On December 15, 2022, The Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (“Amendment 17”) were laid before parliament. Amendment 17 revises existing restrictions on dealing with securities, money market instruments, loans and credit to prohibit new investments in Russia via third countries. It also introduces a new prohibition on the provision of trust services to designated persons and persons connected with Russia, as well as expanding the existing ban on the provision of specified professional and business services to persons connected with Russia and making additions to the lists of items subject to existing trade sanctions. Finally, Amendment 17 suspends the Bank of England’s duty under the Banking Act 2009 to make a decision in respect of a notification of third-country resolution action in respect of a designated person, or entities owned or controlled by such a person. These measures came into effect on December 16, 2022.
Amendment of Financial and Investment Restrictions
Amendment 17 extends the prohibition on dealing with transferable securities and money-market instruments under Regulation 16(4H) of the Russia (Sanctions) (EU Exit) Regulations 2019, as amended (“Russia Regulations”) to securities/instruments issued on or after December 16, 2022, by a non-Russian entity for the purpose of an investment activity in relation to Russia mentioned in Regulation 18B(2), including various activities involving: (1) land located in Russia; (2) entities incorporated, constituted, or domiciled in Russia; (3) non-Russian entities for the purpose of making funds or economic resources available to, or for the benefit of, persons connected with Russia; (4) joint venture partners connected with Russia; (5) branches, subsidiaries or representative offices located in Russia; or (6) related investment services.
Amendment 17 also expands the prohibition on loans and credit arrangements under Regulation 17(2A) of the Russia Regulations to encompass making funds or economic resources available to a non-Russian incorporated, constituted or domiciled entity (“Relevant Entity”) for the purpose of enabling that entity to grant a loan prohibited by Regulation 17 of the Russia Regulations on or after December 16. A new “category 6” loan also has been introduced by Amendment 17. The category 6 loan is defined in Regulation 17(5) of the Russia Regulations as a loan or credit that is first made or granted on or after December 16 to a Relevant Entity for the purpose of an investment activity in relation to Russia mentioned in Regulation 18B(2), as described above.
OFSI also has published General Licence INT/2022/24486892 (“GL”), which provides a wind-down period until December 22, 2022 for a person to:
- directly or indirectly deal with a transferable security or money-market instrument falling within Regulation 16(4H);
- make funds or economic resources available to a Relevant Entity as described in Regulation 17(2A);
- directly or indirectly grant or enter into an arrangement to grant a Category 6 loan as described in Regulation 17(5); or
- directly or indirectly acquire an ownership interest in, or control over, a Relevant Entity for the purpose of making funds or economic resources available to, or for the benefit of, a person connected with Russia.
Any person relying on the GL to undertake an in scope activity is required to keep accurate, complete and readable records of any activity purporting to have been permitted under the GL for a minimum of 6 years.
New Trust Services Prohibition
Amendment 17 introduces under Regulation 18C of the Russia Regulations a new prohibition on persons subject to UK sanctions jurisdiction providing trust services to, or for the benefit of, a:
- UK designated person; or
- person connected with Russia (i.e., an individual ordinarily resident, or located, in Russia or an entity incorporated, constituted, or domiciled in Russia), unless the services are provided pursuant to an ongoing arrangement under which the trust services were provided to or for the person’s benefit immediately before December 16.
“Trust Services” are defined in Regulation 18C(7) of the Russia Regulations as meaning:
- the creation of a trust or similar arrangement;
- the provision of a registered office, business address, correspondence address or administrative address for a trust or similar arrangement;
- the operation or management of a trust or similar arrangement; or
- acting, or arranging for another person to act, as trustee of a trust or in a similar position to a trustee of a trust in the case of a similar arrangement.
For the purpose of this prohibition, trust services are provided for the benefit of a person where:
- the person is a beneficiary of a trust or similar arrangement;
- the person is referred to as a potential beneficiary in a document from the settlor relating to a trust or similar arrangement (e.g., a letter of wishes); or
- having regard to all the circumstances, the person might reasonably be expected to obtain, or to be able to obtain, a significant financial benefit from the trust or similar arrangement.
Regulation 60ZZB of the Russia Regulations sets out the exceptions to the prohibition on providing trust services, which include services provided:
- other than primarily for the benefit of a UK designated person/person connected with Russia to certain specified trusts, including community amateur sports clubs, trusts for charitable services, and pension schemes; and
- other than primarily for the benefit of a UK designated person to, or for the benefit of, a person under the age of 18, who lacks capacity, who is incapable, or who is incapable of managing their property and affairs by reason of mental disorder.
