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Client Alert 10 Mar. 2022
The full alert is available for download with footnotes here.
Over the last week, the EU and the UK have enacted and announced additional sanctions measures following the escalation of the Russia/Ukraine armed conflict. We provide an overview of the measures below:
The EU has suspended the distribution of State-owned outlets Russia Today and Sputnik across the EU territory. The sanctions cover all means for transmission and distribution, such as via cable, satellite, IPTV, platforms, websites and apps. All relevant licences, authorizations and distribution arrangements are suspended. These measures are directly and immediately applicable in all EU Member States.
Before the measure was imposed, several regulators in EU Member States already took action against Russian State-controlled broadcasters and channels (e.g., in Estonia, Latvia, Lithuania and Poland), while Germany prohibited broadcasting of the German-language version of Russia Today over a license issue.
The EU has adopted the following financial measures:
The prohibition enters into force on March 12, 2022, the tenth day after the publication in the Official Journal of the European Union, so that entities have sufficient time to implement the measure and there is a transition period to mitigate its unduly disruptive effects.
In addition to the banks listed, the prohibition applies to any legal person, entity or body established in Russia whose proprietary rights are directly or indirectly owned, for more than 50%, by the above-mentioned banks. The European Commission has declared that it may add further Russian banks “at short notice.”
The restriction on SWIFT comes after an assessment by the European Central Bank and the European Commission on their impact. SWIFT is a global financial messaging service connecting over 200 countries and with more than 11,000 participating institutions. Approximately 40 million messages are exchanged every day, which enables the transfer of trillions of euros around the world. A similar sanction has only been imposed once in the past, which was against Iranian banks prior to the JCPOA.
Additionally, the EU imposed sanctions in the form of asset freezes on 160 individuals. The listed individuals include:
Altogether, EU restrictive measures against Russia now apply to a total of 862 individuals and 53 entities.
The EU has prohibited the sale, supply, transfer or export, directly or indirectly, of maritime navigation goods and technology, whether or not originating in the Union, to any natural or legal person, entity or body in Russia, for use in Russia, or for the placing on board of a vessel flying the Russian flag. The restriction includes radio communication technology.
In addition, the EU has prohibited technical and financial assistance, brokering services or other services related to maritime goods and technology. The only exception to this prohibition is for supply of maritime goods of non-military use intended for humanitarian purposes, health emergencies, urgent prevention or the mitigation of an event. In addition, national competent authorities may authorize the supply and sale of maritime goods and technology intended for maritime safety. When an authorization is granted, the national competent authority shall inform other Member States and the Commission within two weeks of the authorization.
The EU has also imposed a prohibition to purchase sell, provide investment services for or assist with the issuance of transferable securities and money-market instruments issued after April 12, 2022 by the Russian State-owned enterprise “Russian Maritime Register of Shipping.”
On March 8, 2022, the UK announced that it will be phasing out imports of oil from Russia by the end of 2022, at which point there will be a complete prohibition on the importation of Russian oil and oil products into the UK. This transition period is to allow parties to adjust their supply chains. The UK Government is establishing a Taskforce on Oil to find alternative sources of supply. Russian imports account for 8% of total UK oil demand. Although the UK is not dependent on Russia’s natural gas (representing 4% of total supply), the UK Government announced that it is setting up an energy strategy to reduce dependence on this supply further.
On March 3, 2022, the UK added two oligarchs (Alisher Usmanov and Igor Shuvalov – estimated to be worth a combined $19 billion) to its sanctions list. Both are reported to have significant assets in the UK. On March 10, 2022, the UK added Roman Abramovich, Igor Sechin, Oleg Deripaska, Dmitri Lebedev, Alexei Miller, Andrei Kostin and Nikolai Tokarev to the sanctions list and these individuals are also now subject to an asset freeze and travel ban.
Pursuant to the latter announcement, all funds and economic resources owned or controlled directly or indirectly by Mr. Abramovich are subject to asset freeze restrictions, including Chelsea Football Club. However, OFSI has issued a General License to the club to ensure its football activities remain unaffected. The main permissions granted by the General License include, though are not limited to, continuation of the team’s participation in football matches, running of security, catering, stewarding costs, renumeration, allowances and pensions of all club employees and payment in relation to loan and sale arrangement of players made prior to the designation. Fans are permitted to attend a match but only if they have an existing ticket and broadcasters are allowed to broadcast club activities under pre-existing arrangements.
