Sanctions Tracker: Recent UK and EU developments

In this post, we provide a round-up of key recent UK and EU sanctions developments, including new UK designations, guidance and a sanctions strategy published by HM Government.

UK

Additional designations

On 22 February, the Foreign Commonwealth & Development Office the (“FCDO“) announced a series of new Russia-related designations to mark the two-year anniversary of the invasion of Ukraine. The targets of these designations included:

• individuals and entities (both inside and outside Russia) involved in the supply of goods used by Russian forces;
• an oil trader and certain shipping companies involved in transactions with the Russian energy sector;
• individuals and entities operating in the LNG sector;
• diamond companies (and individuals connected with the diamond industry); and
• individuals and companies operating in the metals sector.

The full list of the 50 newly designated persons can be found here.

The FCDO also announced the addition of five new items to the Common High Priority List.

These designations follow the 21 February announcement that six individuals in charge of the Arctic penal colony where Alexei Navalny died were being added to the UK’s Global Human Rights sanctions list. The full list of individuals is set out in HM Treasury’s notice.

Guidance on new reporting requirements

The Office of Financial Sanctions Implementation (“OFSI“) has published a new blog with guidance on the new reporting requirements introduced in December 2023 (and discussed in our previous post).

As well as summarising the reporting requirements in respect of funds or economic resources held for the Central Bank of Russia and other state-owned entities, and the requirements placed on designated persons, the blog notes that the government intends that the latter requirement will be extended to the UK’s Belarus sanctions regime in early 2024.

OFSI has recently updated its Russia guidance to add a new FAQ on the designated person reporting requirements. For completeness, OFSI has also recently announced a change to its other guidance, transitioning to a new format and replacing previous pdf guidance.

OFSI licensing guidance

On 27 February, OFSI published a new webpage with guidance on the licensing process for financial sanctions. The guidance comprises:

• Licensing Principles in respect of designated individuals (the “Licensing Principles“);
• the delegation framework used by OFSI caseworkers in determining whether a decision is contentious and therefore should be taken by a Minister; and
• the delegation framework used in respect of authorisations under the Counter Terrorism regime.

OFSI has also published a blog on the licensing process setting out the various steps involved.

The Licensing Principles may be of particular interest to readers in that they set out the policy principles applied to licensing applications across all UK financial sanctions regimes and may therefore assist in understanding the circumstances in which OFSI may grant/refuse licences. However it should be noted that the Licensing Principles are focused on designated individuals (i.e. natural persons) and may therefore have limited read-across value to those who may be seeking a licence in respect of dealings with a company or other legal entity which falls within scope of the UK asset freeze.

The new guidance notes that, when completing a licence application form, it would be helpful to OFSI to make clear how the application adheres to the Licensing Principles and, if licensing the proposed activity would require OFSI to deviate from any of the Licensing Principles, additional supporting information should be provided to explain why this would be justified by the specific circumstances.

It should also be noted that the Licensing Principles are not absolute and OFSI will continue to consider applications on a case by case basis. It may also depart from the Licensing Principles in exceptional circumstances.

UK sanctions strategy published: ‘Deter, disrupt and demonstrate’

HM Government (“HMG“) has published its first sanctions strategy which outlines the UK’s approach to the use of sanctions as a foreign and security policy tool. Although this largely reiterates content which many readers will be familiar with, the fact that HMG has published the strategy demonstrates its view that sanctions will continue to be deployed extensively, and will play an important role, in future. In summary:

