An introduction to financial sanctions involving Russia

The war in Ukraine, and latterly the news about Roman Abramovich and Chelsea Football Club, have brought the issue of the UK financial sanctions regime involving Russian nationals into sharp focus. But what is the regime and how does it operate on those who have business links to those who are or may be sanctioned?

The Russian sanctions regime has been in force since the annexation of Crimea in February 2014, but the current legislation was brought in force following Britain’s exit from the European Union. This regime is contained within Russia (Sanctions) (EU Exit) Regulations 2019, although this legislation has been amended on several occasions since the recent invasion of Ukraine (see Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022 Nos 1 to 6).

How can the UK government impose sanctions on individuals associated with Russia?

The power to impose sanctions on individuals is derived from the Sanctions and Anti-Money Laundering Act 2018 under which the above regulations have been made. It is worth noting that the Economic Crime (Transparency and Enforcement) Act 2022 (which came into force on 15 March 2022) has amended this legislation to make it easier for the Secretary of State to introduce new legislation involving sanctions as well as making provision for a register of overseas entities and an expansion of the Unexplained Wealth Orders provisions.

The designation criteria for the imposition of sanctions are that the Secretary of State has reasonable grounds to believe that:-

1. That person is an ‘involved person’; and
2. The designation of that person is appropriate.

An involved person is:-

• A person involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine; or
• A person obtaining a benefit from supporting the government of Russia.

Persons can be natural or legal, owned or directly/indirectly controlled.

What does the imposition of sanctions mean in real terms?

Financial sanctions provide for:-

• The freezing of assets belonging to designated persons; and
• A restriction on making funds or economic resources available to them (either directly or indirectly).

How do I know if a person or entity has been sanctioned?

A register of designated persons is maintained by the Office of Financial Sanctions Implementation (OFSI) and is accessible here.

Licences

It is possible to apply for a licence from OFSI to deal with sanctioned assets in a particular way. A high-profile example of this is the licence granted to Chelsea Football Club which permits it to continue to operate in a limited sense without allowing Roman Abramovich to profit.

Prohibition on dealing in money-market instruments or transferable securities, loan and credit arrangements

There is also a prohibition on dealing in money market instruments and transferable securities issued by certain specified institutions. These prohibitions extend to loan and credit arrangements and also investment in entities based in Crimea.

What do I do if I discover I have been dealing with a person subject to sanctions?

You should take urgent legal advice, but broadly-speaking you must:-

• Immediately stop dealing with them;
• Freeze their assets; and
• Contact the OFSI.

What are the penalties for breaching sanctions regulations?

It is a criminal offence to intentionally participate in any activity which circumvents the prohibitions in the sanctions regime.

The penalties for the various offences vary according to the breach but could lead to imprisonment for up to seven years.

The above is designed to provide an introduction to some of the issues raised by the recent legislation imposing financial sanctions on individuals and entities connected to Russia. The sanctions regime has also extended to trade and immigration for example.

If you need advice about dealing with sanctioned entities or any aspect of the legislation then you should contact our regulatory team on 020 7020 3811 2829 or complete our online enquiry form.