UK recent developments
In this article, we summarise the following recent developments relating to UK sanctions:
- UK Court of Appeal Judgment in Mints and Others v PJSC National Bank Trust and Others – And updated guidance following the judgment
- UK General Licence on Legal Advisory Services
- OFSI takes action and updates its guidance on enforcement
- OFSI issues further guidance in relation to the export of certain goods
- Oil Price Cap and Maritime Services Ban: updated reporting forms
1. UK Court og Appeal judgment in Mints and others v PJSC National Bank Trust and others – and updated guidance following the judgment
In January 2023, the UK High Court issued a judgment concerning the conduct of litigation by sanctioned persons, specifically whether the defendants should be granted a stay of proceedings due to the sanctioned status of certain claimants. The key issues were (i) whether the Court could enter judgment on a claim brought by a sanctioned person, or whether the proceedings should be stayed pending lifting of sanctions, and (ii) whether orders for costs, security and damages could be made and satisfied to or by sanctioned persons, and whether such actions were licensable by OFSI. These issues arose because the second claimant, Bank Okritie, was sanctioned by the UK. The Court ruled that no stay was necessary, and that to the extent required, the relevant actions were licensable by OFSI.
An ancillary issue in the case was whether the first claimant, PJSC National Bank Trust, was also sanctioned, by virtue of deemed 'control' of that claimant by sanctioned persons, namely Vladmir Putin and Elvira Nabiullina (Governor of Russia's Central Bank). The Court ruled that the first claimant should not be deemed as sanctioned. This was, in broad terms, because (i) the control test needed to be viewed through the lens of the primary test of ownership i.e., be something akin to ownership, (ii) it would be unfair for market participants not to be in a position to readily understand if an important company was to be treated as sanctioned, and (iii) pure political influence, separate to more tangible ownership or control, should not automatically be equated with control. That part of the judgment was obiter, which means that it was not determinative of the main issues, and as such did not create a binding precedent. However, because it concerned points which practitioners and market participants have been grappling with for some time with limited official guidance, these obiter comments have attracted significant attention and fed into sanctions advisory work, albeit with the expectation of appeal looming large.
The defendants appealed. On 6 October 2023, the defendants' appeal was rejected by the Court of Appeal. In summary, the Court of Appeal ruled that:
- UK sanctions on Russia do not curtail a designated person's ability to bring civil proceedings or the court's ability to give a money judgment in favour of a designated person, therefore there should be no stay of proceedings;
- In any event, OFSI can licence certain orders, including costs orders and orders for security for costs, both for or against a designated person.
While no decision was technically required on the 'control' issue (due to it being obiter) the general importance of the issue was recognised, and as such, it was briefly dealt with by the Court of Appeal. Importantly, this included comments to the effect that:
- PJSC National Bank Trust is “controlled” by President Putin and/or Ms Nabiullina within the meaning of UK sanctions on Russia.
- The first instance judge, Cockerill J, had erred by "reading in" wording to the UK sanctions legislation and finding that there was a carve-out from the control test for control by political office, or in seeking to constrain the ambit of the test on the basis of perceived unfairness. The relevant test in the Russia Regulations 7(4) is extremely wide, using words such as “in all the circumstances” and control “by whatever means”. This broad ambit should be taken as clearly intended by the UK government, given the absence of any carve out.
- Specific reference was made to the fact that Mr Putin is at the "apex of a command economy" and that as such, state ownership is a highly relevant factor when considering control. While recognising that the judgment could lead to the "absurd" outcome that every company in Russia could deemed to be controlled by Mr Putin and hence sanctioned, Flaux LJ commented that if this applies, then the remedy is for the UK Government to amend the wording of the Russia Regulations or provide appropriate guidance.
This judgment reflects the unintended consequences which can arise from hastily implemented legislation in response to rapidly evolving geopolitical developments. On 16 October 2023, the Foreign Commonwealth & Development Office (FCDO) released the following statement, in response to the judgment to clarify the UK government's position:,
"The Government is carefully considering the impact of the Court of Appeal’s judgment in Mints & others v PJSC National Bank Trust & another, in particular the Court’s views that PJSC National Bank Trust is ‘controlled’ by Designated Persons by virtue of their political office, noting that the case was not decided on this point.
