Further to our post yesterday, we set out below the latest EU and UK developments in response to the conflict in Ukraine. As ever, the position continues to change rapidly and we will continue to provide updates via this blog.
UK
Further designations
On 28 February, the UK announced the addition of three further entities to its Russia asset freeze: VEB, Bank Otkritie and Sovcombank.
At the time of writing, the Office of Financial Sanctions Implementation ("OFSI") had not issued a corresponding General Licence ("GL") permitting "wind down" activity with these banks, although such a licence exists in respect of VTB (which was added to the asset freeze list on 24 February). Further details of that GL can be found in our 28 February briefing.
On 1 March, OFSI announced an update to Sberbank's listing. Having previously been subject to sectoral sanctions, Sberbank has also been "designated" for the purposes of the new correspondent banking restrictions described below. However, it is not subject to an asset freeze and is the beneficiary of a wind-down GL in respect of its correspondent banking activities.
Also on 1 March, a further six individuals and entities were added to the UK's asset freeze list: four Belarusian military officials and two entities: JSC 558 Aircraft Repair Plant and JSC Integral, both Belarusian defence companies.
New UK economic sanctions legislation – in force from 1 March
Transferable securities and lending restrictions
At 11pm on 28 February, the Russia (Sanctions) (EU Exit) (Amendment) (No 2) Regulations 2022 (the "Amendment (No 2) Regulations") were laid before Parliament. They come into force today (1 March) and contain various new sanctions measures in respect of Russia.
The Amendment (No 2) Regulations amend the existing Russian sanctions legislation (the Russia (Sanctions) EU Exit) Regulations 2019 (the "Russia Regulations")) expand the existing Russia capital markets restrictions as follows:
- Removing the exemption which previously permitted dealing in securities issued by UK-incorporated subsidiaries of sectorally sanctioned entities (as listed in Schedule 2 to the Russia Regulations). It is now prohibited to deal in transferable securities or money market instruments with a maturity of greater than 30 days issued on or after 1 March by such UK subsidiaries, or persons acting on their behalf or at their direction.
- Introducing a prohibition on dealing in any transferable securities or money market instruments issued on or after 1 March by a 'person connected with Russia', irrespective of maturity. This applies to: (i) companies incorporated or constituted under the law of Russia, (ii) entities owned or controlled by such companies, or (iii) any person acting on behalf of or at the direction of a company falling within (i) or (ii) above, but excludes companies domiciled outside Russia and their branches/subsidiaries (those in scope of the restrictions being "Persons Connected With Russia"). Existing sectorally sanctioned entities are also excluded from the scope of this prohibition, such that they remain subject to the pre-existing restrictions.
- Introducing a prohibition on dealing in any transferable securities or money market instruments issued on or after 1 March by the Government of Russia.
Amendments have also been made to the existing lending restrictions in the Russia Regulations, dividing loans into four categories:
- Category 1 loans are those with a maturity exceeding 30 days made or granted to the sectorally sanctioned entities listed in Schedule 2 of the Russia Regulations, their non-UK subsidiaries, and any entities acting on behalf of or at the direction of either of the above, as granted at any time post-Brexit and before 1 March.
- Category 2 loans are those with a maturity exceeding 30 days made or granted to UK-incorporated subsidiaries of entities listed in Schedule 2 of the Russia Regulations, as granted at any time on or after 1 March.
- Category 3 loans are those with a maturity exceeding 30 days made or granted to a Person Connected With Russia, as granted at any time on or after 1 March. As with the transferable securities restrictions outlined above, this excludes any loans made to entities domiciled in countries other than Russia, their subsidiaries, or any person acting on behalf of or at the direction of either of the above.
- Category 4 loans are those of any tenor made or granted to the Government of Russia on or after 1 March.
All the different categories of loan are defined as "relevant loans" for the purposes of Regulation 17 of the Russia Regulations, such that it is prohibited to knowingly, or with reasonable cause to suspect, directly or indirectly grant such a loan. These restrictions are subject to various licensing grounds, including in relation to humanitarian assistance, the provision of medical goods/services or food, and spaceflight activity.
Correspondent banking restrictions
The Amendment (No 2) Regulations also introduce a prohibition on a UK credit or financial institution ("C") establishing or continuing correspondent banking relationships with: (i) a designated person ("D"); (ii) a UK credit or financial institution owned by D; or (iii) a non-UK credit or financial institution owned by D.
C is also prohibited from processing a sterling payment to, from or via, D or a UK or non-UK financial institution owned by D.
