Russia Sanctions: UK Expands Professional Services Ban And UK Trade Sanctions

On 15 December 2022, the UK adopted the Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (the "Regulations") which implements new financial and trade sanctions. In particular, the new measures expand the UK professional services ban and expand the scope of UK trade sanctions to target inter alia goods that are crucial to Russia's industrial and technological capabilities. The new measures also introduce a new prohibition on providing trust services to Russia and amend existing restrictions on dealing with securities or money market instruments and loans and credit arrangements to a person connected with Russia.

These new measures implement a number of new restrictions that were announced by the UK Government on 30 September 2022 in response to annexation of the Ukrainian regions of Donetsk, Luhansk, Kherson and Zaporizhzhia by Russia.¹ Notably, the new measures do not target "transactional legal advisory services", which were referenced in the September announcement. It remains to be seen whether the professional services ban will be expanded further in due course to cover such services.

Expansion of UK professional services ban

On 21 July 2022, the UK introduced a professional services ban imposing prohibitions on the direct or indirect provision of accounting services, business and management consulting services or public relations services to a "person connected with Russia".

The UK has now expanded the UK professional services ban. It is now prohibited to provide advertising, architectural, auditing, engineering and IT consultancy and design services to a person connected with Russia (Regulation 54C).

The Regulations provide for certain exceptions to these prohibitions. In particular:

• For auditing services, the prohibitions do not apply to the extent an auditor is appointed by a parent undertaking that has, for example, a Russian subsidiary, provided that:
  • where the audited entity is a credit institution, the services are provided either for such credit institution to determine whether (A) the accounts of a Russian subsidiary should be included in its group consolidated accounts, or (B) to include the Russian subsidiary's accounts into the group consolidated accounts;
  • for all other entities (including where the above criteria is not met), the auditor was appointed prior to 16 December 2022 subject to certain conditions.
• Where an auditor is appointed to audit a subsidiary undertaking, the prohibitions do not apply to the extent provision of the services (i) are in relation to the discharge of or compliance with UK statutory or regulatory obligations, and (ii) which results in the provision of those services indirectly to a person connected with Russia in that person's capacity as a parent undertaking of that subsidiary.
• For accounting services, business and management consulting services, engineering services or public relations services, the prohibitions do not apply where the services are provided in relation to the discharge of or compliance with UK statutory or regulatory obligations and where such obligations do not arise under contract.
• For advertising services, architectural services, engineering services or IT consultancy and design services, the prohibitions do not apply in respect of contracts entered into prior to 16 December 2022 subject to certain conditions. There are also further exceptions for IT consultancy and design services, for example, where the services are incidental to the exchange of communications over the internet.

The Regulations also add Schedule 3J which provides definitions of the professional and business services covered by these prohibitions, in some cases by reference to the Central Product Classifications (which have been previously referenced in UK Russia sanctions guidance). This helps to provide further clarity as to the scope of the covered services.

Other notable updates

The Regulations expand the scope of UK sanctions targeting Russia in certain other respects. In particular:

• Expansion of goods subject to UK trade sanctions. The Regulations expand the list of goods and technology subject to UK export restrictions as well as related technical assistance, financial services and funds, and brokering services. In particular:
  • The list of critical industry goods and technology (Schedule 2A) has been expanded to include inter alia camouflage and oil production and mining equipment; and
  • The list of defence and security goods and technology (Schedule 3C) has been expanded to include five additional chemicals.
• Prohibition on trust services. The Regulations introduce a new prohibition on the provision of trust services to, or for the benefit of (i) a designated person; or (ii) a person connected with Russia, subject to certain exceptions.
• Amendment to other financial sanctions. The Regulations also amend existing restrictions on dealing with securities or money market instruments and loans and credit arrangements to a person connected with Russia.

For further information on sanctions developments from the UK, EU, US and other jurisdictions, please visit our Sanctions & Export Controls page.

Footnotes

1. Sanctions in response to Putin's illegal annexation of Ukrainian regions, UK Government Press Release, available at: https://www.gov.uk/government/news/sanctions-in-response-to-putins-illegal-annexation-of-ukrainian-regions