On December 14, 2023, the UK government issued new Russia sanctions legislation under The Russia (Sanctions) (EU Exit) (Amendment) (No.4) Regulations 2023 (“Amendment No. 4”) and The Russia (Sanctions) (EU Exit) (Amendment) (No.5) Regulations 2023 (“Amendment No. 5”).  The new sanctions make good on commitments made by the United Kingdom as part of the G7 earlier in 2023 such as sanctions targeting Russian diamonds and metals.  The package also includes new financial sanctions restrictions on the provision of correspondent banking and payment processing by UK credit and financial institutions and measures designed to support businesses that decide to divest from Russia.  With respect to trade sanctions, the items falling within the scope of a number of existing sanctions measures have been significantly broadened.  Finally, new reporting obligations have been imposed on both relevant firms and designated persons to provide greater transparency on assets held in the UK and to improve compliance with the existing sanctions regime. 

Taken as a whole, this represents a significant new package of measures and businesses should assess timely the extent to which these sanctions impact their operations and/or impose additional reporting obligation on them.

New Sanctions on Diamonds

Amendment No. 5 introduces new prohibitions on the import, acquisition, supply, and delivery of diamonds and diamond jewellery, as well as the provision of ancillary services relating to such items.  Specifically, it is prohibited from January 1, 2024 to:

  • import into the UK diamonds or diamond jewellery consigned from, or originating in, Russia;
  • directly or indirectly acquire diamonds or diamond jewellery that originates or is located in Russia;
  • directly or indirectly supply or deliver diamonds or diamond jewellery from Russia to a third country (i.e., not the UK, Isle of Man, or Russia); and
  • directly or indirectly provide technical assistance, financial services and funds, or brokering services in relation to the foregoing activities.

For the purpose of these sanctions, ‘diamonds’ are defined in Part 2 of Schedule 3GA of the Russia Regulations as: (i) unsorted diamonds falling within commodity code 7102 10; (ii) non-industrial diamonds falling within commodity codes 7102 31 or 7102 39; and (iii) synthetic or reconstructed diamonds falling within commodity codes 7104 21 or 7104 91.  ‘Diamond jewellery’ is separately defined as anything falling within commodity code ex 7133, ex 7114, ex 7115 90, ex 7116 20, or ex 9101, and meeting the description of that thing in Part 3 of Schedule 3GA.

There are exceptions for:

  • the import or acquisition of diamond jewellery by a person who is travelling to the UK, provided that the jewellery is: (i) non-commercial in nature, for the personal use of the person or an immediate family member travelling with them and contained in their luggage; (ii) owned by any immediate family member travelling with the person; and (iii) is not intended for sale; or
  • the acquisition or provision of ancillary services in relation to diamonds and diamond jewellery in the UK or Isle of Man that has been lawfully imported there.

In light of the establishment of standalone sanctions on diamonds and diamond jewellery, the list of Schedule 3DA revenue generating goods in the Russia Regulations also has been amended to exclude commodity codes pertaining to diamonds.

New Sanctions on Metals

Amendment No. 4 introduces new prohibitions on the import, acquisition, supply, and delivery of metals.  Specifically, it is prohibited from December 15, 2023, to:

  • import into the UK metals consigned from, or originating in, Russia;
  • directly or indirectly acquire metals that originate or are located in Russia;
  • directly or indirectly supply or deliver metals from a place in Russia to a third country (i.e., not the UK, Isle of Man, or Russia); and
  • directly or indirectly provide technical assistance, financial services and funds, or brokering services in relation to the foregoing activities.

For the purpose of these sanctions, ‘metals’ are defined in Schedule 3BA of the Russia Regulations and include a wide range of metals falling within commodity codes 74 – 80, 8101 – 8106, 8109 – 8113, 82, and 83, including copper, nickel, aluminium, tantalum, cobalt, manganese, and tin.

The press release announcing this new measure also states that the UK government would look to “proceed with a prohibition on ancillary services relating to metals when this can be done in concert with international partners.”

There are exceptions to the prohibition for:

  • metals located in the UK or Isle of Man that have been lawfully imported there;
  • metals originating in, or consigned from, Russia exported from Russia before December 15, 2023, that are not to be released for free circulation in the UK or Isle of Man.  For the purpose of this prohibition, an item has been exported if it has completed the applicable export formalities and has left Russian territory (when transported by land), departed a port in Russia for a destination outside Russia (when transported by sea), or departed an airport in Russia for a destination outside Russia (when transported by air); and
  • the import of metals into the UK (except for products coming within commodity codes 7606, 7801, 8207, 8212, 8302 and 8309) when the products were consigned from Russia before December 15, 2023 and are imported into the UK before January 14, 2024.

Extension of Sanctions on Luxury Goods

Amendment No. 4 extends the existing sanctions on exporting, supplying, delivering, or making available luxury goods to, or for use in Russia, or to a person connected with Russia to also include a prohibition on the provision of ancillary technical assistance, financial services and funds, and brokering services relating to such items. 

Amendment to Sanctions on Processed Iron and Steel Products

Under Amendment No.4, the products to which the prohibition in Part 5, Chapter 4C of the Russia Regulations on the import, acquisition, supply, and delivery of Russian iron and steel products, and ancillary services relating to those products, apply has been broadened to include products falling within commodity codes 7201 – 7205, including certain pig iron and, ferro-alloys, and ferrous waste.  These new in scope items can be found in Part 4 of Schedule 3B of the Russia Regulations. 