Expansion of Prohibition on Professional and Business Services
Amendment 17 expands the existing UK ban on professional and business services under Chapter 6B of the Russia Regulations to encompass advertising, architectural, auditing, engineering, and IT consultancy and design services. UK sanctions agencies also have indicated their intention to legislate separately to include transactional legal advisory services within the scope of the ban in due course. The ban prohibits the direct or indirect provision of in scope services to a person connected with Russia.
The scope of the new services are defined in Schedule 3J of the Russia Regulations, largely by reference to Central Product Classification (“CPC”) codes published by the United Nations, as follows:
- advertising services falling within code 836 of the 2002 CPC;
- architectural services falling within codes 8671 and 8674 of the 1991 CPC;
- auditing services consisting of the examination of the accounting records and other supporting evidence of an organization for the purpose of expressing an opinion as to whether financial statements of the organization present fairly its position at a given date and the results of its operations for the period ending on that date in accordance with generally accepted accounting principles;
- engineering services falling within codes 8672, 8673, 8675 and 8676 of the 1991 CPC; and
- IT consultancy and design services falling within codes 83131 and 83141 of the 2015 CPC.
Regulation 60DA of the Russia Regulations has been expanded by Amendment 17 to set out the exceptions to the prohibition on providing the newly included professional and business services. In particular:
- an exception for providing engineering services in relation to the discharge of, or compliance with, UK statutory or regulatory obligations;
- a wind down provision in relation to advertising, architectural, engineering or IT consultancy and design services provided in satisfaction of an obligation arising under a contract concluded before December 16, or an ancillary contract necessary to satisfy such a contract, provided that the act is carried out before March 15, 2023 and notification is provided to the Secretary of State prior to the end of March 15, 2023;
- an exception for providing auditing services in satisfaction of an obligation arising from the person’s appointment as the auditor of a parent undertaking, provided that certain conditions set out in Regulation 60DA(3)(a) and (4) are met with respect to credit institutions and Regulation 60DA(3)(b) are met with respect to other entities;
- an exception for providing auditing services in satisfaction of an obligation arising from appointment as the auditor of a subsidiary undertaking in respect of the provision of those services in relation to the discharge of, or compliance with, UK statutory or regulatory obligations that results in the indirect provision of those services to a person connected with Russia in that person’s capacity as a parent undertaking of the subsidiary;
- an exception for providing an electronic communications network or an electronic communications service (as defined by Section 32 of the Communications Act 2003) that is used for a civilian purpose or services that are incidental to the exchange of communications over the internet; and
- an exception for any act done by a person that is necessary for the official purposes of a diplomatic mission or consular post in Russia, or of an international organization enjoying immunities in accordance with international law.
Expansion of Items Subject to Existing Trade Sanctions
Amendment 17 expands the list of items subject to existing trade sanctions targeting critical industry goods and technology. In particular, Part 1A, Schedule 2A of the Russia Regulations has been amended to include within the list of special materials and related equipment certain aromatic polyamides, nanomaterials, and technology used for the development, production or use of the systems, equipment, components, and software specified in the list relating to those items. A new Part 9, Schedule 2A also has been added to the Russia Regulations that includes within a list of miscellaneous items certain:
- equipment –
- for oil production and exploration;
- for the collection of metal ores in deep seabed;
- for producing printed electronics for OLED/OFET/OPVC;
- for producing microelectromechanical systems using the mechanical properties of silicon; and
- specially designed for the production of E-Fuels or ultra-efficient solar cells;
- numerical controlled machine tools, having one or more linear axis with a travel length greater than 8000 mm;
- advanced materials;
- conjugated polymers for printed or organic electronics; and
- energetic materials and mixtures thereof (except when the material is incorporated in a medicinal product).
The list of defence and security goods and technology in Part 4, Schedule 3C of the Russia Regulations also has been widened to include five new chemicals:
- Calcium carbide (CAS number 75-20-7);
- Carbon monoxide (CAS number 630-08-0);
- Monoethyleneglycol (CAS number 107-21-1);
- Sulphur (CAS number 7704-34-9); and
- Sulphur dioxide (CAS number 7446-09-5).
Disapplication of Banking Act 2009 Requirement
Amendment 17 disapplies under Regulation 97A of the Russia Regulations the Bank of England’s duty to make a decision under Section 89H(2) of the Banking Act 2009, which deals with the recognition under UK law of third country resolution actions taken to manage the orderly failure of non-UK banks, building societies, credit institutions or investment firms (“Non-UK Institutions”).
The new provision suspends the Bank of England’s duty to recognize these actions in relation to Non-UK Institutions that are UK designated persons or directly or indirectly owned or controlled by a UK designated person under the Russia Regulations. The purpose of this measure is to prevent those Russian actions from taking legal effect in the UK and potentially providing economic benefit to the Russian state.