The UK first announced a further package of sanctions measures targeted at Russia as a result of the invasion of Ukraine on 24 February 2022, and the government has since continued to announce new sanctions and restrictions on a number of Russian individuals and entities. We set out below the effect of the financial sanctions that have been implemented or announced to date.
Asset freezesThe sanctions apply to conduct carried out in the UK and conduct by UK nationals and corporate bodies outside of the UK. Companies will be affected if they are in possession or control of or deal with any funds or economic resources owned, held or controlled by any designated individual or entity, or any entity that is directly or indirectly controlled by a designated individual or entity. Companies must immediately stop dealing with that individual/entity, freeze all assets and funds it is holding for them, and inform the Office of Financial Sanctions Implementation (OFSI) as soon as possible. Companies cannot make any funds or economic resources available to or for the benefit of a designated individual or entity, directly or indirectly, and cannot “deal with” those funds or economic resources. “Dealing with” is defined very broadly. Breaching the sanctions is a criminal offence.
Designated individuals and entities
The Russia (Sanctions) (EU Exit) Regulations 2019, as amended and updated, allow for individuals and entities who are or who have been involved in “obtaining a benefit from or supporting the Government of Russia” to be “designated”. This includes the following:
- Russian government-affiliated entities (which include businesses in which the Russian Government has a majority or minority ownership stake, or which have received funding from certain Russian Government entities);
- Businesses of economic significance to the Russian government;
- Businesses in a sector of strategic significance to the Russian government; and
- Businesses or other persons that own or control, or act as a director, trustee or equivalent of, a Russian government-affiliated entity.
The list of strategic sectors is broad, and includes chemicals, construction, defence, electronics, energy, extractives, financial services, information communications and digital technologies and transport. The fact that a business operates in one of the above sectors in Russia does not necessarily mean that it will be designated, but the UK government may update or add to the designations at any time. The individuals and entities currently designated are listed here.
What else is prohibited?
- The sanctions prohibit providing financial services to any of the following for the purpose of foreign exchange reserve and asset management:
1. The Central Bank of the Russian Federation;
2. The National Wealth Fund of the Russian Federation;
3. The Ministry of Finance of the Russian Federation; and
4. A person owned or directly or indirectly controlled or a person acting on behalf or at the direction of any of the above.
- There is a prohibition on dealing with transferable securities and money market instruments issued by certain listed entities and any UK incorporated subsidiaries of those entities, and also those issued after 1 March 2022 by persons connected with Russia (including Russian residents, Russian incorporated entities, and entities owned by or acting on behalf of or at the direction of such persons).
- The sanctions contain measures to prevent Russian state owned and key Russian private companies from raising finance on the UK financial markets, and prohibit granting new loans or credit to certain listed entities and persons connected with Russia.
- The sanctions have the effect of freezing the assets of several major Russian banks and excluding these banks from the financial system, including by preventing them from accessing GBP and clearing payments through the UK (currently, VTB Bank, Bank Rossiya, Black Sea Bank for Development and Reconstructions, IS Bank, Genbank, Promsvyazbank, VEB, Bank Otkritie and Sovcombank).
- The UK government has said it will bring forward the Economic Crime (Transparency and Enforcement) Bill, which will require more transparency over ownership of companies and property in the UK. Read our most recent Client Alert on the bill for more information.