On 01 March 2022, the United Kingdom ("UK") announced asset freezes on two companies, one Russian, and four Belarusian individuals under its Russian sanctions regime: Kirill Alexandrovich Dmitriev, Andrei Burdyko, Victor Vladimirovich Gulevich, Sergei Simonenko, Andrey Zhuk, JSC 558 Aircraft Repair Plant, and JSC Integral, and the Russian Direct Investment Fund. The UK has also introduced additional legislation to implement further financial and trade sanctions on Russia, which are broadly in line with specific capital market sanctions and certain trade restrictions already imposed by the US and EU. As a result of these new measures, it is now prohibited to establish or continue a corresponding banking relationship with, or process sterling payments to, from, or via, Sberbank.
Asset freeze restrictions
On 01 March 2022, the UK imposed asset freeze restrictions on the following Russian and Belarusian individuals and entities1:
- Kirill Alexandrovich Dmitriev (CEO of the Russian Direct Investment Fund);
- Andrei Burdyko (Belarusian Deputy Minister of Defence for Logistics and Chief of Logistics of the Armed Forces);
- Victor Vladimirovich Gulevich (Belarusian First Deputy Minister of Defence and Chief of the General Staff of Armed Forces);
- Sergei Simonenko (Belarusian Deputy Minister of Defence for Armament and Chief of Armament of the Armed Forces);
- Andrey Zhuk (Belarusian Deputy Minister of Defence);
- JSC 558 Aircraft Repair Plant;
- JSC Integral; and
- The Russian Direct Investment Fund.
More asset freezes are likely to follow in the near future.
The asset freeze means that all funds and economic resources that are owned, held or controlled by these persons, and that are under UK jurisdiction, must be frozen, and that no funds or economic resources can be made available (directly or indirectly) to or for the benefit of these banks, unless permitted by a licence issued by HM Treasury.
Since 2014, the UK's capital market sanctions2 have prohibited certain dealings in new debt and new equity issued by certain Russian banks and companies and certain affiliates.3 They have been amended significantly, and other measures in the financial sphere have been introduced:4
- Existing restrictions on dealing with transferable securities and money market instruments (Regulation 16 of the Russia Regulations) are extended to cover securities and money market instruments issued on or after 1 March 2022 where they are issued:
- by an entity incorporated or constituted under UK law and owned by an entity listed in Schedule 2 (and an entity acting on behalf or at the direction of such a person). This applies to securities and instruments that have a maturity exceeding 30 days;
- by 'persons connected with Russia', subject to certain exceptions, (or to an entity owned or controlled by such a person, or any entity acting on behalf or at the direction of a 'person connected with Russia' or a person owned or controlled by them). This applies regardless of the length of maturity of the security or instrument; or
- by or on behalf of the Government of Russia (i.e. Russian sovereign debt). This applies regardless of the length of maturity of the security or instrument.
- Existing restrictions on providing loans and credit (Regulation 17 of the Russian Regulations) are extended to cover loans and credit issued on and after 1 March 2022 made or granted to:
- an entity incorporated or constituted under UK law and owned by an entity listed in Schedule 2. This applies to loans or credit that have maturity exceeding 30 days;
- 'persons connected with Russia' (or to an entity owned or controlled by such a person, or any entity acting on behalf or at the direction of a person 'connected with Russia' or a person owned or controlled by them). This applies to loans or credit that have maturity exceeding 30 days; and
- any loan or credit to the Government of Russia, regardless of the maturity period.
- Further restrictions on correspondent banking relationships and processing (which includes clearing and settling) of sterling payments with designated persons (or those owned or controlled by them) are also introduced (in new regulation 17A of the 2019 Russia Regulations).
- The amendments also introduce a power for the Secretary of State to designate persons for the purposes of that provision. Sberbank has today been designated pursuant to this power.5
- Certain exceptions are provided for. In particular, there is provision to make clear that a licence may authorise acts which would otherwise be prohibited by any of regulations 11 to 17A for a particular period beginning with the coming into force of the prohibition, or the date of any designation made for the purposes of those provision (i.e. allowing for a wind down of transactions).
Effective on 01 March 2022, the UK has also adopted legislation providing for new trade sanctions measures in respect of Russia.6 These provisions include the following:
- The previous prohibitions on the export, supply and delivery, and making available of military goods are now extended to include dual-use goods and critical-industry goods; and the prohibitions on the making available and transfer of military technology are similarly extended to include dual-use technology and critical-industry technology. In line with the UK's announcement yesterday, this effectively bans the export of dual-use goods to, or for use in Russia (the prohibition had previously applied to dual-use goods for military use in Russia or to, or for the use by, certain named persons).
- This ban also covers the provision of technical assistance, financial services, funds and brokering services related to these goods and technologies.