• The strategy looks back at the development of UK sanctions in recent years, in particular, through the introduction of the Sanctions and Anti-Money Laundering Act 2018 after Brexit. A nod is given to the burgeoning caselaw on the UK’s sanctions framework, with HMG commenting that the judgments to date provide helpful clarification, and that “overall, they show we are upholding our approach of ensuring sanctions are well-reasoned, in line with the law, and justified in view of their important foreign policy objectives“.
• The strategy covers the UK’s 36 live sanctions regimes. Unsurprisingly, HMG highlights the UK’s imposition of sanctions against Russia, as they have been unprecedented in their scale. To give a flavour of this, HMG says that £22 billion of Russian assets have been reported as frozen as a result of UK financial sanctions[i], and the UK has sanctioned over £20 billion (96%) of the goods that the UK traded with Russia in 2021. The UK’s sanctions against Russia have also included the development of new measures, such as the oil price cap and restrictions on the provision of professional and business services. HMG has said that it will continue to innovate and expand the sanctions tools which are at its disposal. As an example, later this year, it plans to introduce a ban on UK-designated persons from acting as UK company directors.
• HMG says that it recognises the critical role played by the private sector in making sanctions work. The strategy includes a commitment to reinforce sanctions implementation and enforcement, including by helping UK businesses to understand and comply with sanctions (which readers will no doubt welcome!) and by taking robust action on non-compliance. Additional support will be given to HMRC to investigate and prosecute serious trade sanctions breaches.
• HMG indicates that tackling the risks of circumvention is a key focus area both for the UK and its G7 partners. HMG is working with third countries on these risks, including by calling their attention to any spikes in the trade of sanctioned goods and how to strengthen their enforcement. HMG describes its anti-circumvention efforts as being complementary to its broader attempts to clamp down on illicit finance. As examples of those efforts, HMG refers to the Economic Crime and Corporate Transparency Act 2023 (our updates on this Act can be accessed here), and its work with Overseas Territories and Crown Dependencies to increase transparency of beneficial ownership.
• The strategy also includes a summary of key roles and responsibilities in relation to different types of sanctions in Annex 2, indicating which HMG departments and other bodies are involved, such as the NCA and HMRC.

Permission to appeal granted in Mints case

Permission to appeal to the Supreme Court has been granted in the case of Mints v PJSC National Bank Trust, discussed in more detail in our previous briefing. The Court of Appeal’s decision in the Mints case considered the “ownership and control” test under the UK sanctions regime and resulted in significant uncertainty for those seeking to apply the test to Russian companies. Whilst the FCDO has sought to remedy that uncertainty by issuing guidance, it is hoped that the Supreme Court’s consideration of the case may help to clarify matters further (albeit it is not clear what aspects of the decision are subject to appeal, and the Court of Appeal’s “ownership and control” comments were obiter).

Oil Price Cap compliance and enforcement alert

On 1 February, a compliance and enforcement alert was published in respect of the Oil Price Cap (the “OPC“). This provides an overview of key OPC evasion methods, recommendations for identifying such methods and mitigating their risks/negative impacts, and information on how to report suspected OPC breaches in the UK and across the wider Price Cap Coalition.

Industry stakeholders involved in the trade of Russian oil and oil products are advised to consider the alert in full in order to improve their compliance with the OPC and reduce their exposure to possible risks associated with circumvention and evasion of the OPC.

NCA amber alert re artwork storage facilities

The National Crime Agency (in partnership with other bodies including OFSI and the National Economic Crime Centre) has issued an amber alert in relation to the evasion of financial sanctions (and other illicit activity) through the art storage sector.

Art market participants are advised to take note of the indicators of suspicious activity set out in the alert and consider the appropriateness of the due diligence checks that they have in place and whether any enhancements can be made in this regard.

Further court decision on designation challenges

Our public law colleagues have published a blogpost on the recent decision in Phillips v Secretary of State for Foreign, Commonwealth and Development Affairs [2024] EWHC 32 (Admin) in which the claimant sought a review of his designation under the UK’s Russia sanctions regime. The claimant had been described as a propagandist for Russia supporting and promoting actions and policies which destabilise Ukraine and undermine or threaten its territorial integrity, sovereignty and independence. The judgment is notable for its consideration of the boundaries of the right to free speech and the permissibility of interference with such fundamental rights.

EU

EU adopts 13^th Russia sanctions package

On 23 February the EU adopted its 13^th package of Russian sanctions, marking two years since the invasion of Ukraine.

The key elements of the package are as follows:

• a further 194 asset freeze designations (106 individuals and 88 entities) including the following targets:
  • military and defence companies;
  • companies involved in the shipping of DPRK armaments to Russia;
  • Russian companies involved in circumvention schemes;
  • judges and other officials in occupied areas of Ukraine; and
  • individuals and entities involved in the forced transfer of Ukrainian children;
• trade restrictions focused on the provision to Russia of key drone components and other measures targeting drone warfare; and
• measures to foster international cooperation, in the form of adding the UK to the list of partner countries for iron and steel imports.

The full list of new designated persons is set out in Council Implementing Regulation (EU) 2024/753 and the new trade sanctions are set out in Council Regulation (EU) 2024/745.

[i] As at October 2023.