Sanctions Update: UK Law Enforcement, Cooperation of International Regulators and Other Restrictive Measures Taken in Response to Russia’s Invasion of Ukraine
This update provides a brief overview of some notable events that have taken place in recent weeks, including the UK government’s growing ability to target activities considered problematic from the perspective of circumventing Russian sanctions.
- Ban on transactional legal services from UK and EU to Russia
- Recent crackdowns in the UK
- OFSI and OFAC collaboration
1. Ban on transactional legal services from UK and EU to Russia
Since Russia’s invasion of Ukraine, there have been a number of pressures to restrict the provision of services to Russia in general. In May 2022, the UK government announced that it intended to implement a ban on the provision of consultancy, accountancy and public relations services, which was implemented through the 2022 Regulations on Russia (sanctions) (leaving the EU) (amendment) (No 14). a similar restriction was also implemented as part of the EU’s sixth restrictive measures package.
On September 30, 2022, the UK government issued a statement pointing out that this would prevent Russia from gaining access to:
- computer consulting services;
- architectural services;
- engineering services;
- advertising services;
- transactional legal advisory services; and
- audit services.
Russia is heavily dependent on Western countries for legal services “with 85% of all legal services imported from G7 countries” and the UK counts “59% of these imports.“
As part of the statement, it was pointed out that Russia is heavily dependent on Western countries for legal services “with 85% of all legal services imported from G7 countries” and the UK counts “59% of these imports.“ Only limited information has been released so far about the new UK ban, apart from the fact that it “cover certain commercial and transactional services and impede the ability of Russian companies to operate internationally”.
Although this ban has not yet come into force, clues as to the approach the UK might take and the extent of the restrictions can be seen in the eighth EU sanctions packagewhich was published on October 6, 2022. These included prohibiting the provision of certain legal advisory services, subject to exemptions, to the Russian government or to legal persons, entities or bodies established in Russia.
- “Legal advisory services” cover: the provision of legal advice to clients in non-contentious matters, including commercial transactions, involving the application or interpretation of the law; participation with or on behalf of clients in commercial transactions, negotiations and other relationships with third parties; and the preparation, execution and verification of legal documents.
- “Legal advisory services” do not include representation, advice, preparation of documents or verification of documents in the context of legal representation services, namely in cases or proceedings before administrative bodies, courts or tribunals. other duly constituted official tribunals, or in arbitration or mediation proceedings. procedure.
There have been suggestions in the media that the EU has taken a slightly different approach to the UK and US when it comes to the ban, and that EU restrictions will be broader than those planned in the United Kingdom and the United States. The statutory instrument containing the UK ban is expected to be introduced before Christmas, but that timing is unclear at this time given the significant uncertainties currently surrounding the UK government.
The impact these proposed measures could have on UK and international law firms providing legal services is significant, and it is anticipated that difficulties may arise in trying to delineate what is prohibited and what is not. . For example, would Russian-incorporated companies owned by non-Russians or non-Russian companies owned by Russians be covered (noting that, for example, EU restrictions do not apply to the supply of services to entities established in Russia which are owned by, or controlled solely or jointly by, a person incorporated or incorporated under the law of an EU Member State)?
Some members of the legal sector have expressed concern that there will likely be a legal response to the government’s measures once they are formally introduced as regulations, citing denial of access to justice and delays and potential complexities that could impact companies that help companies divest their Russian assets. operations.
In any event, statements by the British government further support the narrative that, far from running out of sanctions options in response to Russia’s invasion of Ukraine, Ukraine’s allies are seeking new means of imposing restrictions on Russia’s trade relations with the rest of the world. world.
Far from running out of sanctions options in response to Russia’s invasion of Ukraine, Ukraine’s allies are continually seeking new ways to impose restrictions on Russia’s trade relations with the rest of the world. world.
