Sanctions tracker – UK and EU introduce new Russian sanctions

The last week has seen a further flurry of Russian sanctions activity, with both the UK and the EU introducing new restrictions. In this briefing we summarise the new UK restrictions, in particular the additional restrictions on the provision of services to Russia, and the EU’s ninth Russia sanctions package.

UK

The Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (the “No. 17 Regulations”) were published on 15 December, making various amendments to the UK’s principal sanctions legislation, the Russia (Sanctions) (EU Exit) Regulations 2019 (the “UK Regulations”).

We have summarised the key amendments introduced in the No. 17 Regulations below.

Trust services

The No. 17 Regulations introduce a prohibition on providing trust services to or for the benefit of: (i) a designated person, or (ii) a person connected with Russia (“C”). In respect of (ii), there is an exception for services provided pursuant to an ongoing arrangement under which those services were provided to or for the benefit of C immediately before 16 December. For these purposes, trust services are provided for the benefit of a person (“B”) where:

• B is a beneficiary of a trust or similar arrangement;
• B is referred to as a potential beneficiary in a document from the settlor relating to a trust or similar arrangement (such as a letter of wishes); or
• having regard to all the circumstances, B might reasonably be expected to obtain, or be able to obtain, a significant financial benefit from the trust or similar arrangement.

For the purposes of these restrictions, “designated person” does not mean any target of the UK’s asset freeze. Rather, the No. 17 Regulations give the Secretary of State a new power to designate individuals and entities for the purposes of the trust services restrictions. Any such designations will be recorded in the “sanctions imposed” field of the UK Sanctions List. “Person connected with Russia” (or “PCWR”) has the same meaning as elsewhere in the UK Regulations, namely: (i) an individual (or combination of individuals) ordinarily resident or located in Russia; or (ii) an entity incorporated/constituted under the law of Russia or domiciled in Russia (Regulation 19A of the UK Regulations).

The trusts services covered by this restriction are:

• the creation of a trust or similar arrangement;
• the provision of a registered office, business address, correspondence address, or administrative address for a trust or similar arrangement;
• the operation or management of a trust or similar arrangement; or
• acting or arranging for another person to act as trustee of a trust or similar arrangement.

A number of exemptions appear in new Regulation 60ZZB of the UK Regulations, including in relation to the following:

• services provided in relation to the discharge of or compliance with UK statutory or regulatory obligations;
• trust services provided to various specific types of trusts/arrangements, where the services are not provided primarily to, or for the benefit of a designated person or a PCWR. These include sports clubs, charities, unit trust schemes, and pension schemes (among others); and
• trust services provided to specific individuals where the services are not provided primarily to or for the benefit of a designated person, including persons under the age of 18 and persons who are deemed to lack capacity.

Licences may also be granted by the Office of Financial Sanctions Implementation for the provision of trust services in accordance with Regulation 64 (as amended).

Professional and business services

The No. 17 Regulations also extend the existing restrictions on the provision to Russia of professional and business services in the UK Regulations. Those restrictions previously applied to accounting services, business and management consulting services, and public relations services (as described in more detail in our previous post) but now also extend to:

• advertising services – defined by reference to the 2002 Central Product Classification and comprising:
  • planning, creating and placement services of advertising;
  • purchase or sale of advertising space or time, on commission;
  • sale of advertising space in print media (except on commission);
  • sale of TV/radio advertising time (except on commission);
  • sale of internet advertising space (except on commission); and
  • other advertising services;
• architectural services – defined by reference to the 1991 Central Product Classification and comprising:
  • advisory and pre-design architectural services;
  • architectural design services;
  • contract administration services;
  • combined architectural design and contract administration services;
  • other architectural services;
  • urban planning services; and
  • landscape agricultural services;
• auditing services, defined as services consisting of the examination of the accounting records and other supporting evidence of an organisation for the purpose of expressing an opinion as to (a) whether financial statements of the organisation present fairly its position as at a given date, and (b) the results of its operations for the period ending on that date, in accordance with generally accepted accounting principles;
• engineering services – defined by reference to the 1991 Central Product Classification and comprising:
  • advisory and consultative engineering services;
  • engineering design services for the constriction of foundations and building structure, mechanical and electrical installations for buildings, the construction of civil engineering works, industrial processes and production and other engineering design services not elsewhere classified;
  • other engineering services;
  • integrated engineering services for transportation infrastructure turnkey projects, water supply and sanitation works turnkey projects and other turnkey projects;
  • geological, geophysical and other scientific prospecting services;
  • subsurface surveying services;
  • map making services;
  • composition and purity testing and analysis services;
  • testing and analysis services of physical properties and of integrated mechanical and electrical systems;
  • technical inspection services; and
  • other technical testing and analysis services; and
• IT consultancy and design services – defined by reference to the 2015 Central Product Classification and comprising:
  • IT consulting services; and
  • IT design and development services for applications.

