UK imposes further sanctions in response to Russia's invasion of Ukraine

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UK imposes further sanctions in response to Russia's invasion of Ukraine

UK imposes further sanctions in response to Russia's invasion of Ukraine

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March 7, 2022

The UK has introduced a raft of new sanctions measures in relation to Russia since the start of the Russian military activity in Ukraine in February 2022. This started with the designation of five banks and three persons on 22 February, with significant further measures announced on 24 February, most (but not all) of which have now been introduced into law.

The new sanctions measures introduced include:

designating various Russian banks, companies and individuals (including some "oligarchs" and Russian politicians);
extending capital market and loan/credit restrictions to all "persons connected with Russia" and the government of Russia;
ending trade sanctions restrictions to cover "critical industry goods and technology" in addition to military, dual-use and certain energy goods/technology to which restrictions already applied;
restricting the provision of financial services relating to foreign exchange reserves and asset management to certain specified persons involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation;
banning Russian ships, and ships chartered by a Russian person/entity, from entering UK ports, and Russian aircraft from UK airspace.

This note details these and other measures now in place.

1. New asset freeze/dealing ban designations

Since the start of the crisis, the UK has imposed a full asset freeze on nine banks.¹ It has subsequently issued wind-down licences, applying for a period of one month, in relation to six of these banks, although the scope of the wind-down licences remains unclear. The PM and Foreign Secretary have stated an intention to impose an asset freeze on "all Russian banks", but it is not clear if that remains the intention.

Other prominent entities have been designated, including a number of defence companies (notably including Rostec) and the Russian Direct Investment Fund. The UK has also designated a number of individuals including several "oligarchs", and Russian President Putin and Foreign Minister Lavrov.

On 24 February, the UK Foreign Secretary announced sanctions² on "120 businesses and oligarchs". The designations announced since 24 February fall well short of this figure, so we anticipate further designations shortly.

While there is a high degree of coordination between UK and other jurisdictions (notably the US and the EU), it should not be assumed that persons/entities on the UK list are designated by other jurisdictions, nor that persons/entities designated by other jurisdictions are designated in the UK.

2. Extended capital market and loans/credit restrictions

Since July 2014, UK persons have been prohibited from dealings in transferable securities and money market instruments issued after that date, and also from making new loans/credit available to certain named banks and other companies (and their non-UK subsidiaries). The entities to which these restrictions apply are listed in Schedule 2 of the UK Russia Sanctions Regulations.³

Measures introduced on 1 March 2022⁴ extend these restrictions, such that (from 1 March 2022) they also apply to:

the UK subsidiaries of the entities previously targeted;
all persons "connected with" Russia (i.e. all Russian residents, persons in Russia and entities established or domiciled in Russia) and their subsidiaries; and
the government of Russia (i.e. purchasing/trading in Russian sovereign debt issued on/after 1 March 2022 is prohibited).

The Treasury now has the power to prohibit UK credit or financial institutions from establishing or continuing a correspondent banking relationship, and from processing sterling payments to, from or via a named credit or financial institution. The Treasury immediately exercised this power in relation to Sberbank.⁵ It later introduced some general licences allowing certain activities that would otherwise have been prohibited by this measure.

3. New and extended trade sanctions restrictions

The UK government has introduced new trade sanctions measures in relation to Russia.

This includes extending the prohibitions on the export, supply and delivery and making available of military goods and technology to include dual-use goods and technology, and "critical-industry goods" and "critical-industry technology".⁶ The new category of critical-industry goods and technology includes certain electronics, computers, telecommunications equipment and information security, sensors and lasers, marine-related items, and aerospace and propulsion-related items. The UK critical-industry goods and technology list is similar to those items now restricted by the EU.

Related prohibitions on the provision of technical assistance, financial services, funds and brokering services are also extended in relation to dual-use goods and technology, and critical-industry goods and technology.

A number of exceptions from the trade prohibitions on critical-industry goods and technology are provided for, in relation to personal items and diplomatic missions, consular posts and international organisations, the movement of aircraft and vessels, consumer communication devices and software updates, and emergencies.

The UK government has removed Russia as a permitted destination from numerous open general export licences (OGELs), and suspended the approval of new export licences for dual-use items to Russia with immediate effect. All extant licences for such items to Russia will be suspended.

4. Restrictions on financial services relating to Russian foreign exchange reserves

The UK has introduced a new restriction on providing financial services relating to foreign exchange reserve and asset management to certain specified persons.

These persons are:

the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation;

anyone owned or controlled by any of the above; and
anyone acting on behalf of or at the direction of any of the above.
The practical effect of this is that Russia will be unable to access its UK currency reserves.

5. Restrictions on Russian ships from entering ports in the UK

New measures⁷ now prohibit UK ports from allowing vessels to enter British ports if they are:

owned, controlled, chartered or operated by a person designated by the Secretary of State (in practice, the Department for Transport) for this purpose;
owned, controlled, chartered or operated by a person connected with Russia;
flying a Russian flag;
registered in Russia; or
a specified ship.

This structure therefore enables ships to be impacted by virtue of generic elements, the ship being "specified" or the designation (for this purpose) of the person who owns, controls, charters or operates the ship.

The Secretary of State for Transport may give directions to harbour authorities to restrict the movement of Russian ships, ships owned, controlled, chartered or operated by a designated person/entity, or a person/entity connected with Russia. Ships that are owned, controlled, chartered or operated by a designated person/entity or a person/entity connected with Russia, or specified by the Secretary of State, may not be included in the UK Register of Ships.

6. Restrictions on Russian aircraft in UK airspace

The UK has imposed, effective from 25 February 2022, a ban on all Russian-registered aircraft, or aircraft otherwise owned, chartered or operated by a person/entity connected with Russia from entering UK airspace.⁸

Impact for businesses

This is a significant set of new UK measures, and clearly prepared at speed, notwithstanding a few days' delay between announcement and implementation. It will take businesses, and probably government departments too, a while to fully understand the extent of them, and it is likely that we might see some clarifications in coming days, potentially in the form of corrective amendments, guidance and/or licences, in order to avoid unintended consequences, and to add certainty for operators.

For businesses that operate internationally, the complexity is exacerbated by other jurisdictions including the US, Canada, the EU, Australia, Japan and Switzerland, all bringing into effect their own measures, which are similar to, but inevitably not the same as, the UK measures.

If you need advice or assistance on sanctions matters, please reach out to any of the contacts associated with this note, or to your usual Dentons contacts.