The UK Government has introduced two further packages of sanctions against Russia in quick succession.
The first package extends existing loan and credit related sanctions, introduces new trade prohibitions in relation to the import of certain Russian gold jewellery, processed gold and liquefied natural gas (LNG) and includes a ban on the export of Russian ‘vulnerable goods’.
It also extends the list of ‘revenue generating goods’ targeted by existing import prohibitions as well as widening the scope of ‘G7 Dependency Goods’ which UK persons are prohibited from exporting, supplying or delivering to Russia.
The second package introduces bans on the maritime transportation of certain Russian oil (and oil products) to and between third countries.
We set out below the key points for consideration.
Separately, HM Treasury’s Office of Financial Sanctions Implementation (OFSI) has published its annual report and there have also been further signs of deepening co-operation between the UK and U.S. sanctions authorities. This may lead to more aggressive enforcement of UK sanctions in the future.
The Russia (Sanctions) (EU Exit) (Amendment) (No. 15) Regulations 2022 (Regulation 15)
The sanctions introduced by Regulation 15 came into force on 29 October 2022, unless otherwise described below.
Extension of existing loan and credit related sanctions
Regulation 15 amends existing prohibitions on UK persons directly or indirectly granting (or entering into any arrangement to grant) certain loans to persons connected with Russia by, in particular, introducing a new ‘category 5’ loan concept which effectively supersedes the earlier ‘category 3’ loan concept.
A category 5 loan must: (a) have a maturity exceeding 30 days; (b) be made or granted to a person, other than an individual, (i) which is connected with Russia (and other than as described in the paragraph below), (ii) a person who is owned by a person in (b)(i), or (iii) a person who is owned by a person connected with Russia who is an individual; (c) be first made or granted at any time on or after 29 October 2022; and (d) not be a category 1 loan, category 2 loan, category 3 loan or a category 4 loan.
Limb (b)(i) does not, however, cover a person that either: (i) was incorporated or constituted outside of Russia on 29 October 2022; or (ii) is owned by such a person.
The new ‘category 5’ sanctions generally therefore appear to target:
- Russian entities and their (Russian and non-Russian) subsidiaries unless, in all cases, the same are, in fact, themselves owned by non-Russian incorporated persons; and
- (Russian and non-Russian) entities that are owned by individuals ordinarily resident, or located, in Russia.
The ‘category 5’ concept is wider than the “category 3” concept which it supplants. In particular, the wide derogation for persons domiciled in countries other than Russia has been removed.
A general licence (INT/2022/2305324) was issued by OFSI in conjunction with Regulation 15 which allows for certain ‘category 5’ loans to be made to Securing Energy for Europe GmbH, otherwise known as Gazprom Germania GmbH, and its subsidiaries, including SEFE Marketing & Trading Limited and SEFE Energy Limited. This general licence is valid from 29 October 2022 until and including 29 October 2023.
Trade restrictions relating to certain Russian gold jewellery and processed gold
Importing gold jewellery (i) originating in Russia and (ii) where it has been exported from Russia on or after 29 October 2022 is prohibited. It is also prohibited to acquire, directly or indirectly, gold jewellery which originates in Russia and is located in Russia with the intention of the gold jewellery entering the UK.
The import of ‘relevant processed gold’ is prohibited. ‘Relevant processed gold’ is gold which has been processed outside of the UK, the Isle of Man or Russia (a third country) and incorporates gold that, on or after 21 July 2022, originated in Russia and has been exported from Russia.
There are associated prohibitions on providing technical assistance, brokering services and financial services in relation to the above activities.
Ban on the import of LNG
From 1 January 2023, certain restrictions on LNG will apply. The import of LNG which is consigned from or originates in Russia will be generally prohibited. It will also be generally prohibited to acquire, directly or indirectly, LNG which originates in Russia or is located in Russia with the intention of the LNG entering the UK. There will also be associated prohibitions on providing technical assistance, brokering services and financial services.
Prohibition on the export of ‘Russia’s vulnerable goods’
A suite of prohibitions will come into force from 1 January 2023 in relation to ‘Russia’s vulnerable goods’. A wide range of products are captured, from types of wood, millstones and grindstones to winches, cranes, sewing equipment and printing machinery. It shall be generally prohibited not only to export these goods to, or for use in, Russia but also to supply or deliver them from a third country to a place in Russia or make them available to a person connected with or for use in Russia. There will also be associated prohibitions on providing technical assistance, brokering services and financial services.
