The UK sanctions regime will replace the EU regime on 1 January 2021 – are you prepared for the change?
Restrictive measures have been imposed by the EU in relation to Russia since 2014, including measures to target specific sectors of the Russian economy (“EU Sectoral Sanctions”).
Until the end of the Brexit transition period on 31 December 2020, the UK will continue to follow the EU sanctions regime. As of 1 January 2021, however, the UK sanctions regime in relation to Russia will be set out in the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855) (“Russia Regulations 2019”). This will be a separate, standalone sanctions regime which will need to be carefully reviewed for compliance purposes, as it will diverge from the EU regime in a number of respects.
Lending and capital access restrictions
The EU Sectoral Sanctions include restrictions on lending to and access to capital for certain Russian banks and companies operating in the oil sector.
The listed entities targeted by the lending and capital access restrictions remain the same under the Russia Regulations 2019. However, while the Russia Regulations 2019 provide that the lending and capital access restrictions do not apply to UK subsidiaries, this exemption is not extended to EU subsidiaries. EU subsidiaries will therefore fall within the UK prohibition. In contrast, the restrictions imposed by the EU Sectoral Sanctions do not apply to EU subsidiaries of such entities. This will lead to a divergence between the two regimes.
Trade finance exemption
Restricted loans or credit to targeted entities are permitted, if they “have a specific and documented objective to provide financing for non-prohibited imports or exports of goods and non-financial services between the Union and any third State”.
The Russia Regulations 2019 maintain the prohibition on loans or credit to targeted entities but limit the scope of the exemption to non-restricted imports or exports to or from the UK (rather than the EU). Consequently, legitimate trade with an EU (but not a UK) nexus will not benefit from the UK trade finance exemption.
Oil exploration technologies restriction
The EU Sectoral Sanctions seek to curtail access to certain technologies that can be used for oil exploration and production.
The Russia Regulations 2019 replace the term “Annex II” technologies with “energy-related goods”. The restricted items themselves appear to remain the same, albeit with differences in the way in which they are described.
The EU Sectoral Sanctions impose restrictions on the sale, supply, transfer or export of Annex II technologies, as well as the provision of: (i) financial assistance; and (ii) brokering services, in respect of such technologies (among other restrictions). The Russia Regulations 2019 appear to expand the scope of such prohibitions, as explained below.
As confirmed by the ruling of the CJEU in Rosneft (Case C‑72/15), payment processing does not constitute “financial assistance” under the EU Sectoral Sanctions.
However, UK government guidance on the Russia Regulations 2019 confirms that “financial services” will include payment processing: “Where the provision of financial services is prohibited, this includes the provision of processing payments”. The guidance acknowledges that “this differs from the EU sanctions regime”.
The EU Sectoral Sanctions define “brokering services” as “the negotiation or arrangement of transactions” or “selling or buying”.
In contrast, the Russia Regulations 2019 support a potentially broader definition of “brokering services”1, defining it as “any service to secure, or otherwise in relation to, an arrangement, including (but not limited to):
- the selection or introduction of persons as parties or potential parties to the arrangement;
- the negotiation of the arrangement;
- the facilitation of anything that enables the arrangement to be entered into; and
- the provision of any assistance that in any way promotes or facilitates the arrangement”2. (emphasis added)
The definition of “brokering services” in the Russia Regulations 2019 may expand the scope of the corresponding restrictions. As a result, activities which do not fall within the scope of the EU restrictions may fall within the UK restriction. Consequently, such activities may require a prior authorisation from the UK authorities if they are to be performed or continue to be performed after the Brexit transition period.
The existence of important differences post the Brexit transition period between the EU sanctions regime and the UK sanctions regime demonstrates that compliance with the EU regime will not necessarily lead to compliance with that in the UK. UK businesses or individuals relying on an existing exemption may not be able to rely on that exemption going forward. Activities which currently fall outside the scope of the restrictions may fall within the UK prohibitions. To ensure compliance, the UK sanctions regulations will need to be carefully reviewed. If in doubt, professional advice on the effect of the UK’s new regime should always be sought.