The exemptions in the UK Regulations relating to professional and business services have been amended and now comprise the following:

Relevant services:	Exemption in respect of:
Accounting Business and management consulting Engineering Public relations	The discharge of, or compliance with, UK statutory or regulatory obligations (not arising under contract).
Advertising Architectural Engineering IT consultancy and design	Obligations arising under pre-16 December contracts, provided that the act is carried out by 15 March 2023 and the Secretary of State is notified.
Auditing	Obligations arising from the appointment of the service provider as the auditor of a parent undertaking (“C”), provided that certain conditions apply: –       where C is a credit institution, the services are for one or both of the following purposes: (i) C (in its capacity as parent) deciding whether accounts of a subsidiary which is a PCWR should be included in C’s consolidated group accounts; and/or (ii) the conclusion in consolidated group accounts of such accounts; –       where C is not a credit institution: (i) the provider was appointed as C’s auditor before 16 December, (ii) the act is carried out before 31 May 2023, and (iii) the Secretary of State is notified. Services indirectly provided to a PCWR which is a parent of a subsidiary undertaking, where services are provided to the subsidiary in relation to the discharge of or compliance with UK statutory or regulator obligations.
IT consultancy and design	The provision of an electronic communications network or electronic communications service used for civilian purposes. Services that are incidental to the exchange of communications over the internet such as instant messaging, video conferencing, social networking and web browsing or hosting.
All	Any act necessary for the official purposes of a diplomatic mission or consular post in Russia or of an international organisation.

Licences may also be granted for the provision of services, in accordance with Regulation 65. While the trust services licensing regime described above falls within the remit of the Office of Financial Sanctions Implementation (“OFSI”), licences for professional services are dealt with by the Department for International Trade (specifically the Export Control Joint Unit). A summary of the licensing grounds available in respect of these restrictions can be found in the UK’s Russia statutory guidance.

Readers may recall that the UK has also previously announced a ban on the provision to Russia of transactional legal advisory services (this was announced at the same time as the professional services referred to above, and is discussed in our previous blogpost). However, legal services are not included in the scope of the No. 17 Regulations; these restrictions are still pending.

Investment restrictions

The Explanatory Memorandum to the No. 17 Regulations notes that the statutory instrument provides for amendments to the existing restrictions on dealing with transferable securities/money market instruments and the existing lending restrictions in order to “close loopholes”.

As readers will be aware, the UK Regulations include prohibitions on dealing with a range of transferable securities and money market instruments issued by Russian (or Russian-related) entities. The No. 17 Regulations introduce a new category of restricted securities, namely those issued on or after 16 December, by a person which is not a PCWR, for the purpose of an activity mentioned in Regulation 18B(2) of the UK Regulations. Regulation 18B introduced various investment restrictions in relation to Russia (as summarised in our previous blogpost), which comprised a ban on the following activities:

• 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 PCWR, or (ii) for the benefit of a PCWR (the “Relevant Purpose”);
• directly acquiring any ownership interest in or control over a PCR or indirectly doing the same for the Relevant Purpose;
• directly or indirectly acquiring any ownership interest in order control over a “relevant entity” for the Relevant Purpose (a relevant entity being an entity which is not a PCWR);
• directly or indirectly establishing any joint venture with a PCWR;
• 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.

The new restrictions therefore expressly prohibit dealings with transferable securities or money market instruments for the purpose of carrying out any of the above activities in order to close a possible means of evasion/circumvention of the existing restrictions.

Similarly, the No. 17 Regulations also create a new category of prohibited loans. “Category 6” loans are those made on or after 16 December for any of the above purposes, and are now prohibited by the UK Regulations.

The lending restrictions (in respect of all six current categories of restricted loans) have also been broadened by the inclusion of a new prohibition on making funds or economic resources available to a relevant entity (“E”) where the purpose of doing so is to enable E to grant a relevant loan on or after 16 December.