FCDO would look to designate a public body where possible when designating a public official if FCDO considered that the relevant official was exercising control over the public body.
There is no presumption on the part of the Government that a private entity based in or incorporated in Russia or any jurisdiction in which a public official is designated is in itself sufficient evidence to demonstrate that the relevant official exercises control over that entity.
In the interests of reducing any uncertainty, we are exploring the options available to the Government in clarifying this position further."
The statement supports our view that the UK government cannot have intended for all Russian companies to be deemed designated persons by virtue of Vladimir Putin's own designation. Although the statement is just guidance and does not have the force of law, it nonetheless suggests that UK enforcement authorities would be unlikely to take action against companies for dealing with non-designated private sector Russian persons. This, coupled with the fact that the Court of Appeal's comments on this point were made obiter, means it would be premature – and in some cases could lead to contractual breach – for UK market participants to immediately withdraw from all matters involving Russian corporations. However, UK market participants and sanctions practitioners should exercise extreme caution in entering into or continuing transactions where there is any political or state connection, and must be ready to re-evaluate their position in response to any further UK government guidance or legislative amendments that may be issued in due course.
2. General licence on legal advisory services
In our Sanctions Alert of 25 July 2023, we noted that the UK has implemented new trade sanctions (effective from 30 June 2023) on the provision of transactional legal advisory services to any person in circumstances where the underlying transaction activities would – if actually or hypothetically involving a UK person – be prohibited by the UK Russia Regulations whether in respect of financial or trade sanctions. We also reported that the UK Law Society (and others in the UK legal industry) had raised particular concerns regarding the provision of compliance advice for sanctions regimes other than the UK, which was not captured by the relevant exception, and that the UK government subsequently confirmed that this was an 'unintended' restriction, and would shortly issue a General Licence to ensure that advisors may continue to provide such 'wraparound' sanctions advice.
On 11 August 2023, the Department for Business and Trade issued the anticipated General Licence on certain Legal Advisory Services (the "Legal Advisory Services GL") which entered into force on the same day. Registrations to use the Legal Advisory Services GL are to be made through SPIRE, the Export Control Joint Unit's (ECJU) online export licensing system. The Legal Advisory Services GL states that where Regulation 54D (on legal advisory services) is engaged, the licence will enable the provision of legal advisory services to any person:
- as to whether an act or a proposed act complies with, or could trigger punitive measures in relation to sanctions, export and import controls on or concerning Russia or the non-government controlled Ukrainian territory, imposed by any jurisdiction, and/or
- in relation to compliance with any laws of Russia that have as their object or effect the frustration of any laws specified as including sanctions, export and import controls or other restrictive measures on Russia, imposed by any jurisdiction, and/or
- in relation to compliance with any criminal law imposed by any jurisdiction, and/or
- where the legal advisory services are provided in relation to the discharge of or compliance with UK statutory or regulatory obligations.
The Legal Advisory Services GL is subject to certain conditions, including that the provider notifies the Secretary of State/ECJU of their use of / reliance on the licence (through SPIRE), and that records must be kept for four years. Such records can, in principle, be inspected any time by the Secretary of State.
The relevant UK Russia Sanctions guidance has also been updated to reflect the recently issued General Licence.
3. OFSI takes enforcement action and updates monetary penalty and enforcement guidance
On 22 August 2023, a compound settlement notice was published which confirmed that in August 2023, a UK company was fined £1 million by HM Revenue & Customs (HMRC) in relation to the unlicensed trade of goods in breach of the Russia (Sanctions) (EU Exit) Regulations 2019 (the "Russia Regulations"). No further details as to the breach were provided within the notice, however, it serves as a reminder of the significant levels of fines that can be imposed for breaches of the UK sanctions regime on Russia.
