Update: New UK Russia Sanctions Legislation Comes into Effect, Suspension of Export Licences for Dual-Use Items to Russia, Additional Designations and New General Licences

On March 1, 2022, four new amendments to The Russia (Sanctions) (EU Exit) Regulations 2019 (Russia Regulations) were laid before parliament and came into immediate effect.  The amendments revise the financial and investment restrictions provisions contained in Part 3, Chapter 2 and the trade sanctions provisions set out in Part 5.  New restrictions also have been introduced banning Russian ships from UK ports under Part 6 and introducing restrictions on the provision of financial services for the purpose of foreign exchange reserve and asset management. The Department for International Trade’s Export Control Joint Unit (ECJU) has suspended extant export control licences for dual-use items to Russia, including licences with Russia as a final destination, as well as the approval of new export licences for dual-use items to Russia.  Russia also has been removed as a permitted destination from nine open general export licences, following Foreign Secretary Truss’s announcement on February 24, 2022 that the UK would introduce “punitive new restrictions on trade and export controls against Russia’s hi-tech and strategic industries.” Further asset freezes and travel bans have been imposed on Russian and Belarusian individuals and entities.  Finally, two new general licences have been issued relating to VTB Bank and its UK subsidiaries. Financial and Investment Restrictions The Russia (Sanctions) (EU Exit) (Amendment) (No.2) Regulations 2022 (Amendment No.2), introduce a number of new prohibitions. Dealing with transferable securities and money-market instruments The additions to the prohibitions on dealing with transferable securities and money-market instruments prohibit persons subject to UK sanctions jurisdictions from, directly or indirectly:

• Dealing with a transferable security or money-market instrument with a maturity exceeding 30 days that is issued on or after March 1, 2022 by an entity incorporated or constituted under the laws of the UK and owned by Sberbank, VTB Bank, Gazprombank, VEB, Rosselkhozbank, OPK Oboronprom, United Aircraft Corporation, Uralvagonzavod, Rosneft, Transneft, or Gazprom Neft, or an entity acting on behalf of, or at the direction of, such a person.
• Dealing with a transferable security or money-market instrument that is issued on or after March 1, 2022 by a person connected with Russia that is not –
  • Sberbank, VTB Bank, Gazprombank, VEB, Rosselkhozbank, OPK Oboronprom, United Aircraft Corporation, Uralvagonzavod, Rosneft, Transneft, or Gazprom Neft;
  • An entity that on March 1, 2022 is domiciled in a country other than Russia or is a branch or subsidiary of such an entity;
  • An entity that is owned by any of the above; or
  • An entity acting on behalf, or at the direction, of any such person.

• Dealing with a transferable security or money-market instrument that is issued on or after March 1, 2022 by, or on behalf of, the Government of Russia.

Loans and Credit Arrangements Amendment No.2 introduces four categories of loan that are subject to the existing prohibition on directly or indirectly granting a relevant loan, as follows:

• Category 1 – a loan or credit with a maturity exceeding 30 days that is first made/granted at any time after December 31, 2020 to Sberbank, VTB Bank, Gazprombank, VEB, Rosselkhozbank, OPK Oboronprom, United Aircraft Corporation, Uralvagonzavod, Rosneft, Transneft, or Gazprom Neft, an entity incorporated or constituted under the law of a non-UK country and owned by such a person, or an entity acting on behalf of, or at the direction of, such a person.
• Category 2 – a loan or credit with a maturity exceeding 30 days first made or granted at any time after March 1, 2022 to an entity that is incorporated or constituted under the laws of the UK and owned by Sberbank, VTB Bank, Gazprombank, VEB, Rosselkhozbank, OPK Oboronprom, United Aircraft Corporation, Uralvagonzavod, Rosneft, Transneft, or Gazprom Neft.
• Category 3 – a loan or credit with a maturity exceeding 30 days first made or granted at any time on or after March 1, 2022 to an entity that is connected with Russia, owned by such a person, or acting on behalf, or at the direction of, any such person, and that is not a Category 1,2 or 4 loan or a loan made or granted to an entity that on March 1, 2022 is domiciled in a country other than Russia, is owned by such a person, or is acting on behalf, or at the direction of, any such person.
• Category 4 – a loan or credit first made or granted at any time on or after March 1, 2022 to the Government of Russia.

Correspondent Banking Relationships Amendment No.2 introduces a new category of measures and prohibits UK credit and financial institutions from:

• Establishing or continuing correspondent banking relationships with UK designated persons as well as UK and non-UK credit or financial institutions that are owned or controlled, directly or indirectly, by UK designated persons.
• Processing a Sterling payment (including the clearing and settlement of such a payment) to, from or via a UK designated person or UK and non-UK credit or financial institutions that are owned or controlled, directly or indirectly, by a UK designated person.

For the purpose of these prohibitions a person is “connected with Russia” if they are –

• an individual who is, or an association of individuals who are, ordinarily resident in Russia;
• an individual who is, or an association of individuals who are, located in Russia;
• an entity that is incorporated or constituted under the laws of Russia; or
• a person, other than an individual, that is domiciled in Russia.

