New UK Russia sanctions legislation was published on 28 October: the Russia (Sanctions) (EU Exit) (Amendment) (No. 15) Regulations 2022 (the “No. 15 Regulations”). These amend the UK’s principal Russia sanctions legislation: the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Russia Regulations”). This briefing summarises the key amendments to the Russia Regulations, the majority of which came into force on 29 October.
Loans and credit restrictions
The No. 15 Regulations amend the existing lending restrictions in the Russia Regulations. By way of reminder, the Russia Regulations previously contained four categories of prohibited loans with a Russian nexus. Categories 1, 2 and 4 loans address loans to specific borrowers and to the Government of Russia, and have not been substantively amended. “Category 3 loans” were loans with a maturity exceeding 30 days made or granted at any time on or after 1 March 2022 to: (i) a person connected with Russia (a “PCWR”), (ii) a person owned by a PCWR, or (iii) a person acting on behalf of or at the direction of (i) or (ii) above. However, category 3 loans excluded (among other things) loans made or granted to a person domiciled in a country other than Russia on 1 March 2022 as well as persons owned by or acting on behalf of or at the direction of such persons.
Whilst the drafting of the category 3 loan restrictions and exemptions was not entirely easy to follow, it therefore appeared that, for example, a loan to a French company owned by a Russian company would not be prohibited. Whilst the loan would be in-scope of the restrictions by virtue of being a loan to a person owned by a PCWR, it would be de-scoped by the exception for loans to persons owned by persons domiciled outside Russia as at 1 March 2022.
The No. 15 Regulations time-limit category 3 loans to those issued between 1 March 2022 and 28 October 2022, and effectively replace them, from 29 October 2022, with a new, wider, class of “category 5 loans”.
Category 5 loans are loans or credits issued on or after 29 October 2022:
- with a maturity exceeding 30 days;
- made or granted to a person (other than an individual):
- which is a PCWR, other than:
- a person incorporated or constituted in a country other than Russia on 29 October; or
- a person owned by such a person;
- a person owned by a person within (a); or
- a person owned by a PCWR who is an individual;
- which is a PCWR, other than:
- which is first made or granted at any time on or after 29 October; and
- which is not a category 1, 2, 3 or 4 loan.
Whilst seemingly similar to category 3 loans, the new category 5 loans are broader in effect. In particular, in the example above of a French company owned by a Russian company, such a loan would appear to be in scope of the category 5 loan restrictions by virtue of falling within point 2(a) above. Consistently with this, the Explanatory Memorandum states that the No 15 Regulations “bring[s] companies outside Russia owned by a person connected with Russia into scope, including UK companies”.
There is also a minor amendment to the effect that that the test of a company being “domiciled” outside Russia is replaced by the more easily understandable test of being “incorporated or constituted” outside Russia.
Also on 28 October, the Office of Financial Sanctions Implementation published a general licence (“GL”) relating to category 5 loans: GL INT 2022/2307324. This permits any person to directly or indirectly enter into an arrangement to grant a category 5 loan until 23:59 on 5 November 2022. A separate GL – GL INT/2022/2305324 – was issued on the same day allowing for the continued granting of category 5 loans (or entering into arrangements to grant category 5 loans) to Gazprom Germania (otherwise known as Securing Energy for Europe) and/or its subsidiaries. The GL expires on 29 October 2023 and contains a non-exhaustive list of purposes for which loans may be granted, including:
- over the counter trading in gas and power market trades;
- payment in respect of credit arrangements and invoices by Gazprom Germania and/or any of its subsidiaries to any third party for purchase of gas or services;
- customer credit arrangements or any arrangements by customers to make prepayments to Gazprom Germania and/or any of its subsidiaries;
- provision of clearing services to Gazprom Germania and/or any of its subsidiaries;
- payments and loan arrangements between Gazprom Germania and/or any of its subsidiaries; and
- issuing and providing financing for letters of credit.
Both GLs permit UK financial institutions to process payments in connection with the above loans.
Restriction on LNG imports
The No. 15 Regulations introduce a prohibition on the import of liquified natural gas (“LNG”) originating in or consigned from Russia. This ban was announced by HMG some time ago, and the restrictions will only come into force on 1 January 2023.
When effective, the restrictions will also cover the acquisition of LNG which originates in or is located in Russia with the intention of the LNG entering the UK. There are also ancillary related restrictions on technical assistance, brokering services, financial services and funds relating to such import or acquisition.
Other amendments to trade sanctions
The No. 15 Regulations also make various amendments to the trade sanctions measures contained in the Russia Regulations. We summarise the principal changes below:
- in addition to the existing restrictions on the import, purchase or acquisition of Russian gold, the No. 15 Regulations introduce equivalent provisions relating to the import of gold jewellery and “relevant processed gold” (meaning gold which has been processed in a third country and incorporates gold that, on or after 21 July 2022, originated in and has been exported from Russia). The No. 15 Regulations also introduce related restrictions on technical assistance, brokering services, financial services and funds relating to gold jewellery and relevant processed gold. Certain exceptions apply, for example, to gold for personal use which is contained in the luggage of a person travelling from Russia to the UK;
- new export and sale restrictions have also been introduced in relation to “Russia’s vulnerable goods”. These are set out in the new Schedule 3I to the Russia Regulations and comprise a long and varied list of items including wood, tools, and LNG containers (to name just a few). These new restrictions take a similar form to many of the other export restrictions in the Russia Regulations in that it is prohibited to export, supply or deliver the relevant goods to Russia or to make them available to a PCWR or for use in Russia. The No. 15 Regulations also contain related restrictions on technical assistance, brokering services, financial services and funds;
- amendments have been made to a number of the existing schedules of restricted goods, including the insertion of a new list of products into the “G7 Dependency and Further Goods” list, as a new Part 3 of Schedule 3E; and
- the No. 15 Regulations also contain certain limited exemptions relating to the newly introduced trade sanctions and make certain other minor amendments to the Russia Regulations.
Similarly to the LNG restrictions, the No 15 Regulations provide that the restrictions relating to Russia’s vulnerable goods do not come into force until 1 January 2023 (as both restrictions are contained in reg.6, which will only commence as at 1 January 2023). However, the UK statutory guidance on the Russia Regulations states that the new restrictions relating to Russia’s vulnerable goods came into force on 29 October 2022, and the Explanatory Memorandum suggests that the extended in-force date was only intended to apply to the LNG restrictions. It may therefore be that this is a drafting error, which raises the possibility that the commencement date for the Russian vulnerable goods restrictions may be brought forward in due course.
New GL regarding legal fees
Separately on 28 October, OFSI announced the issuance of a new GL relating to the payment of legal fees owed by individuals and entities designated under the Russia and Belarus sanctions regimes: GL INT 2022/2252300. Therefore, any UK legal firm or UK counsel who has provided legal advice to a designated person can receive payment without a specific OFSI licence, provided the terms of the GL are met.
The GL distinguishes between legal fees in relation to pre-designation work, and work started post-designation.
- For legal work carried out in satisfaction of a prior obligation (i.e. pre-designation), there is a £500,000 (incl. VAT) cap on the amount that can be claimed over the duration of the licence.
- For post-designation work, users of the licence will need to demonstrate through their reporting obligations that all fees which have been paid are reasonable. This will be done by providing details of hourly fees (which must be at or below the hourly rates specified by the GL), workstreams, and evidence that overall fees are at or below a cap of £500,000 (incl. VAT).
The two caps may be combined where applicable, but for fees above these caps a specific licence would need to be sought from OFSI.