On 31 August 2023, OFSI published a disclosure notice with details of a breach of Regulation 12 of the Russia Regulations, committed by Wise Payments Limited (Wise). The breach consisted of permitting a cash withdrawal of £250 from a business account held by a company owned or controlled by a person designated under the UK Russia Regulations. OFSI found that Wise thereby made funds available for a designated person. As the nature and circumstances were assessed as only moderately severe, the breach was not sufficiently serious to impose a monetary penalty, but a disclosure was found to be the appropriate enforcement response. This is the first time OFSI uses its new disclosure power.
In August 2023, OFSI also updated Chapter 10 of its Monetary Penalty and Enforcement Guidance. The chapter includes more detail on how OFSI categorises breaches as lesser severity, moderate severity or serious enough to justify a civil monetary penalty, when determining what enforcement outcome is most appropriate. In the Wise case mentioned above, OFSI published both details on the matter and the name of the company. In cases of lesser severity, they will usually publish details on the case – as it can be a useful compliance lesson to the industry – but not identify the person (individual or company) that committed the breach.
4. OFSI issues updated guidance on (I) Russian iron and steel processed in third countries; (II) The exporting of commercial goods: and (III) Licensing grounds for the purposes of divestment from Russia
On 8 September 2023, OFSI issued updated guidance on the UK's third country processed Russian iron and steel measures. The guidance explains the scope of the measures related to relevant Russian iron and steel processed in third countries only, and the evidence traders need to provide to demonstrate compliance. The restrictions relating to Russian iron and steel processed in third countries are in force as of 30 September 2023. More specifically, the guidance covers:
- A scenario based explanation of the measures;
- Guidance on demonstrating compliance, namely the ability for traders to demonstrate evidence of a good's supply chain history;
- Licensing provisions;
- The possibility of a HMRC inspection at the UK border; and
- The HS codes in scope for the UK’s import ban on Russian iron and steel processed in a third country.
On 26 September 2023, the UK, US, Australia, Canada and New Zealand collectively issued guidance for industry and academia relating to what they consider to be items "essential" to Russia's weapons systems. The guidance "strongly encourages" exporters to take action to prevent the diversion of such items to Russia through third countries.
The guidance contains a list of prioritised HS codes, split into four tiers, of which nine of the codes are listed as the highest priority "Tier 1" / "Tier 2" items. The guidance also contains information on diversion concerns as well as due diligence tips for screening such parties, and red flag indicators.
On 2 October 2023, the UK government updated its own Russia Guidance to add additional licensing grounds for the trade activities listed below (the "Trade Activities"), if the activity is necessary for the purposes of divestment from Russia (subject to certain conditions). The Trade Activities are (i) making available or transfer of the following listed items for use in Russia or to a person in Russia; or (ii) the provision of technical assistance, brokering services, financial services or funds to the following listed items:
- oil refining goods and technology;
- energy-related goods;
- luxury goods;
- jet fuel;
- G7 dependency goods; and
- Russia's vulnerable goods.
5. Oil price cap and maritime services ban: Updated reporting forms
On 4 August 2023, the Office of Financial Sanctions Implementation (OFSI) updated the reporting forms, and the instructions for using them, for the Maritime Services Ban ("MSB") and Oil Price Cap ("OPC") General Licence. The updates include:
- Completing and returning the reporting forms; and
- Further information on how OFSI's OPC and MSB guidance can be used to assist in fulfilling reporting requirements; and
- Navigating and utilising the OPC website.
Note: This alert is not intended to take the place of legal advice, and we would recommend seeking specialist sanctions guidance from your in-house and external teams when considering any matters with a Russian nexus.
WR Sanctions Alerts provide you with updates on material developments in the country-specific sanctions programmes implemented by the US, the UN, the UK, the EU and Norway. We will not provide updates on mere prolongations, without material changes, of existing sanctions programmes, nor on any listings or de-listings of individuals/entities placed on implemented sanctions lists. Please note that the WR Sanctions Alerts are provided as general information and do not constitute legal advice.