Certain minor amendments have also been made to Regulation 60ZZA of the UK Regulations, which contains exemptions relating to the restrictions on Russian investments.

OFSI have also issued a general licence (GL INT / 2022 / 2448692) granting a seven day wind down period (until 22 December) in respect of the above activities.

Other amendments

The No. 17 Regulations disapply the Bank of England’s duty (under the Banking Act 2009) to make a decision in respect of a notification of third country resolution action in respect of designated persons (or entities owned or controlled by designated persons). Resolution is the process by which regulatory authorities manage the orderly failure of financial institutions.

The No. 17 Regulations also make certain minor amendments to the existing trade sanctions contained in the UK Regulations, including the addition of a number of entries to the following lists of restricted goods:

• critical industry goods; and
• defence and security goods.

Updated OFSI guidance

On 16 December, OFSI issued an updated version of its Russia sanctions guidance to include reference to the new trust services and transferable securities/lending restrictions.

New designations

On 13 December, the Foreign Commonwealth & Development Office announced the imposition of asset freezing sanctions on a further 16 Russian individuals targeting commanders of Russian military forces along with Iranian individuals said to be involved in the production and/or supply of military drones used by Russian forces. OFSI have published a notice in respect of the latest designations.

EU

On 16 December, the European Commission and the Council of the EU announced the adoption of the EU’s ninth Russia sanctions package (the key elements of which were summarised in our previous blogpost). The relevant legislation was also published on the same day.

We have summarised the key amendments to the EU’s Russia sanctions regime below.

Further designations

The EU has listed almost 200 additional individuals and entities to its existing asset freeze list with effect from 16 December. This includes the Russian armed forces, individual officers and defence companies, politicians and key figures involved in missile strikes and other activities in Ukraine. The relevant names can be found in the Annex to Council Implementing Regulation (EU) 2022/2476, implementing Regulation (EU) No 269/2014 (“Regulation 269/2014”).

Regulation 269/2014 has also been amended (by Council Regulation (EU) 2022/2475) (also with effect from 16 December) as follows:

• an amendment to the existing licensing ground permitting the wind-down of transactions with Sberbank (bringing the deadline forward to 17 June 2023);
• the introduction of equivalent grounds in respect of Credit Bank of Moscow and JSC “Far Eastern Bank”, both of which were added to the asset freeze as part of the ninth package;
• an amendment to the existing licensing ground permitting transactions necessary for the sale and transfer of proprietary rights in an EU entity where those rights are directly or indirectly owned by a designated person. The original deadline for such divestments was 31 December 2022; this has been extended to 28 February 2023; and
• Article 6e of Regulation 269/2014 (which contained a licencing ground in respect of specified designated persons in respect of transactions necessary for the purchase, import or transport of agricultural and food products) has been expanded to cover any designated persons “who held a significant role in international trade in agricultural and food products”.

Investment restrictions

Council Regulation (EU) 2022/2474 (“Regulation 2022/2474”) amends Regulation (EU) No 833/2014 (“Regulation 833/2014”) to introduce a number of the new measures contained within the ninth package. Regulation 2022/2474 came into force on 17 December.

The first of these is the extension of the existing energy sector investment ban to the mining and quarrying sector, defined as “a sector covering the location, extraction, management and processing activities relating to non-energy producing materials”. The new investment ban takes the same form as the existing energy restrictions, such that the following activities are prohibited for EU persons:

• acquiring any new, or extending any existing, participation in any Russian entity operating in the mining and quarrying sector in Russia, or any entity incorporated in a third country operating in the sector;
• granting or being part of any arrangement to grant any new loan or credit, or otherwise providing financing (including equity capital) to or for the documented purpose of financing such an entity;
• creating any new joint venture with such a person; or
• providing investment services directly related to any of the above.

The restrictions are subject to the existing licensing grounds applicable to the energy sector investment ban (as set out in Article 3a of Regulation 833/2014) and do not apply to mining and quarrying activities that yield their highest value from, or have as their primary objective, the production of any materials listed in Annex XXX to Regulation 833/2014. This includes critical raw materials such as aluminium, copper, iron ore, nickel, palladium and titanium.

Restrictions on state-owned entities

Russian Regional Development Bank has been added to Annex XIX of Regulation 833/2014, meaning that it is now subject to the EU’s transaction ban (described in our previous blogpost).

