Recent developments in UK sanctions on Russia
In recent weeks, the UK has expanded on its existing trade restrictions on Russia, added further designations to the consolidated sanctions list, published and updated various sanctions related guidance documents, imposed trust services bans in respect of all persons already subject to asset freeze measures and published its Economic Crime Plan for 2023-2026.
Below, we briefly summarise these recent developments.
Expansion of trade restrictions
On 21 April 2023, a tranche of new trade sanctions on Russia entered into force, by way of the Russia (Sanctions) (EU Exit) (Amendment) Regulations 2023.
The new measures prohibit the export, supply, and delivery, and making available to, or for use in, Russia, of a range of goods, including goods that Russia has been found to use on the battlefield, such as aircraft and vehicle parts, radio equipment and other electronic equipment, biotechnology and 3D printing machinery.
More specifically, additional items (specified goods) have been added to schedules 2A (critical-industry goods and critical-industry technology), 2E (quantum computing and advanced materials goods and technology, 3C (defence and security goods and defence and security technology), 3E (G7 dependency and further goods and 3I (Russia’s vulnerable goods).
The new measures also include further import restrictions on goods that generate revenue for Russia's war efforts, by way of additions to schedules 3B (iron and steel products) as well as 3D and 3DA (revenue generating goods).
Further, the existing import prohibitions on iron and steel will be extended to also cover the import and related ancillary services of Russian origin goods that have been processed in third countries, taking effect from midnight on 30 September 2023.
Lastly, a prohibition on the supply and delivery of certain revenue generating goods (as listed in schedule 3DA) from Russia to third countries has been introduced.
Exceptions applicable to the existing prohibitions (including humanitarian assistance) will also apply to the new additional goods.
OFSI updates enforcement guidance
On 16 March 2023, the UK's Office of Financial Sanctions Implementation ("OFSI") expanded its Enforcement and Monetary Penalty Guidance to include details on the OFSI's approach in assessing breaches of financial sanctions where an incorrect assessment of ownership and control of an entity is relevant to the commission of the breach.
The updated guidance states that where such a breach has occurred, "appropriate" risk-based due diligence conducted on ownership and control will be considered a mitigating factor, provided that the determination was made in good faith and was a reasonable conclusion to draw from such due diligence. Inversely, a failure to carry out appropriate due diligence or carrying out due diligence in bad faith would be considered an aggravating factor.
The OFSI would expect to see evidence of the decision making process that took account of the sanctions risk and considered the appropriate level of due diligence in light of that risk.
The guidance further sets out examples of efforts that OFSI may consider as potentially mitigating, including examinations on formal and actual ownership and control, open-source research, direct contact with the relevant entity, and regular checks and/or ongoing monitoring. Notably, the guidance also expands on these efforts, by (non-exhaustively) listing specific potential areas of enquiry for determining formal ownership and/or control and indirect or de facto control as follows:
Formal ownership and/or control
- The percentage of shares and/or voting power of shareholders
- The ownership and distribution of other shares in a company
- Whether ownership / shareholding has recently been altered or divested, including in possible anticipation or response to the imposition of financial sanctions. If so, consideration of whether this warrants further investigation into the possibility of joint arrangements or indirect or de facto control
- The composition of shares, and whether shares have been split into different classes, or other structural changes made
- Whether changes to ownership and/or control were part of a pre-planned or wider business/financial strategy
- Corporate constitutional documents, including articles of association or constitution
- Any commercial justifications for complex ownership and control structures
- Agreements between shareholders or between any shareholders and the entity (e.g., shareholders’, joint venture, operating, or guarantee agreements)
Indirect or de facto control
- Indications of continued influence (or the potential for it) by a designated person, including through personal connections and financial relationships
- The presence or involvement of proxies, including persons holding assets on behalf of a designated person
- Ownership, holdings of shares, or control by trusts associated with a designated person
- If shares or other ownership interests of a designated person have been divested, the nature of any relationships and prior involvement of the person benefitting
- If applicable, how recent transfers of shares were funded and whether this was done at an accurate and true valuation
- Any operational steps taken to ensure that the designated person cannot exercise control over the entity and/or that the designated person cannot benefit from, or use, corporate assets
- Information relating to the circumstances of board and/or management appointments, including the backgrounds, relevant experience, and relationships with designated persons
- The running of board meetings and governance processes, including board or shareholders’ meeting minutes concerning recent changes in the entity’s ownership and control relating to the designated person
- Ongoing financial liabilities directly related to a designated person, e.g., personal loans, loan guarantees, property holdings, equipment etc.