A new exception has been created that carves out these new iron and steel products from the prohibitions on the import and provision of ancillary services relating to iron and steel products where the products were consigned from Russia before December 15, 2023 and are imported into the UK before January 14, 2024.

Further new exceptions have been created.  First, in relation to import and ancillary services relating to iron and steel products, and iron and steel products processed in a third country when those goods were exported from Russia before the date on which the prohibition came into force and are not to be released for free circulation in the UK or Isle of Man.  Second, ancillary services relating to acquisition of iron and steel products when those products were exported from Russia before the prohibition came into force.

Expansion of Existing Trade Sanctions Measures

The list of items subject to various trade sanctions has been expanded, with additions being made to the lists of items subject to trade sanctions by virtue of being critical-industry, defence and security, G7 dependency and other, and additional G7 dependency and further goods and technology (as applicable). 

A new Part 4 also has been added to the G7 dependency and further goods category, which brings further goods with potential military and industrial uses within the scope of existing prohibitions on G7 dependency and further goods.  

Divestment from Russia

Amendment No. 4 creates new specific licensing grounds in relation to the following financial sanctions: (i) asset freeze; (ii) making available; (iii) dealing in transferable securities and money market instruments; (iv) loans and credit; (v) correspondent banking and payment processing; (vi) provision of financial services relating to foreign exchange and asset management; and (vii) trust services sanctions, which:

  • enable[s] anything to be done by a UK entity to enable that entity to undertake a relevant transfer.”  For this purpose, a relevant transfer is a transfer of funds or economic resources located in Russia and owned, held or controlled by the UK entity, to the Government of Russia or a UK designated person in order to enable that entity to divest itself, either wholly or partially, of those funds or economic resources; and
  • enable[s] anything to be done by the UK entity to allow that entity to acquire from the Government of Russia or a UK designated person an interest in that entity held by that person,” when the sole consideration for the acquisition is a transfer of funds from the UK entity to the Government of Russia/UK designated person and the funds are credited to a frozen account held by a person that has permission under Part 4A of the Financial Services and Markets Act 2000 (permission to carry on regulated activity) or an account held by a non-UK credit or financial institution in a non-UK country where the law of that country contains relevant and appropriate prohibitions corresponding to the financial sanctions and exceptions/licence provisions under the UK’s sanctions regime.

A further specific licensing ground has been established to enable anything to be done by a UK entity in order to enable another person to undertake the transfers/acquisitions described above.

Financial Sanctions Amendments

With effect from December 15, 2023, the existing Regulation 17A(2) prohibitions on processing payments has been expanded to cover the processing of all payments (and not just Sterling payments) to, from, or via a designated person or credit/financial institutions directly or indirectly owned or controlled by such a person.  In concert with this amendment, OFSI has designated 28 Russian banks for the purpose of this prohibition.

There are exceptions for the processing of payments (i) for any fee or charge required to permit an aircraft to overfly, land in, or take off from Russia or (ii) by one (or, if necessary, more) transfer(s) of funds by a UK credit or financial institution from account A to account B where neither account is held in the name of a customer of that institution, both accounts are held within the UK, and the transfer is carried out for the purpose of compliance with the prohibition on payment processing.

A new specific licensing ground also has been created “[t]o enable anything to be done in connection with a licence which the [OFSI] has decided to issue for another purpose.”

New Reporting Obligations

Several new reporting obligations have been introduced by Amendment No. 4, which are designed to provide greater transparency concerning assets held in the UK and to improve compliance with the existing sanctions regime.

The reporting obligations of relevant firms have been expanded to include an obligation to report as soon as practicable if the firm knows, or has reasonable cause to suspect, that it holds funds for a person to whom financial services must not be provided by virtue of the restriction on providing such services relating to foreign exchange and asset management to the Russian Central Bank, National Wealth Fund, Ministry of Finance, or any person owned or controlled directly or indirectly by such a person.  Thereafter, the relevant firm must provide an annual report as to the amount and quantity of those funds held as of September 30, by October 31 of each year.  This obligation came into effect on December 15, 2023.

Additionally, a further reporting obligation will take effect on December 26, 2023, which will require UK designated persons who are UK nationals or entities incorporated under the law of any part of the UK to  inform OFSI of (i) the nature and value of any funds or economic resources that person owns, holds or controls in any jurisdiction and (ii) the location of those funds or economic resources.  Designated persons who are not UK persons are required to make a comparable disclosure with respect to funds and economic resources owned, held, or controlled in the UK.  If a person was designated on or before December 25, 2023, they must provide the required reporting within 10 weeks starting on December 26, 2023.  If a person becomes designated from December 26, 2023, onward, they must provide the required reporting within 10 weeks of the date upon which they became a UK designated person.  Information provided to OFSI pursuant to these reporting obligations must be updated as soon as practicable in the event of a change in the nature, value, or location of the funds or economic resources.  It is an offence to refuse, or fail to comply, with these obligations without reasonable excuse or to knowingly or recklessly give information that is false in a material respect. For more information on these developments, contact the author of this post, Alexandra Melia, in Steptoe’s Economic Sanctions team in London.