The UK, along with the US, EU, Canada, Switzerland and others, has responded to the situation in Ukraine by imposing an unprecedented package of sanctions on Russia. We are closely tracking the international response and have set out below a high-level summary of some of the key sanctions that have been, or are in the process of being, implemented in the UK.
These sanctions apply within the UK and to the conduct of all UK persons wherever they are in the world, including companies established in any part of the UK and branches of UK companies operating overseas. The sanctions are implemented by the Russia (Sanctions) (EU Exit) Regulations 2019, which are amended on a rolling basis as new sanctions packages are announced.
What sanctions have been imposed on Russia?
- Targeted asset freezes have been imposed on designated persons, including politicians such as Vladimir Putin and Foreign Minister Sergei Lavrov, as well as an extensive list of oligarchs and other individuals known to be associated with or to have links to the Russian regime. Prohibitions on making funds or other economic resources available to those designated persons, either directly or indirectly, have also been imposed. The UK Sanctions List on the UK Government website provides an up-to-date list of those designated persons.
- There is a prohibition on persons dealing directly or indirectly with transferable security (eg, shares, bonds and securitised debt) or money market instruments (eg, treasury bills, certificates of deposit and commercial paper) with a maturity exceeding 30 days and issued after specified dates in 2014 by a number of identified Russian banks and entities (the “Schedule 2 Listed Entities”). This prohibition extends to transferable security or money market instruments issued by companies outside the UK either owned by or who act on behalf of or at the direction of any of those listed banks and entities.
- There is also a prohibition on persons dealing directly or indirectly with transferable security or money market instruments (i) with a maturity exceeding 30 days and issued after 1 March 2022 by a UK entity owned by, acting on behalf of or at the direction of any of the Schedule 2 Listed Entities, (ii) with a maturity exceeding 30 days and issued after 1 March 2022 by a person connected with Russia (including Russian residents and Russian incorporated entities, as well as entities owned by, acting on behalf of or at the direction of such persons) (“Russia Connected Persons”), or (iii) issued after 1 March 2022 by the Government of Russia, irrespective of maturity.
- Persons are prohibited from directly or indirectly entering into loan and credit arrangements with a maturity exceeding 30 days with (i) the Schedule 2 Listed Entities, (ii) entities incorporated outside the UK either owned by or who act on behalf of or at the direction of any of the Schedule 2 Listed Entities, (iii) UK incorporated entities owned by a Schedule 2 Listed Entity, or (iv) Russia Connected Persons. There is also a prohibition on entering into any loan or credit arrangements with the Government of Russia.
- A prohibition has been imposed on UK credit or financial institutions in relation to processing sterling payments or continuing correspondent banking relationships with a “designated person”. Currently this only includes Sberbank and financial institutions owned or controlled by them.
- The regulation also prevents UK individuals or entities from providing financial services for the purpose of foreign exchange reserve or asset management to Russia’s Central Bank, its National Wealth Fund and the Russian Ministry of Finance, including persons or entities controlled directly or indirectly by them or acting at their direction. This prohibition covers activities such as FX products, derivatives (including futures and options) exchange and interest rate instruments such as swaps, and other money market instruments.
- The UK government has announced plans to see certain Russian banks removed from the SWIFT transaction system and the imposition any funds over and above £50,000 frozen in the UK bank accounts of Russian citizens.
- UK Government announced on 4 March 2022 that it will be bringing in legislation to prohibit UK based insurance and reinsurance providers from undertaking financial transactions connected with a Russian entity or for use in Russia.
- The UK has announced new trade sanctions relating to Russia that include products which could have both military and civilian uses, as well as aircraft and aviation equipment.
- Prohibitions now include the export to Russia of dual-use goods (through the suspension of existing export licences), critical-industry goods and military goods.
- Critical-industry goods include specified computers, electronics, lasers and sensors, telecommunications equipment and goods and technology related to aviation, aerospace and information security.
- There are also related prohibitions on the provision of financial services, funds and brokering services in relation to critical-industry goods and dual-use goods.
Travel and shipping sanctions
- Flights from Russian carrier Aeroflot have been barred from EU and UK airspace.
- The UK Government has announced plans to prevent Russian companies in the aviation or space industry from making use of UK-based insurance or reinsurance services directly or indirectly.
- Russian registered ships are prohibited from entering UK ports.
- The UK has restricted its policy permitting Russian citizens to invest in the UK in exchange for British citizenship.
Economic Crime (Transparency and Enforcement) Bill
Finally, we note that new legislation was introduced in parliament on 2 March 2022 (much earlier than anticipated and driven by events in Ukraine) aimed at increasing the transparency of ownership of UK property. If passed, the amendments proposed would result in (i) the establishment of a register of the beneficial owners of overseas entities owning land in the UK (the identity of the beneficial owners of UK properties would be publicly available information, such that they could no longer remain anonymous), (ii) changes to the unexplained wealth orders regime, and (iii) the introduction of a strict civil liability test for breaches of sanctions, enabling the Office for Financial Sanctions Implementation to impose fines for sanctions breaches without having to show knowledge or reasonable cause to suspect a sanctions breach.
What steps can businesses and individuals take?
It is important to establish the potential impact of Russian sanctions on your businesses or interests by carrying out swift and effective due diligence on any individual, entity, funds, or transaction with a connection to Russia. The Russian sanctions prohibit "dealing" with frozen assets, and the definition of a "dealing" is broad. The sanctions impact a wide range of individuals and businesses, including those who have operations or interests in Russia, those who have assets stored within its banking system, financial services businesses, businesses with clients, customers and supplies with connections to Russia or those who receive or make payments for goods or services across the border.
Given the unprecedented scale of the Russian sanctions that have been introduced, we have been asked to advise on a broad range of matters in which businesses and individuals have been affected in the UK and EU. We also coordinate with advisors in other jurisdictions including the US and Switzerland to ensure global coverage across other sanctions regimes.
Each industry and region will be impacted in different ways and the advice that your legal advisors can offer will vary depending on these factors. As breach of sanctions legislation can be a criminal offence, anyone who considers they may be affected should seek specialist legal advice as a matter of priority.
If you require further information about anything covered in this briefing note, please contact Gerard Heyes, John Wilkinson, Athalie Matthews, Oliver Blundell, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, March 2022