- Other shareholder agreements, voting agreements, put or call options or other coordination agreements in place between the entity and the designated person or controlled entities
- Whether there are any benefits conferred to the designated person by the entity or transactions between the entity and the designated person
On 12 April 2023, the UK and US, in a coordinated effort, announced new designations under their respective sanctions regimes on Russia. Ten persons and four entities were added to the UK consolidated list and are now subject to an asset freeze.
Both the UK and the US listings took aim at facilitators of sanctions evasion, and in particular persons and entities associated with or related to already designated oligarchs, including Alisher Burhanovic Usmanov, Roman Abramovich, Vladimir Evtushenkov, Suleyman Kerimov, Victor Medvedchuk and Andrei Skoch.
For further information, see the OFSI notice.
High Value Dealer Guidance published, updates of guidance on UK ban on Russian oil and oil products and on UK Maritime Services Ban and Oil Price Cap
On 18 April 2023, the OFSI published guidance on financial sanctions implementation for high value dealers, luxury goods markets and art market participants, which can be found at this link. Amongst other things, the guidance contains a section on circumvention typologies relating to high value assets, and sets out a non-exhaustive list of factors companies should consider as part of their sanctions due diligence.
On 15 April 2023, the Department of Business and Trade updated its guidance on the UK ban on Russian oil and oil products. The updated guidance clarifies that the sanctions on oil or oil products that originate from Russia or that are located in, or consigned from Russia pursuant to Chapter 4I of the Russia (Sanctions) (EU Exit) Regulations 2019 ("the Regulations"), also apply to Russian oil co-mingled with oil of another origin. The prohibitions are subject to strict liability, as they apply "regardless of the importer's knowledge or suspicions about the origin of the goods, their location or the place from which they were consigned."
Notably, the updated guidance makes clear that importers must carry out due diligence and take "appropriate" steps to ensure that non-Russian oil and oil products are not co-mingled with Russian oil, such as for example putting in place agreements with the supplier to ensure that no prohibited co-mingling has taken place.
On 3 April 2023, the OFSI updated its Guidance on the UK Maritime Services Ban and Oil Price Cap, to note that the price cap will be kept under review and may be updated subject to the so-called Price Cap Coalition's agreement. Among other updates was clarification that for the purpose of the maritime services ban, a person supplying or delivering the goods concerned by ship includes a person who owns, controls, charters or operates a ship (a) on which those goods are being carried; or (b) from or to which those goods are being transferred.
Trust services ban imposed in respect of all asset freeze targets
On 21 March 2023, the UK announced that all persons already subject to asset freeze measures under Regulation 11 of the Regulations, have also been designated under trust services sanctions pursuant to Regulation 18C of the Regulations.
The designations mean that it is now prohibited to provide trust services to or for the benefit of designated persons (unless permitted by a license or applicable exception).
These measures come in response to enforcement agencies suggesting there is evidence of UK-based trust and company service providers offering services to persons for the purposes of reducing the impacts of being sanctioned.
Further information can be found in this OFSI blog post.
UK Government's Economic Crime Plan 2023-2026
On 30 March 2023, the UK Government published its Economic Crime Plan for the period 2023-2026. Notably, the plan contains a section on combating kleptocracy and driving down sanctions evasion through commitments to "continuously improve financial sanctions, design, implementation and enforcement" and to "strengthen operational and international response to kleptocracy". It remains to be seen whether the plan will translate into any substantive legislative amendments.
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.