UK expands scope of Russia sanctions regime


11th February 2022

The UK Sanctions Regime is looking set to 'come in from the cold'. Sanctions are no longer a minority interest for niche blue chips and complex multinationals - and all UK businesses with any international dimension should take stock of the potential impact.

On 10 February 2022, the UK Government amended the unhappily worded Russia (Sanctions) (EU Exit) Regulations 2019 (S.I. 2019/855) and updated its Guidance.

The amendments came into force the same day they were laid before Parliament, and they significantly expand the scope of the UK’s Russia sanctions regime by enabling sanctions and restrictions to be introduced against a far wider range of individuals and entities.

The 2019 Regulations have nothing to do with our EU Exit as such, but are so branded as they implement the UK’s post-EU Russia Sanctions regime. This regime was originally established in response to the annexation of the Crimea (Ukraine) by Russia, conducted in breach of commonly understood principles of international law. The stated purpose of the ongoing sanctions regime is to encourage Russia to cease actions destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

In sum, the amendments will allow virtually anyone connected (directly or indirectly) to the Russian Government to be targetted – and perhaps more unusually – anyone who may even be of benefit, or of strategic or economic significance, to the Russian Government. The scope of entities is cast broadly and includes affiliated entities, or entities in which the Russian Government holds an interest, and any person ‘involved’ in de-stabilising Ukraine and/or supporting Russian policy.

For many organisations engaged in international business, especially those involved in areas subject to export controls, the parameters will already be clear. However, the express reference to sectors of strategic significance is a notable expansion. Businesses with any Russian or Ukrainian dimension involved in chemicals, construction, electronics, energy, extractives, financial services, information, communication/digital technologies, and transport will all need to review their operations.

However, the provisions (if activated) may well touch those who have not yet felt the icy fingers of financial sanctions and trade controls. It is obvious that ‘economic significance’ could potentially cover a range of activity not normally deemed within the range of sanctions. Given the sometimes complex quasi-commercial relationships that bind together international sporting and cultural associations and groupings, this is likely to require such groups, or those doing business with such groups, to undertake some careful scrutiny.

If entities or individuals are designated and subject to sanctions, they can be subject to asset freezes, or restrictions on economic activity and travel. Economic and trade activity in breach of such sanctions, or trade controls, will render offenders liable to criminal enforcement. The amended Regulations also now prohibit circumvention of the sanctions regime in addition to contravention, meaning that any activity which would undermine the regime indirectly could be caught. This is a significant expansion and real caution is required if any activity may even potentially be touched by the new regime even if it does not plainly contravene it. The sanctions regime has both UK territorial and personal reach, and applies to actions within the UK or involving UK nationals anywhere.

The UK Government has acted boldly, but obviously the designations and measures are yet to be triggered, and their precise nature is to be determined. If measures are triggered, there may well be counter-arguments with the stated position that the expansion will have limited business impact here, or that the powers are compatible with human rights. There is the prospect that such measures will have a significant business impact, and possibly a chilling effect on those who want open discussion of controversial or competing policy options. The proponents of tough measures though will no doubt reply that this is the very point, and that to maintain international order and protect basic human rights, there comes a time when the trading and the talking has to stop, however painful that may be.

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