Client Alert 12 Jul. 2023

UK bans provision of legal advisory services in connection with Russia

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On June 30, 2023 the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023 come into force which restrict provision of legal advisory services to Russian and other companies in connection with certain activities prohibited by the Russia (Sanctions) Regulations.

According to the press release of the Ministry of Justice and Foreign, Commonwealth & Development Office, the purpose is to restrict “[w]ealthy individuals and big businesses linked to the Russian regime … from accessing UK legal expertise to carry out deals that could bolster the nation’s war chest”. According to the same press release, the scope of prohibited activities includes “trade deals between global corporations, or international money lending”.

Legal representation in course of judicial, arbitral and administrative proceedings as well as sanctions compliance advice are not included in the scope of prohibited activities.

What is prohibited?

The newly introduced Regulation 54D prohibits UK persons from directly or indirectly providing legal advisory services to any person who is not a UK person in relation to, or in connection with, the activity restricted by other provisions of Russia (Sanctions) Regulations. This includes the prohibition of making funds/economic resources available to/for the benefit of designated persons, restrictions on dealing with transferable securities or money-market instruments; prohibitions related to providing loan or credit arrangements, restrictions on correspondent banking relations as well as certain prohibitions on investment in relation to Russia and some financial and trust services.

Advising companies in relation to export, import, supply, delivery, transfer and ancillary services for goods restricted by Russia (Sanctions) Regulations is also prohibited. The prohibition covers the entirety of part 5 of the Russia (Sanctions) Regulations restricting trade in a variety of goods between Russia and UK including dual-use goods, energy-related goods, iron and steel, luxury goods, oil and oil products, professional and business services and others.

It is similarly prohibited to render legal advisory services to facilitate circumvention of restrictions imposed by Russia (Sanctions) Regulations.

The provision of legal advisory services related to such restricted activity would be prohibited even if the activity itself does not have necessary links to the UK. In other words, it is not allowed to advise clients on financial or trade activity which would constitute a sanctionable act if it involved a UK person or was taking place in the UK. This is particularly important in the context of anti-circumvention provisions. As a result of the territorial application of the Russia (Sanctions) Regulations, the existing circumvention provisions generally apply only to legal advisory services provided in relation to prohibited activity undertaken in the UK or by a UK person. The newly introduced ban on legal advisory services, however, ensures that it would not be lawful for a UK legal services provider to support commercial activity even where that activity does not have a sufficient connection to the UK to be prohibited under the UK sanctions regime.

The legal advisory services are defined broadly to include legal advice to clients in non-contentious matters involving the application or interpretation of law; acting on behalf of a client, or providing advice on or in connection with a commercial transaction, negotiation or any other dealing; and the preparation, execution or verification of a legal document.

What is not covered by the prohibition on legal advisory services?

The legal advisory services explicitly exclude legal representation services and services ancillary to such representation (e.g., advice, preparation of documents or verification of documents) provided in the course of actual or potential proceedings (including settlement proceedings) before administrative agencies, courts or other duly constituted official tribunals, or arbitral or mediation proceedings. As stated in the Explanatory Memorandum to the new regulations, “access to legal representation is an important element of the core democratic principle of the rule of law”.

The aforementioned exception appears to cover representation before administrative agencies and courts of any jurisdiction as well as arbitral tribunals seated everywhere in the world.

Similarly, it will not be prohibited to provide legal advisory services in relation to the discharge of or compliance with UK statutory or regulatory obligations including compliance with Russia (Sanctions) Regulations. It remains unclear whether similar advisory work will be allowed in respect of compliance with other sanctions programs including those introduced by the EU and U.S.

There is a wind-down period for the legal services initiated prior to the entrance into legal force of the discussed regulations. It will not constitute an offence to render legal advisory services to satisfy contractual obligations or obligations arising out of ancillary contracts concluded before 30 June 2023 provided that such services are completed before 29 September 2023 and the Secretary of State is notified of the provision of such services.

In line with the general aim to preserve access to legal representation, the regulations introduced an exception for expert evidence service providers which act in connection with legal proceedings. This means that experts will be entitled to submit expert reports and testify in courts/arbitral proceedings even where such activity would otherwise be prohibited to a person connected with Russia.

What is next?

The newly adopted ban provoked almost immediate reaction within the legal community which seeks to engage with the Office of Financial Sanctions Implementation (OFSI) to clarify the scope of the prohibited activity. There are indeed many issues to clarify. There is, for instance, a visible discrepancy between the intended aim of the legislation to prevent “[w]ealthy individuals and big businesses linked to the Russian regime” from accessing UK legal expertise, as declared in the press release issued by the Ministry of Justice and Foreign, Commonwealth & Development Office, and the actual scope of the legislation which appears to go much further than that.

UK Finance submitted a list of 46 questions to OFSI aiming to clarify the introduced ban. The majority of the questions relate to the fact that UK law firms traditionally employ many non-UK-qualified individuals who advise clients on foreign laws, and the text of the new Regulation 54D remains ambiguous as to the scope of permitted activities by those lawyers. It remains unclear, for instance, whether advising clients on compliance with foreign sanctions regulations would fall under the sanctions compliance carve out. The fact that the new regulations appear to allow only advice related to UK sanctions was considered to constitute “an unintended consequence of the wide drafting of the legislation.” The legal professionals also enquired how wide-reaching the scope of “indirectly” should be, given the wording of the law prohibiting to “directly or indirectly provide legal advisory services….”

License-related issues also leave a big question mark. The statutory guidance clarifies that for legal advisory services prohibitions in Regulation 54D, a licence may be granted for the provision of legal advisory services where a licensing ground would apply to the prohibited activity in relation to which the legal advice is being given. This provision seems to suggest that licence applicants would need to assess whether the relevant activity can benefit from the OFSI license or would require OFSI in turn to assess the eligibility for the license of the transaction which ordinarily lies outside the OFSI’s reach. This may increase the administrative burden on OFSI to conduct licensing assessments with respect to those activities lackinga UK nexus and it is unclear whether the newly adopted legislation took this consideration into account.

Finally, the concerns have been raised as to whether the new regulation assessed the effect of the legal advisory services ban on the overall attractiveness of the UK jurisdiction on the legal services market.

The questions raised have now been sent to the relevant government departments for response.

About Curtis

Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm. Headquartered in New York, Curtis has 19 offices in the United States, Latin America, Europe, the Middle East and Asia. Curtis represents a wide range of clients, including multinational corporations and financial institutions, governments and state-owned companies, money managers, sovereign wealth funds, family-owned businesses, individuals and entrepreneurs.

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.

Please feel free to contact any team member listed on the right if you have any questions on this important development.

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