2. Recent repressive measures in the UK
On September 27, 2022, the United Kingdom’s Office of Financial Sanctions Implementation (“OFSI“) published details a fine of £30,000 against a company registered in the United Kingdom, Hong Kong International Wine and Spirits Competition Ltd (“HKIWSC”), for breach of the Ukraine (European Union Financial Sanctions) Regulations 2014 (No 2) and Council Regulation (EU) No 269/2014 (Misappropriation in Ukraine and Human Rights ).
The sanction was imposed on April 26, 2022 and related to 3 payments and 78 bottles of wine that the HKIWSC received from a designated entity, the State Unitary Enterprise of the Agrarian Production Union of the “Republic of Crimea”. (“Massander“), for participation in competitions between September 2017 and August 2020. The total cumulative value of tangible economic resources and funds received by HKIWSC was estimated at £3,919.62. In addition, HKIWSC advertised, considered by the OFSI as an “intangible economic resource”.’, available to Massandra.
Since January 2019, the OFSI has only imposed monetary penalties a total of eight times, and therefore any publication containing details of the OFSI’s approach to enforcement is helpful. The enforcement ruling is interesting for a number of reasons, including the fact that while four of the offenses related to the receipt of funds/bottles of wine, the fifth offense identified related to the advertising that the HKIWSC had made available to the designated entity. The notice of decision expressly states that the OFSI “determined that this advertisement was an intangible economic resource, an asset that could be traded or used in exchange for funds – since it would likely be used by Massandra in exchange for funds on the grounds that it aims to increase sales of their wine. “
The financial penalty imposed on this occasion helps to clarify the relatively broad approach that the OFSI will adopt when considering the application of the law in relation to “intangible” economic resources and reminds companies not to consider only the transfer goods and money, but also other indirect services that are provided (even when it is not possible to assign a specific financial value to this service).
Interestingly, on this occasion, the initial report of a potential breach was submitted by a third party and the OFSI used powers of information to identify the other breaches (i.e. it did not there was no voluntary disclosure). This means that no voluntary disclosure rebates have been granted in respect of these potential violations and the OFSI ends the notice by reminding companies that “OFSI values voluntary disclosure and if made by the person who committed a violation, it may be considered a mitigating factor when OFSI assesses the case.”
In other UK law enforcement news, this summer the National Crime Agency (“NCA”) announced it had arrested 10 people it suspected of aiding “corrupt elites”. to avoid penalties. Most recently, on October 11, 2022, the NCA arrested a British individual, who allegedly assisted a sanctioned Russian national Oleg Deripaska in concealing ownership of property. The NCA’s action has been coordinated by its new “Anti-Kleptocracy Cell” created in July 2022, which seeks to focus specifically on investigating corrupt elites and politically exposed persons (PEPs) laundering their assets to the UK.
The NCA’s push in this area suggests we could see UK law enforcement authorities looking to increase their enforcement activities in the months to come.
The NCA’s push in this area suggests that we could see UK law enforcement authorities looking to increase their enforcement activities in the coming months, targeting more of those seen as enabling circumvention. sanctions, or even to violate them. The “prohibition of legal services” section above provides further evidence of the adoption of this approach on a broader basis.
3. OFSI and OFAC collaboration
On October 17, 2022, the administrators of the UK OFSI and the US Office of Foreign Assets Control (“OFAC“) published a joint statement following a “multi-date technical exchange” between the two bodies aimed at increasing “coordination and collaboration in the years to come”. The statement provides helpful information, including a reference that OFSI intends to “move to a larger, more proactive organization” and that OFSI and OFAC officials will work together on the ‘application.
While it has been clear since Russia’s invasion of Ukraine in February 2022 that the UK and US seek to work together, with other allies, in terms of sanctions enforcement, it Interesting to see OFSI and OFAC publicly announce their intention to collaborate more closely over the next few years. While this may mean that greater enforcement is likely in the short term due to increased information sharing, it may also mean that unintended consequences of differences in enforcement between regimes can be avoided, which could, as noted in the statement, ease “the burden of compliance for businesses.”