These new prohibitions were applied to Sberbank on March 1. Shipping The Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2022 impose a ban on Russian ships from UK ports.  The ban includes any ships:

• Owned, controlled, chartered or operated by a UK designated person;
• Owned, controlled, chartered or operated by persons connected with Russia;
• Flying the flag of, or registered in, Russia; and
• That are specified.

The new legislation also gives UK authorities new powers to detain Russian vessels. Restrictions on the Provision of Financial Services for the Purpose of Foreign Exchange Reserve and Asset Management. New restrictions on the provision of financial services for the purpose of foreign exchange reserve and asset management have also been introduced under The Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations 2022, which prohibit a UK individual or entity from providing financial services for the purpose of foreign exchange reserve and asset management to the Central Bank of the Russian Federation, National Wealth Fund of the Russian Federation, Ministry of Finance of the Russian Federation, a person owned or controlled directly or indirectly by any of the foregoing persons, or a person acting on behalf of or at the direction of any of the foregoing persons. New Export Controls Measures The Russia (Sanctions) (EU Exit) (Amendment) (No.3) Regulations 2022 introduce several new export control measures.  The scope of the existing ban on the export, supply and delivery, making available and transfer of military goods and technology to and for use in Russia is expanded, to include critical-industry goods and technology and dual-use goods and technology, and military goods and technology.  Critical-industry goods and technology are described in Schedule 2A and include certain electronics, computers, telecommunications equipment and information security, sensors and lasers, marine-related items and aerospace and propulsion-related items.  The related prohibition on the provision of technical assistance, financial services, funds and brokering services to these additional categories of goods/technologies is also extended. Removal of General Export Licences Following Prime Minister Johnson’s statement to parliament on February 24, 2022, and the Minister for International Trade’s February 25 written statement, the Secretary of State for International Trade has suspended all extant export control licences for dual-use items to Russia, including licences with Russia as a final destination, under Article 33 of the Export Control Order 2008.  Additionally, the approval of new export licences for dual-use items to Russia has been suspended with immediate effect. The ECJU has removed Russia as a permitted destination from the following open general export licences (OGELs):

• OGEL X;
• OGEL X from December 2019;
• OGEL chemicals;
• OGEL chemicals from December-2019:
• OGEL cryptographic development;
• OGEL cryptographic development from December 2019;
• OGEL export after exhibition (dual-use items);
• OGEL oil and gas exploration (dual-use items); and
• OGEL oil and gas exploration (dual-use items) from December 2019.

Additional Sanctions Imposed on Individuals and Entities On March 1, 2022, the UK government announced the designation of a further three Russian and Belarusian companies and five individuals under the Russia Regulations determined to be involved in destabilising, undermining or threatening Ukraine’s territorial integrity, sovereignty and independence or obtaining a benefit from, or supporting, the Government of Russia (see Office of Financial Sanctions Implementation (OFSI) notices here and here).  Two of the three companies and one of the five individuals already were sanctioned by the United States. The three companies targeted are:

• Russian Direct Investment Fund, Russia’s sovereign wealth fund;
• JSC 558 Aircraft Repair Plant, a Belarusian defence company; and
• JSC Integral, a Belarusian defence company and state-owned enterprise.

The five individuals targeted are:

• Kirill Alexandrovich Dmitriev, CEO of the Russian Direct Investment Fund;
• Andrei Burdyko, Deputy Minister of Defence for Logistics and Chief of Logistics of the Belarusian Armed Forces;
• Victor Vladimirovich Gulevich, Chief of the General Staff of the Armed Forces of Belarus and First Deputy Minister of Defence;
• Sergei Simonenko, Deputy Minister of Defence for Armament and Chief of Armament of the Belarusian Armed Forces; and
• Andrey Zhuk, Deputy Minister of Defence.

The UK measures, which took effect immediately upon their announcement, impose asset freezes and prohibitions on making funds or economic resources available to – or for the benefit of – designated persons.  The prohibition on dealing with the funds or economic resources of the designated persons also extends to any legal entities they own or control, directly or indirectly, even if the particular entity is not itself listed by the UK as a designated person.  The individuals also were subject to a UK travel ban. New OFSI General Licences The UK government also has issued two new general licences under Regulation 64 of the Russia Regulations that both relate to VTB Bank and its UK subsidiaries.  The licences took immediate effect and will expire on March 1, 2023:

• INT/2022/1280876 – Allows VTB Capital and its UK subsidiaries to make payments, including for basic needs, reasonable fees or service charges arising from routine holding and maintenance of its frozen funds and economic resources, and reasonable professional fees for the provision of legal services; and
• INT/2022/1280976 – Allows relevant financial authorities to do anything with regard to VTB Capital and its UK subsidiaries related to prudential supervision, or protecting, maintaining or enhancing the financial stability of the UK.

For information on EU sanctions announced on February 27, 2022, see this Steptoe blog post. For information on the US sanctions announced between February 24 and 26, 2022, see this Steptoe blog post. Visit this link to sign up to receive a recording of Steptoe’s recent webinar “Possible Sanctions Against Russia: What You Need to Know.” For more information on how these developments could impact your organization, contact the author of this post, Alexandra Melia, in Steptoe’s Economic Sanctions team in London.