Regulation 2022/2474 also introduced a prohibition from 16 January 2023 on EU persons holding any posts in the governing bodies of Russian majority state-owned entities, their >50% subsidiaries and any entity acting on behalf of or at the direction of the same. This is subject to a number of specific licensing grounds, including in respect of pre-17 December EU-incorporated joint ventures, Russian entities which are owned or controlled by EU persons, and entities involved in energy supply or the transit through Russia of third country-origin oil. There is also a prior contracts exemption, as set out in Articles 5aa(2d) and (2e).

The existing restrictions in Article 5(5) which prohibits the listing and provision of services on EU trading venues of securities of any Russian entity with over 50% public ownership has been extending to also cover the admission to trading of such securities from 29 January 2023.

Deposit restrictions

Regulation 2022/2474 introduces a new Article 5g(1)(aa) to the existing restrictions relating to Russian bank deposits. Credit institutions have an existing obligation to report to their Member State competent authority a list of deposits exceeding €100,000 held by Russian nationals or entities (discussed in our previous blogpost). This has been extended to also cover such deposits by non-EU entities owned as to more than 50% by Russian nationals or residents.

Services restrictions

The EU professional services restrictions have been expanded to cover:

• market research and public opinion polling services – defined in the Recitals to Regulation 2022/2474 as covering “market research services and public opinion polling services” in line with the 1991 Central Products Classification;
• technical testing and analysis services, covering:
  • composition and purity testing and analysis services;
  • testing and analysis services of physical properties;
  • testing and analysis services of integrated mechanical and electrical systems;
  • technical inspection services; and
  • other technical testing and analysis services; and
• advertising services, covering the sale or leasing services of advertising space or time, and the planning, creating and placement services of advertising, as well as other advertising services.

In all cases it is prohibited to provide such services to the Government of Russia or entities established in Russia.

Trade sanctions

Regulation 2022/2474 introduces a new licensing ground in respect of the sale, supply or transfer of various goods subject to EU trade sanctions (as listed in Annexes II, VII, X, XI, XVI, XVIII, XX and XXIII, as well as dual use goods listed in Annex I to Regulation (EU) 2021/821) until 30 September 2023, where necessary for divestment from Russia or the wind-down of business activities in Russia. This is subject to a number of conditions, including that the goods in question are owned by a national of an EU Member State, an EU incorporated entity or by a Russian entity owned or controlled by an EU entity. A similar derogation is available in respect of the import or transfer of goods listed in Annexes XVII and XXI until the same date.

The ninth package also contains a number of other amendments to existing trade sanctions. The principal amendments are summarised below but any readers operating in industries affected by Russian trade sanctions should review the detail of the amendments carefully:

• additions have been made to the list of entities in Annex IV of Regulation 833/2014. Any request for a licence in respect of the supply of dual-use or military goods to Annex IV entities is subject to a presumption of refusal;
• amendments have also been made to the list of dual-use items subject to trade restrictions (in Annex VII);
• aircraft engine parts have been added to the Annex XI list of aviation and space industry goods (subject to restrictions under Article 3c of Regulation 833/2014), subject to an exemption until 16 January 2023 in respect of pre-existing contracts. Certain additional licensing grounds have also been introduced in respect of the aviation and space goods restrictions;
• certain additional exemptions to the iron and steel import ban have been introduced, principally in respect of products under CN code 7224 90, and Annex XVII (which lists the iron and steel products subject to restrictions) has been amended;
• minor amendments have been made to the Article 3i restrictions on the import of goods which generate significant revenues for Russia and the Article 3k restrictions on goods which could contribute to the enhancement of Russian industrial capacities; and
• amendments have been made to Article 3m (the prohibition on the import of Russian crude oil or petroleum products), including to extend the restrictions to the transfer of petroleum products obtained from crude oil imported on the basis of derogations available to Bulgaria, to permit the supply from Bulgaria, Hungary and Slovakia to Ukraine of certain products (as listed in Annex XXXI) and the supply from Bulgaria to third countries of products listed in Annex XXXII.

Broadcasting

The Council has also initiated the process for suspending the broadcasting licences of the following media outlets by adding them to Annex XV of Regulation 833/2014:

• NTV/NTV Mir;
• Rossiya 1;
• REN TV; and
• Pervyi Canal.

The restrictions will apply from 1 February 2023 subject to the issuance of a further Council Decision.

In line with the Charter of Fundamental Rights, these measures will not prevent those media outlets and their staff from carrying out activities in the EU other than broadcasting, e.g. research and interviews.