The United Kingdom is imposing new sanctions on Russia almost daily in response to the ongoing and deteriorating situation in Ukraine. The newest measures include asset freezes, economic prohibitions and other trade and financial restrictions. In this piece, we provide an update on the latest sanctions since our previous alert as well as an overview on the impact of these sanctions on businesses.

Timeline of UK financial and economic restrictions against Russia

The Russia (Sanctions) (EU Exit) Regulations 2019 (2019 Regulations) is the key legal act setting out UK sanctions against Russia (as retained under UK law following Brexit). Although the 2019 Regulations originate from European law, there has been significant divergence between the scope of UK and European Union (EU) sanctions. As of 3 March 2022, there have been five amendments to the 2019 Regulations in response to Russia’s actions. These amendments expand the scope of the existing restrictions and impose new ones. They are as follows:

• The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022 (10 February 2022) amend the designation criteria under Regulation 6 of the 2019 Regulations to specify additional activities for which a person may be designated. Under the amended criteria, an ‘involved person’ now includes a person who is or has been involved in ‘obtaining a benefit from or supporting the Government of Russia’. The amendment also defines sectors of strategic significance to the Russian government as the chemicals, construction, defence, electronics, energy, extractives, financial services, information, communications and digital technologies and transport sectors.
• The Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2022 (1 March 2022) amend the 2019 Regulations to impose significant new financial restrictions, including:
  • A prohibition on dealing with transferable securities and money market instruments issued on or after 1 March 2022 by the following:
    • An entity incorporated or constituted under UK law and owned by an entity listed in Schedule 2, or an entity acting on behalf of or at the direction of such an entity, where the security/instrument has a maturity exceeding 30 days;
    • A “person connected with Russia” (subject to certain exceptions) or an entity owned by or acting on behalf/at the direction of a “person connected with Russia”; or
    • The Russian government.
  • Amendment and expansion of the scope of existing prohibitions on issuing loans or credit to include loans or credit made or granted to the following:
    • An entity incorporated or constituted under UK law and owned by an entity listed in Schedule 2;
    • An entity “connected with Russia” or owned or acting on behalf of, or at the direction of a person “connected with Russia”; or
    • The Russian government.
  • A prohibition on UK credit or financial institutions from establishing or continuing a correspondent banking relationship, and from processing sterling payments to, from or via a designated person or a credit or financial institution owned or controlled by them.
  • For the purposes of these regulations, a person “connected with Russia” covers individuals or entities who are residents, incorporated, domiciled or otherwise located in Russia.
• The Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2022 (1 March 2022) amend the 2019 Regulations to impose several new trade restrictions on Russia via the following:
  • Replacing the existing prohibitions relating to dual-use items with new prohibitions on the export, supply and delivery, making available and transfer of dual-use items to, or for use in, Russia, irrespective of end-user; and
  • Prohibiting the export, supply and delivery, making available and transfer of critical industry items (including certain electronics, telecommunications equipment, and aerospace related items) to, or for use in, Russia (as well as related technical assistance, financial services, funds and brokering services).
• The Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2022 (3 pm on 1 March 2022) introduce new shipping sanctions measures, prohibiting banned UK ports from providing access to any ship which they have reason to believe is:
  • Owned, controlled, chartered or operated by any person connected with Russia;
  • Owned, controlled, chartered or operated by designated persons;
  • Flying the Russian flag; or
  • Registered in Russia.
• The Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations 2022 (5 pm on 1 March 2022) introduce a new prohibition against the provision of financial services for the purpose of foreign exchange reserve and asset management to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, the Ministry of Finance of the Russian Federation, and any person owned and controlled directly or indirectly by, or a person acting on behalf of or at the direction of, the aforementioned.

OFSI General Licenses

The UK Office of Financial Sanctions Implementation (OFSI), which is responsible for implementing and enforcing financial sanctions in the United Kingdom, published a number of General Licenses authorising certain acts (subject to specific conditions) which would otherwise be prohibited under the 2019 Regulations (as amended) to allow for persons affected to arrange their affairs and comply with the new restrictions. These include:

• General licence - INT/2022/1277777, authorising certain dealings of transferable securities or money market instruments until 8 March 2022;
• General licence - INT/2022/1277778, authorising UK credit and financial institutions to have correspondent banking relationships with Sberbank and its connected entities, and to process certain Sterling payments made by Sberbank and its connected entities until 31 March 2022;
• General licence - INT/2022/1277877, authorising UK credit and financial institutions to process Sterling payments with Sberbank and its connected entities for the purposes of making “relevant energy products” (such as oil, gas and petroleum products) available for use in the United Kingdom until 24 June 2022; and
• General licence - INT/2022/1272278, authorising winding down transactions involving VTB Bank, VTB Capital plc and its UK subsidiaries until 27 March 2022.

UK targeted sanctions

Since the start of Russia’s military activity in Ukraine, the United Kingdom has been regularly updating its list of individuals and persons subject to travel bans and asset freezes. Targeted entities include major Russian banks (such as VTB Bank, Sberbank and SovComBank), companies in key Russian sectors (such as United Aircraft Corporation and Rostec) and key Russian individuals (such as Denis Alexandrovich Bortnikov, deputy president and chairman of VTB Bank's management board, and Elena Alexandrovna Georgieva, chairwoman of Novikombank). The full list of designated persons is available here.

UK asset freezes apply to funds and economic resources owned, held or controlled by a sanctioned person as well as entities owned or controlled directly or indirectly by sanctioned persons. A non-sanctioned entity will be considered as being owned or controlled by a sanctioned person if: (i) the sanctioned person holds more than 50% of the shares or voting rights in the entity or has the right to appoint or remove a majority of the board of directors of the entity; and/or (ii) it is reasonable to expect that affairs of the entity are conducted in accordance with the sanctioned person’s wishes.

 Impact for businesses

As the scope and variety of UK sanctions against Russia continues to increase, businesses will need to take swift action to limit their exposure.

• If you or your company have business relationships with Russian entities, consider whether it is feasible to continue such relationships, and if not, review relevant contractual agreements and take steps to terminate such relationships;
• If you or your business have a bank account with a subsidiary of a Russian sanctioned bank (either in the European Union or United Kingdom), consider whether you are covered by an OFSI General Licence to transfer funds out of the accounts;
• Implement robust sanctions screening provisions and monitor new developments; and
• Seek legal advice if you are concerned about potential exposure.

The McDermott-based authors of this article are as follows: Raminta Dereskeviciute (London); Ludovica Rabitti (London) and Dr. Alexa Ningelgen (Düsseldorf)