What Just Happened?

The UK government has once again extended its trade sanctions with Russia.

What Does This Mean?

Economic sanctions, including trade sanctions, are penalties applied by countries to another country, business or individual. They have long been utilised and are applied for a variety of reasons, principally to encourage action on the part of the country which the sanctions are applied against. In this circumstance they have been applied as a result of the Russian and Ukrainian war and are implemented through the Russia (Sanctions) (EU Exit) Regulations 2019.

The UK government has stated that the ‘The purposes of the Russia Sanctions Regulations are to encourage Russia to cease actions: destabilising Ukraine, or. undermining or threatening the territorial integrity, sovereignty or independence of Ukraine.’

‘The UK 14th Amendment introduces, amongst other things, a prohibition on (1) the import, acquisition and supply or delivery of Russian oil and oil products into the UK, and (2) the provision of technical, financial and brokering assistance relating to such products destined for the UK. The oil ban comes into force on 31 December 2022 and, broadly speaking, brings the UK in line with Article 3m of Council Regulation (EU) 833/2014 (as amended, the “EU Regulations”).

The sanctions apply to all persons in the UK, in UK overseas territory and around the world. With a breach of the sanctions constituting a criminal offence.

How Does This Affect the Legal Industry?

Firms and businesses must ensure compliance with the updated measures to avoid prosecution when on boarding new customers and carrying out transactions. This may include implementing a sanctions screening solution and screening new customers against a relevant sanctions list. With relation to screening foreign customers ‘Sanctions solutions should also be set up to account for the use of nicknames and aliases, along with the naming conventions of certain territories’.

Where matches are identified the firm should take appropriate actions to suspend the transaction, freezing assets, and notifying the appropriate authority.

Even where a customer is not on the sanctions list, firms are reviewing whether they still wish to a to act. It is not the case that the application of sanctions automatically mean that action on behalf of all Russian customers should cease, making it a regulatory matter. Instead it is generally accepted that firms can choose their customers. With the Solicitors Regulation Authority noting that ‘The question of terminating a current retainer is one for the common law, and turns on whether there is a 'good reason' for the termination.’

Where a firm still wishes to act for an individual on the sanctions list they must apply for a licence from OFSI before proceeding. In addition they should seek to:

Suspend the transaction whilst awaiting advice from the OFSI.
Contact the OFSI to get a licence to deal with the funds.
Assess whether there is a suspicion of money laundering or terrorist financing which must be reported to the National Crime Agency.

More practically for companies that trade with Russia in these areas where bans and trade sanctions are now in place, they may question whether they can break their contracts. However, this will depend on a number of factors which include:

‘Whether there is a right of termination at will or for breach of contract that can be exercised;
Frustration - whether the business that is party to the contract is subject to a sanctions law that prevents performance or renders performance radically different;
Force majeure - any force majeure clause should be carefully scrutinised to assess whether it permits termination (or excuses non-compliance) in these circumstances.’

Legal advice moving forward has included not relying on ‘compliance with law’ or ‘force majeure’ clauses to apply. Instead, firms are recommending the inclusion of specific sanctions and termination at will clauses.

In general, the government has advised that the penalties for anyone who breaches the sanctions include:

Trade sanctions - triable either way and carries a maximum sentence on indictment of 10 years’ imprisonment or a fine (or both).
Financial sanctions - is an offence that is triable either way and carries a maximum sentence on indictment of 7 years’ imprisonment or a fine (or both).
Failing to comply with a port barring direction or a port entry or movement direction is an offence that is triable either way and carries a maximum sentence of 7 years’ imprisonment or a fine (or both).

Assessing firms

#Pinsent Masons#Baker Mackenzie#Dentons#Linklaters LLP#Latham & Watkins LLP#Ashurst#Gowling WLG#Reed Smith#Mayer Brown# Herbert Smith Freehills

This Article was Written Using the Following Sources

[1] Reed Smith Client Alers ‘Latest UK sanctions against Russia – Oil ban, insurance, gold, coal and business services’ (Reed Smith, 27 July 2022) < https://www.reedsmith.com/en/perspectives/2022/07/latest-uk-sanctions-against-russia> Accessed 8 August 2022

[2] UK Government ‘Guidance: Trading under sanctions with Russia’ (UK Government, 8 July 2022) <https://www.gov.uk/guidance/trading-under-sanctions-with-russia> Accessed 8 August 2022

[3] ibid n1

[4] ibid n2

[5] Comply advantage ‘What Are Trade Sanctions? Everything You Need To Know’ (Comply Advantage, 24 May 2022) <https://complyadvantage.com/insights/what-are-trade-sanctions/> Accessed 8 August 2022

[6] Solicitors Regulation Authority ‘impacts of Russia sanctions’ (Solicitors Regularion Authority, 15 March 2022) <https://www.sra.org.uk/home/hot-topics/impacts-russia/’> Accessed 8 March 2022

[7] Law Society ‘UK sanctions regime’ (Law Society, 28 March 2022) < https://www.lawsociety.org.uk/topics/anti-money-laundering/sanctions-guide> Accessed 8 March 2022

[8] Pinsent Masons ‘Russian sanctions: the impact of UK, EU and US sanctions for UK and EU businesses’ (Pinsent Masons, 1 June 2022) <https://www.pinsentmasons.com/out-law/guides/russian-sanctions-guide-eu-businesses> Accessed 8 August 2022

[9] Uk Government ‘Russian Sanctions:Guide’ (UK Government, updated 21 July 2022) <https://www.gov.uk/government/publications/russia-sanctions-guidance/russia-sanctions-guidance#how-will-these-sanctions-measures-be-enforced> Accessed 8 August 2022

Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.