Sanctions tracker: recent Russia sanctions developments

In this post, we provide a round-up of key recent Russia sanctions developments in the UK, including new and amended general licences, guidance from the Office of Financial Sanctions Implementation (“OFSI“) and developments in respect of sanctions on gold and circumvention.

Designations and NCA red alert in respect of gold

There has been an increased focus in recent months on addressing issues of sanctions circumvention and on 8 November 2023, the UK designated a number of individuals and entities suspected of assisting the Russian State in circumventing sanctions. The National Crime Agency (the “NCA“) (together with the National Economic Crime Centre, OFSI and other relevant agencies) issued a red alert in respect of gold-based financial and trade sanctions circumvention on the same day.

More specifically, the UK designated 29 individuals and entities suspected of operating in and supporting Russia’s gold, oil and strategic sectors, bringing the total number of persons designated by the UK to over 1,800. The individuals and entities designated include two of Russia’s largest gold producers, as well as several UK, Jersey and Dubai-based entities and individuals suspected of supporting or enabling the circumvention of restrictions in place in respect of the gold, oil and other strategic sectors of the Russian economy. Many of the entities designated operate in the extractives or energy sectors.

A red alert is a means by which the NCA provides information to non-law enforcement bodies, including the private sector, to combat and disrupt serious crime. The NCA has previously issued a red alert in respect of sanctions evasion typologies (a more detailed review of this and the key indicators of sanctions evasion is available in our previous blogpost here).

The most recent red alert (the “Alert“) is intended to provide information in respect of the common techniques used to evade sanctions related to gold and provides a summary of the relevant sanctions applicable to gold, which include:

• A prohibition on the import of gold exported from Russia into the UK in force since 21 July 2022;
• trade restrictions prohibiting the provision of funds and certain services to the Russian gold sector where the intention is for the gold to enter the UK;
• financial restrictions which prohibit the provision of financial services to certain specified entities for the purposes of foreign exchange reserve and asset management which apply to gold bullion; and
• asset freezes imposed on designated persons.

The Alert notes that gold is a significant income stream for Russia and can be used as an alternative means of exchange to circumvent sanctions. The Alert provides a summary of common circumvention techniques and indicators of circumvention (eg gold from conflict-affected areas, incomplete paperwork, cash-based transactions, etc), noting that typologies are likely to be different for the various forms of gold. The Alert also signposts certain industry guidance, including in respect of supply chain due diligence.

New and amended general licences

A number of general licences (“GLs“) have been issued or amended since the beginning of October 2023. The two new GLs relating to the Russian sanctions regime are:

• General Licence INT/2023/3626884, issued on 6 October 2023, which permits the payment of certain fees associated with filings of UK-incorporated entities to Companies House by/ on behalf of designated persons and those subject to a UK asset freeze. This GL was amended on 19 October 2023 to clarify the definition of “UK DP” and the payments permitted under the GL; and
• General Licence INT/2023/3744968 issued on 25 October 2023 in respect of legal fees owed by individuals and entities designated under the Russia and Belarus sanctions regimes (replacing INT/2023/2954852, which we discussed in more detail in our blogpost here and here). The new GL resets the professional legal fees caps and the expenses caps and extends the deadline for reporting a payment received under the GL to 14 days (up from 7 days). The new GL also requires that engagement letters sent to OFSI must be unredacted and that the Group ID of the relevant designated person must be included in a report.

OFSI has also amended several GLs since the beginning of October, including:

• General Licence INT/2023/3024200 in respect of prior contractual obligations was amended to change the definition of “Contractual obligation” and clarify some of the permissions, whilst also expanding the lists of excluded contracts;
• General Licence INT/2022/1552576 in respect of the payment of London Court of International Arbitration (“LCIA“) costs was amended to change the definition of “Arbitration Costs” which may be paid to the LCIA by/on behalf of a designated person;
• General Licence INT/2022/1839676 in respect of passenger rail or passenger air travel using certain designated Russian providers was amended to clarify that a UK Person may only purchase relevant tickets from a Designated Person or a subsidiary for passenger rail or air journeys originating in, or within, Russia; and
• General Licence INT/2022/1875276 in respect of the continuation of Business and Basic Needs for Telecommunications Services and News Media Services was extended to 30 May 2026 and several minor changes were made to the GL.

Correspondence banking restrictions

As highlighted in our previous post, the UK’s Russia statutory guidance was amended on 29 September 2023. The updated guidance now includes an amended FAQ 5 which sets out OFSI’s view that UK financial institutions do not need to freeze funds received indirectly via a designated bank in circumstances where neither the sender nor the receiver of the funds are designated persons and there are no designated banks in the transaction chain after the UK financial institution.

The guidance had previously indicated that funds received from or via a designated bank should be frozen and could not be released without an appropriate licence. The revised FAQ includes a note that, while the response to the FAQ sets out OFSI’s view of the law as it stands, the Government intends to amend the Russia Regulations to prohibit UK financial institutions from processing payments received from or via a designated bank (ie to revert to the position set out in the guidance prior to the amendment).

The reason for the change in position at this time is not immediately obvious and the distinction between funds received via and funds remitted from a designated person is not easy to rationalise with the legislation, if (in either case) the designated person does not own, hold or control the funds in the hands of the recipient. For practical compliance purposes, it is however helpful to have clarity on OFSI’s position on this point. The introduction of  General Licence INT/2023/3566356 which allows certain payments to be returned to a non-designated person, despite passing through a designated bank before reaching the UK financial institution, appears to be for purely clarificatory purposes. The introductory wording to the GL indicates that it was issued “to provide certainty to relevant institutions and does not represent a determination by OFSI that the actions contemplated by the general licence are prohibited by financial sanctions regulations”. However, the GL reiterates that the Government intends to legislate to prohibit UK credit and financial institutions from processing payments that are transferred via a designated bank at any point in the banking chain (without stating when this might be done) so the GL may possibly be a preparatory step taken in advance of this legislative change.

New technical guidance on interception and monitoring prohibitions

On 17 October 2023, new technical guidance was published in respect of the telecoms interception restrictions in place under the Russia, Belarus, Myanmar (Burma), Iran, Syria and Venezuela regimes. The guidance provides further information in respect of certain specific terms used in the schedules to the relevant sanctions regulations.

Judicial developments

in R. (on the application of Mikhail Fridman) v HM Treasury [2023] EWHC 2657 (Admin) the High Court dismissed all grounds of challenge raised by an individual designated under the sanctions regime. In doing so the court made comments on the proper role of judicial review and evidence in such proceedings, in keeping with the recent trend of insisting on procedural rigour in public law cases. A more detailed overview of the case is available on our blog here.