New Regulations Expand UK’s Russia Sanctions Powers

On February 10, 2022, the UK government laid before parliament The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022 (SI 2022/123) (Amended Regulations).  The Amended Regulations, which came into force on the same day, expand the scope of the UK’s Russia sanctions regime by significantly broadening the range of individuals, businesses and other entities that the UK can sanction in the event of further Russian aggression against Ukraine.  The Amended Regulations include an innovative designation criterion designed to target individuals and entities of significance to the Kremlin.  Companies that are subject to UK sanctions jurisdiction and have exposure to Russia should familiarize themselves with the expanded scope of the UK’s Russia sanctions regime as part of their efforts to assess and mitigate the risks associated with possible sanctions against Russia. For more information on potential Russia-related UK, EU, and US sanctions, see our earlier blog posts here and here. Visit this link to sign up to receive a recording of Steptoe’s recent webinar “Possible Sanctions Against Russia: What You Need to Know.” Broad Authority for UK Sanctions Designations The Amended Regulations authorize the UK government to designate any individual or entity that is or has been involved in:

• destabilizing Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine; or
• obtaining a benefit from or supporting the Government of Russia.

While the criterion concerning involvement in the destabilization of Ukraine is a retained provision that originally was included in The Russia (Sanctions) (EU Exit) Regulations 2019 (Russia Regulations), the Amended Regulations have introduced a completely new designation criterion of obtaining a benefit from or supporting the Government of Russia. An individual or entity will fall within the new designation criterion if they are or have been involved in:

1. Carrying on business as a Government of Russia-affiliated entity.

An entity is a “Government of Russia-affiliated entity” if –

• • it is owned or controlled directly or indirectly by the Government of Russia;
  • the Government of Russia holds directly or indirectly a minority interest in it;
  • it receives, or has received, financing, directly or indirectly, from the Russian Direct Investment Fund or the National Wealth Fund; or
  • it otherwise obtains a financial benefit or other material benefit from the Government of Russia.

2. Carrying on business of economic significance to the Government of Russia.

The “Government of Russia” is defined as –

• • the Presidency of the Russian Federation;
  • public bodies and agencies subordinate to the President of the Russian Federation (including the Administration of the President of the Russian Federation);
  • the Chairman of the Government of the Russian Federation and the deputies of the Chairman of the Government;
  • any Ministry of the Russian Federation;
  • any other public body or agency of the Government of the Russian Federation (including the armed forces and law-enforcement organs of the Russian Federation); or
  • the Central Bank of the Russian Federation.

3. Carrying on business in any of the Russian chemicals, construction, defence, electronics, energy, extractives, financial services, information, communications and digital technologies, or transport sectors.
4. Owning or controlling directly or indirectly, or working as a director (whether executive or non-executive), trustee, or equivalent, of a Government of Russia-affiliated entity or an entity falling within the scope of point 2 or 3.

The new designation criterion also encompasses any:

• • entity that is owned or controlled directly or indirectly by a person obtaining a benefit from or supporting the Government of Russia;
  • individual or entity who or that is acting on behalf, or at the direction, of a person obtaining a benefit from or supporting the Government of Russia; and
  • individual or entity who or that is a member of, or associated with, a person obtaining a benefit from or supporting the Government of Russia (including obtaining a financial benefit or other material benefit from that person.).

  Familiar Menu of Sanctions The Russia Regulations, as amended, contemplate a range of potential financial sanctions that can be imposed on individuals, businesses or other entities that meet the new designation criterion.  The sanctions “menu” in the Russia Regulations is a familiar one.  In addition to imposing an asset freeze on funds or economic resources owned, held or controlled by a designated person, persons subject to UK sanctions jurisdiction are prohibited from making funds or economic resources available to, or for the benefit of, a designated person.  The prohibition on dealing with the funds or economic resources of the designated person also extends to any legal entities that person owns or controls, directly or indirectly, even if the particular entity is not itself listed by the UK as a designated person.  Intentionally participating in activities knowing that their object or effect, whether directly or indirectly, is to circumvent or enable/facilitate the contravention of the foregoing financial sanctions is also prohibited.  Designated persons who are individuals also face a UK travel ban.   Possible Future Developments While it remains to be seen how aggressively the UK government will deploy its newly expanded powers of designation if a trigger event occurs, the Amended Regulations dramatically widen the pool of Russian targets on whom UK sanctions could be imposed in the event of further Russian aggression against Ukraine.  The amendments also underscore the UK government’s willingness to use its post-Brexit powers under the Sanctions and Anti-Money Laundering Act 2018 to craft its own distinct sanctions framework. Given the novelty and potential breadth of application of the new designation criteria introduced by the Amended Regulations, companies with exposure to Russia and, in particular, the nine specified sectors are well advised to consider the potential impact of these developments on their operations. For assistance in assessing how these developments could impact your organization, contact the author of this post, Alexandra Melia, or a member of Steptoe’s Economic Sanctions team in London.

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