In addition, the UK Foreign Secretary office has announced the establishment of an Oligarch Taskforce that connects ministers and officials from departments including the Home Office, HM Treasury, Department for Business Energy and Industrial Strategy, Department for Levelling Up, Housing and Communities, and the National Crime Agency. The coordinated actions of this group will help to identify oligarch assets within the UK and build cases for sanctions.
The UK Government announced that Russian companies in the aviation or space industry will be prevented from making use of UK-based insurance or reinsurance services directly or indirectly. This measure prevents Russia from accessing Lloyds and London Market, as the UK is a leader in the global insurance market.
In response to the military conflict in Ukraine, the UK is fast-tracking the Economic Crime (Transparency and Enforcement) Bill. Among other reforms such as significantly expanding the public disclosures required from foreign holders of UK assets, the Bill amends financial sanctions legislation, including the monetary penalty legal test and information sharing powers to help deter and prevent breaches of financial sanctions. Specifically, the Bill:
The Bill has passed through the House of Commons and is currently at the House of Lords, where it had first reading debate on March 7, 2022. On that day, the House of Commons made some amendments to the Bill, including: (i) removing the requirement that a designation is appropriate having regard to the “likely significant effects” of the designation on that person; and (ii) establishing an “urgent procedure” for sanctioning a person for 56 days even if there is no reasonable ground to suspect the person was engaged in a “sanctionable conduct” but was subject to a similar sanction by the U.S., EU, Australia, Canada or other specified country. After the 56-day period the Minister needs to certify the person is involved in a sanctionable conduct or otherwise the designation will expire. It is hoped that the Bill, coming into force next week, will help significantly simplify the process of imposing sanctions on individuals and align the UK’s designated list with that of its allies.
OFSI has published two General Licenses (“GL”) related to its Russia sanctions program:
The GL-referenced INT/2022/1272278 concerning the wind-down of transactions with Russian bank VTB has been amended to expand the definition of subsidiary to any entity owned or controlled by VTB.
On March 8, 2022, a further regulation was added to the UK’s Russia Sanctions regime. The scope of this focuses primarily on the aviation sector and has now expanded the restrictions to include a prohibition on the provision of insurance and reinsurance services to aviation and space goods as well as aviation and space technology. The provision specifically prohibits the direct or indirect provision of such services to: (i) a person connected with Russia (which includes any legal person incorporated or formed in Russia), or (ii) for use of these services in Russia.
The Export Control Joint Unit has published a General License allowing for a time-limited license for certain insurance and reinsurance services relating to aviation, space goods and space technology. A party seeking to rely on the license must register within 30 days of their first use of the license.
Following on from Russian aircraft being prohibited from flying over UK airspace or landing in the UK, UK air traffic controllers are now empowered to prevent a Russian aircraft from entering UK airspace and command that they leave via a specific route. In the event of a contravention of the new provisions, UK air operators are empowered to take such steps as are reasonably practicable to detain a Russian aircraft. The Civil Aviation Authority (“CAA”) is now authorized to refuse to register an aircraft if it is found that it is a relevant aircraft and the Secretary of State may direct the CAA to revoke the registration of an already-registered relevant aircraft.
Failure to comply with the new provisions regarding the movement of aircraft is a criminal offence and this includes any contravention of the above by the airport operator, without a reasonable excuse, or any other person to whom a direction is given, namely the operator or pilot of a Russian aircraft.
OFSI has published Russia financial sanctions guidance to facilitate compliance in light of the latest legislative changes. Specifically, the guidance explains prohibitions and requirements for the financial, trade, aircraft, shipping and immigration sanctions included in the regulations.
The scope and complexity of the latest sanctions imposed against Russia underscore the critical nature of evaluating business operations in Russia and establishing an appropriate compliance program. Curtis, Mallet-Prevost, Colt & Mosle LLP is currently monitoring the developments on sanctions across the globe.
Attorney advertising. The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice. No legal or business decision should be based on its contents.
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