As noted above, for these purposes, the definition of "D" captures Sberbank in addition to the Russian banks which currently appear on the UK asset freeze list.
An exemption applies to the processing of sterling payments for any fee or charge required to permit an aircraft to overfly, land in or take off from Russia. OFSI may also issue licences permitting (i) correspondent banking activity under various grounds, including basic needs, the payment of reasonable legal fees and financial regulation; and (ii) sterling payments under other grounds including humanitarian assistance, the provision of medical goods/services or food, or spaceflight.
New General Licences
OFSI also published three new GLs in the early hours of 1 March.
- GL INT/2022/1277777: this allows for a seven day wind-down period in respect of the newly issued sanctions applying to sovereign debt, loans and money market instruments. Until 23:59 on 8 March, any person may deal with transferable securities or money market instruments that would otherwise be prohibited by the Russia Regulations (as amended). OFSI has also issued a publication notice in respect of this GL.
- GL INT/2022/1277778: this allows for a 30 day wind down period in respect of the clearing and correspondent banking provisions and applies specifically to Sberbank. UK credit or financial institutions and "relevant institutions" (financial institution, clearing house, counterparty or payment system operator) may continue correspondent banking relationships with Sberbank and process sterling payments to, from or via Sberbank (or entities it owns or controls) until 23:59 on 31 March 2022. The publication notice is available here
- GL INT 2022/1277877: this further extends the wind down period in respect of GL INT/2022/1277778 until 24 June in respect of the clearing and correspondent bank prohibitions, where those payments relate to "relevant energy products", namely crude oil, gas, and petroleum products (as defined by their relevant UK commodity codes). The publication notice can be found here.
New UK trade sanctions legislation – in force from 1 March
A second UK statutory instrument was laid before Parliament on 28 February, dealing with additional trade sanctions measures. The Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2022 (the "Amendment No 3 Regulations") also amend the Russia Regulations with effect from 1 March.
The Amendment No 3 Regulations expand the existing restrictions on military and dual-use items to also cover "critical industry goods". These are the software and technology listed in:
- the Schedule to the Amendment No 3 Regulations (which comprises certain items falling within the following categories: electronics, computers, telecommunications, information security, sensors and lasers, navigation and avionics, marine, and aerospace and propulsion);
- Schedule 2 or 3 to the Export Control Order 2008 (military and dual-use goods); or
- Annex I of the EU Dual-Use Regulation (dual-use goods).
Restrictions therefore now apply to the supply to Russia of the listed items, together with related technical assistance, brokering services, financing and financial assistance.
The Amendment No 3 Regulations also introduce new exemptions to the existing Crimea trade sanctions permitting the supply to Russia of certain restricted items, including in relation to the transport to Russia of individuals' personal effects, diplomatic activity, consumer communication devices and software updates, the removal of an aircraft or vessel from the UK to Russia, and emergencies.
Suspension of Russian export licences
On 1 March, the Export Control Joint Unit (the "ECJU") issued a Notice to Exporters confirming that all extant licences for the export of dual-use items to Russia have been suspended. The approval of new export licences for dual-use items to Russia has been suspended with immediate effect.
The ECJU as also removed Russia as a permitted destination from nine open general export licences
EU
Additional designations
On 28 February, the Council of the EU announced the addition of 26 individuals and one entity to its asset freeze list. The individuals include the CEOs of Rosneft and Transneft, the founder and significant shareholder in Alfa Group, and other prominent Russian businesspeople. The listed entity is Gas Industry Insurance Company SOGAZ. Full details of the new designated persons appear in Council Implementing Regulation (EU) 2022/336 of 28 February 2022.
Asset freezing measures now apply to 680 individuals and 53 entities under the EU's Russia regime.
Aviation restrictions
On the same day, the Council of the EU announced further restrictive measures against Russia.
EU Member States will deny permission to land in, take off from or overfly their territories to any (i) aircraft operated by Russian air carriers, or (ii) non-Russian registered aircraft which are owned or chartered or otherwise controlled by a Russian person.
Transactions involving the Russian Central Bank
The EU has also introduced a new restriction pertaining to the Russian Central Bank, as follows: "Transactions related to the management of reserves as well as of assets of the Central Bank of Russia, including transactions with any legal person, entity or body acting on behalf of, or at the direction of, the Central Bank of Russia, are prohibited".
The competent authorities may however authorise such transactions provided that it is strictly necessary to ensure the financial stability of the Union as a whole or of the Member State concerned.
The aviation and Central Bank measures are contained in Council Regulation (EU) 2022/334 of 28 February 2022, amending Council Regulation (EU) No 833/2014.
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