response to this threat, and a range of indicators of potential sanctions evasion.

Russia sanctions guidance

On 19 July, OFSI published a revised version of its Russia sanctions guidance. This has been amended to refer to the new investment restrictions mentioned above, and to update the previous FAQ section.

The new FAQs include further guidance on (among other things):

• ownership and control by designated persons;
• opening and maintenance of bank accounts for Russian nationals residing in the UK;
• transactions involving shares in a designated person;
• payment cards issued by sanctions Russian financial institutions; and
• the restrictions on dealing with certain transferable securities.

Humanitarian activity general licence

On 7 July, OFSI issued General Licence INT/2022/1947936 (the "Humanitarian GL") in respect of humanitarian activity. This allows the performance of activities by a "Relevant Person" (defined below) to ensure the timely delivery of humanitarian assistance activity in relation to the conflict in Ukraine, and other activities supporting basic human needs in the region, provided that those activities do not use funds or economic resources that are owned held or controlled by a designated person.  The list of Relevant Persons in the Humanitarian GL includes (among others) the UN, the Red Cross, Médecins sans Frontières and organisation receiving funding from the UK government for the purposes of providing humanitarian assistance. The Humanitarian GL also contains permissions for UK financial institutions to carry out activity effecting the delivery of humanitarian assistance. The Humanitarian GL does not have an expiry date.

In a related blog, OFSI notes that it has worked to minimise any unintended consequences of sanctions on the delivery of humanitarian support but that, as the number of designations has increased, the government recognises the increasing possibility that parts of the humanitarian supply chain may be affected, and the knock-on effect that this will have on licence applications. Companies currently experiencing delays in obtaining licences for non-humanitarian purposes may therefore take some comfort from the new Humanitarian GL in the hope that it may increase OFSI's capacity to review and respond to other licensing requests.

New sanctions announced but not yet implemented

On 26 June, the Prime Minister announced that "new exports of Russian gold will no longer be allowed to enter the UK". No legislation has yet been introduced in relation to these sanctions, although the press release states as follows: "the gold import ban, which will come into force shortly, will apply to newly mined or refined gold. It does not impact Russian-origin gold previously exported from Russia. There are no plans to extend restrictions to Russian gold purchased legitimately before the import ban was put in place".

On 29 June, in connection with announcing additional designations (see below), the Foreign Commonwealth & Development Office (the "FCDO") announced that: "the UK government is also acting alongside international allies to introduce new measures that will prevent Russia from accessing UK trusts services". At the time of writing, no legislation had been introduced in relation to these proposed restrictions.

Amendments to asset freeze list

There have been various amendments to the UK's asset freeze list since our last update. In particular, 13 individuals and entities were added to the list on 29 June (see OFSI's notice and related FCDO press release), and a further two individuals were added on 5 July (see OFSI's notice).

Additional sanctions on Belarus

On 5 July, the Republic of Belarus (Sanctions) (EU Exit) (Amendment) Regulations 2022 were published, expanding the existing UK sanctions against Belarus. As summarised in the FCDO's press release, the new measures include restrictions relating to:

• export of oil refining goods;
• export of advanced technology components;
• export of luxury goods; and
• imports of Belarusian iron and steel.

The press release also announces the addition of further Belarusian companies to the existing restrictions on issuing debt and securities.

OFSI issued two general licences relating to these amendments: (i) INT/2022/1976332 which allowed the dealing with certain securities, and making of certain loans, until 12 July 2022; and (ii) INT/2022/1976232 which allows for the wind-down of derivatives, repos and reverse repos entered into with the National Bank of Belarus and certain other parties until 4 August 2022.

EU

Proposal for "maintenance and alignment" sanctions package

On 15 July, the European Commission announced that it had adopted a joint proposal for a new package of measures to maintain and strengthen the effectiveness of the EU's existing six Russia sanctions package. The proposal is described as clarifying a number of provisions to strengthen legal certainty for operators and enforcement by Member States and further aligning the EU's sanctions with those of allies and partners. The package is described as including the following elements:

• a new import ban on Russian gold;
• reinforcing the dual use and advanced technology export controls;
• strengthening reporting requirements in relation to asset freezes;
• reiterating that EU sanctions do not target trade in agricultural products between third countries and Russia;
• clarifying the exact scope of some financial and economic sanctions; and
• extending the current EU sanctions for six months until the next review at the end of January 2023.

The package will be discussed by Member States in Council in view of its adoption.

EU sanctions enforcement

Our previous briefing commented on the Commission proposal to add the violation of EU sanctions to the list of "EU Crimes". The proposal was agreed with the Council and then submitted to the European Parliament for consent on 30 June, which Parliament provided on 7 July. It has been reported that Germany needs to pass domestic legislation before it can vote in favour of the proposal, meaning that final adoption of the relevant Decision by the Council will not take place until the autumn.

EU FAQs

The EU has continued to update its FAQ page relating to the Russian sanctions, including through additions to the FAQs on business services, trusts services, and the transit of goods from Russia.