- As with the corresponding EU legislation, the critical-industry goods and technology, which are set out in Schedule 2A, include extensive restrictions which are also covered in the US Commerce Control List (even showing the same Export Control Classification Numbers (ECCNs); this includes items for the electronics sector (e.g. microprocessors, semiconductors), and information security, sensors, lasers, navigation/avionics, marine and aerospace/propulsion items. Notably, the UK did not choose to impose trade restrictions on oil refining equipment and aircraft in this sanctions package, for example, which the EU has imposed.
- A number of exceptions from the trade prohibitions on critical-industry goods and technology are provided for, in relation to personal items and diplomatic missions, consular posts and international organisations, the movement of aircraft and vessels, consumer communication devices and software updates, and emergencies. Transitional provisions also allow for licences that were issued to authorize trade within the scope of the replaced prohibitions to remain valid.
OFSI has issued three new Russian General Licences ("GL"), permitting the wind-down of transactions relating to certain of these new measures:
- GL INT/2022/12777777 permits a 7 day wind down period (until 8 March 2022) in respect of sovereign debt, loans and money market instruments measures – this permits any person to (i) deal with a transferable security or money-market instrument falling within Regulation 16; or (ii) grant or enter into an arrangement to grant a loan or credit (falling under Regulation 17(1)) (except in relation to loans made or granted to the Government of Russia). Relevant Institutions are also permitted to process sterling payments in accordance with the dealing of such securities or instruments, or the granting of loans or credit.
- GL INT/2022/12777788 permits a 30 day wind down period (until 31 March 2022) in respect of the clearing and correspondent banking prohibitions – this allows for a UK credit or financial institution to continue a correspondent banking relationship with Sberbank and also permits the former to process sterling payments to, from, or via Sberbank (or a credit or financial institutions owned or controlled by Sberbank).
- GL INT/2022/12778779 permits a wind down period until 24 June 2022 in respect of the clearing and correspondent banking prohibition where the payments relate to Relevant Energy Products– this permits a UK credit or financial institution to process a sterling payment to, from, or via Sberbank (or one of the abovementioned related entities) for the purpose of making 'Relevant Energy Products' (Crude Oil, Petroleum Products, or Gas) available for use in the UK.
In addition, OFSI has issued two further licenses in respect of VTB (in addition to the licence that was issued last Friday) which are valid for one year until 1 March 2023:
- GL INT/2022/128087610 allows VTB Capital and its UK subsidiaries to make payments, including for basic needs, reasonable fees or service charges arising from routine holding and maintenance of its frozen funds and economic resources, and reasonable professional fees for the provision of legal services. The GL also permits a person to receive these payments and a relevant institution to process such payments. The GL is subject to a notification requirement which requires the UK subsidiary of VTB to provide written notice to HM Treasury, within 7 days of the payment, that it is conducting activity permitted under this; and
- GL INT/2022/1280976 allows relevant financial authorities (the FCA, PRA, and Financial Services Compensation Scheme, or the Bank of England) to do anything with regard to VTB Capital and its UK subsidiaries related to prudential supervision, or protecting, maintaining or enhancing the financial stability of the UK.11
Economic Crime Bill
Finally, the Economic Crime (Transparency and Enforcement) Bill (the "ECB")12 was also laid before Parliament today. These provisions are not yet in force and will need to be debated in Parliament. As expected, the legislation includes provisions aimed at reforming the transparency over ownership of companies and property in UK and strengthening the enforcement of financial sanctions. In respect of the latter, the ECB proposes a number of amendments in relation to the Treasury's power (via OFSI) to impose civil monetary penalties for the breach of financial sanctions legislation, these are:
- The removal of the requirement for OFSI to prove that the person had knowledge or reasonable cause to suspect that they were breaching financial sanctions legislation. This would mean that OFSI could issue a fine on a strict liability basis where it is satisfied, on the balance of probabilities, that a person has breached financial sanctions legislation.13
- The removal of the mandatory review of a civil penalty imposed by OFSI, where requested by the person on whom the penalty has been imposed.14
- An additional power for OFSI to publish reports where a monetary penalty has not been imposed but where it is satisfied, on the balance of probabilities that it has breached financial sanctions legislation.15
1 The notices can be found here and here.
2 See here for latest consolidated version of The Russia (Sanctions) (EU Exit) Regulations 2019 (not including the latest amendments) (the "Russia Regulations").
3 Since 2014, the targeted companies were Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB), Rosselkhozbank, OPK Oboronprom, United Aircraft Corporation, Ural Vagonzavod, Rosneft, Transneft and Gazprom Neft.
4 See The Russia (Sanctions) (EU Exit) (Amendment) (No.2) Regulations 2022 here.
5 See the notice here.
6 See The Russia (Sanctions) (EU Exit) Amendment (No.3) Regulations 2022 here.
7 See here.
8 See here.
9 See here.
10 See here.
11 See here.
12 The Bill can be found here.
13 Section 48(1)-(3), which would amend Section 146 of the Police and Crime Act 2017.
14 Section 49, which would amend Section 147(5) of the Police and Crime Act 2017.
15 Section 50, which would amend Section 149 of the Police and Crime Act 2017.
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