Extension of list of ‘revenue generating goods’
The list of goods targeted by current UK sanctions against the import, acquisition or supply of Russian ‘revenue generating goods’ has been expanded to cover, amongst other things, a number of additional types of alcohol and certain other by-products of brewing or distilling. This brings the UK sanctions into closer alignment with the equivalent EU prohibitions.
Extension of list of ‘G7 Dependency Goods’
A number of changes have been made to the list of G7 Dependency Goods which UK persons are prohibited from exporting, supplying or delivering to Russia. Additional goods targeted include various chemicals and mixtures, dyes, pigments and inks as well as vacuum-moulding machines and fire-fighting vehicles. As above, this aligns the UK’s position more closely with the EU’s equivalent measures.
The Russia (Sanctions) (EU Exit) (Amendment) (No. 16) Regulations 2022
Change of date on which previously established oil-related sanctions will come into force
The UK had previously introduced a range of sanctions targeting the import, acquisition, supply, and delivery of Russian oil and oil products (as well as associated technical assistance, financing and brokering-related restrictions). These sanctions were initially set to come into force on 31 December 2022. This date has now been brought forward to 5 December 2022, better aligning the UK’s position with that of the EU.
Maritime transportation of certain oil and oil products
Also from 5 December 2022, a UK person must not generally, directly or indirectly, ‘supply or deliver by ship’ oil or oil products falling within commodity code 2709 (ie petroleum oils, oils obtained from bituminous materials, crude): (i) from a place in Russia to a third country, or (ii) from one third country to another third country.
The phrase ‘supply or deliver by ship’ includes any transfer of the goods between ships and a person ‘supplying’ or ‘delivering’ the goods by ship includes a person who owns, controls, charters or operates a ship (i) on which the goods are being carried, or (ii) from which the goods are being transferred.
A similar prohibition applies from 5 February 2023 in respect of oil or oil products falling within commodity code 2710 (ie petroleum oils and oils obtained from bituminous minerals, other than crude).
There are also associated prohibitions on providing technical assistance, brokering services and financial services in relation to all of these maritime transport activities.
Various derogations have also been established. Perhaps most notably, specific derogations exist for oil and oil products that are being transported which (i) originate in a country that is not Russia, (ii) are not owned by a person connected with Russia and (iii) are only being loaded in, departing from or transiting through Russia. All three conditions must be satisfied for these exemptions to apply.
Importantly, the UK Government has also announced that a general licence will be issued prior to 5 December 2022 which will create a “price cap” exception for the supply or delivery by ship of Russian oil and oil products and associated services. This exception has been created with G7 partners and Australia to ensure that Russian oil continues to flow into the global market, whilst constraining Russia´s ability to fund its war in Ukraine through inflated global oil prices. OFSI has published detailed guidance in relation to the “price cap” regime, but the licence itself has not been published yet.
Further co-operation between OFSI and OFAC
There have recently been further signs of deepening co-operation between the UK and the U.S. sanctions authorities. OFSI and the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued a joint announcement on 17 October 2022 committing to their close working relationship. In practice, it will mean over the coming months that OFSI and OFAC officials work together on implementation and enforcement, exchange best practice and identify areas to pool expertise. The announcement acknowledges that financial sanctions work best when implemented multilaterally. This maximises their impact, minimises unintended consequences and eases the burden of compliance for business.
OFSI annual report 2021-2022
OFSI published its Annual Review 2021-2022 on 10 November 2022. OFSI have included additional reporting to detail their role in responding to Russia's invasion of Ukraine. OFSI added 1,271 new Russia regime designated persons to the consolidated list in the period 22 February to 24 August 2022. Including additions, amendments and removals, there were over 2,300 changes to Russia regime designations in the same period. Further, from 22 February to 20 October 2022, a total of £18.39 billion in frozen funds were reported to OFSI as being held by or on behalf of persons designated under the Russia sanctions regime. To enable OFSI to cope with the demands of the new sanctions, and to strengthen its ability to implement and enforce financial sanctions, OFSI confirmed its intention to expand its workforce to 100 by the end of 2022.
Should you have any questions on the matters discussed in this article, please contact Matthew Townsend, Jonathan Benson, Tom d’Ardenne, Sophie Davis or your usual contact at Allen & Overy LLP.
