The UK Government has the authority to apply harsh new sanctions against Russia after the introduction of legislation in Parliament on 10 February as part of steps to pressure the Kremlin to cease its campaign of aggression in Ukraine. This Act establishes the groundwork for the UK's most stringent sanctions system against Russia. It implies that the UK may now impose sanctions on Russian companies and persons in various economically and strategically critical sectors, including the chemical, defense, extractives, ICT, and financial services industries.
What has Happened Prior to the New Legislation?
• Since 31 December 2020, the United Kingdom has had an autonomous sanctions policy and authorities. The Sanctions and Anti-Money Laundering Act 2018 (the Penalties Act) establishes the legal basis for imposing UK sanctions and enforcing UN sanctions.
• The UK has been entitled to penalize people engaging in destabilizing Ukraine or undermining or endangering Ukraine's territorial integrity, sovereignty, or independence under the current sanctions framework, the 2019 Russia (Sanctions) (EU Exit) Regulations.
• On 31 January, the Foreign Secretary announced in Parliament that it was proposing amendments to the Russia (Sanctions) (EU Exit) Regulations 2019 that would broaden the scope of their designation criteria, allowing the UK to more easily designate a more significant number of Kremlin-linked individuals and businesses.
• These reforms will not automatically designate or impose sanctions on any persons or entities but will give the UK the extra authorities it needs to do so in the case of another Russian incursion into Ukraine.
The UK Government issued modifications to its Russian sanctions program on 10 February 2022, allowing it to identify a wide range of parties "engaged in [...] gaining a benefit from or assisting the Government of Russia." There have been no new designations made at this time. However, the UK Government has already said that the capabilities will be utilized in reaction to any Russian intervention into Ukraine.
The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022 enhance the UK Government's criteria for designating persons and businesses by amending the Russia (Sanctions) (EU Exit) Regulations 2019. Prior to the changes, only individuals who were "engaged in destabilizing Ukraine or undermining or endangering Ukraine's territorial integrity, sovereignty, or independence" may be labeled.
Individuals and businesses that are or have been involved in "obtaining a benefit from or assisting the Government of Russia" can now be identified under the new standard. This is a comprehensive definition that encompasses the following:
1. Russian Government affiliated firms, in other words, comprises businesses in which the Russian Government owns a majority or minority share, or businesses that have received finance from specific Russian Government organizations;
2. Companies of significant economic importance to the Russian Government;
3. Enterprises in a critical field for the Russian Government; and
4. Companies or other individuals who own or control a Russian Government-affiliated firm or serve as a director, trustee, or equivalent.
In Russia, the list of strategic sectors is extensive, and it includes the following industries:
• chemicals;
• building;
• defense;
• electronics;
• energy;
• extractives;
• monetary services;
• information, communication, and digital technologies, as well as
• transportation.
The above list contains sectors (such as defense, energy, and financial services) that have been targeted far under current sanctions and other areas where UK sanctions have had minimal impact thus far. It is crucial to highlight that just because a company operates in one of the following industries in Russia does not guarantee that it will be named; the new legislation merely gives the UK Government the authority to make tags. Businesses subject to UK sanctions jurisdiction, on the other hand, should carefully evaluate their exposure to prospective sectors and counterparties that may come under the scope of the new designation criteria, as well as what protections can be positioned in place if sanctions are imposed.
Next Steps
While it is uncertain when and to what extent the UK Government will use its increased powers against Russia, the UK Government has assured that it has the capabilities to target a wide variety of Kremlin-related targets. Meanwhile, firms subject to UK sanctions jurisdiction and with exposure to Russia, particularly those operating in areas deemed strategically important to Russia, should begin to familiarize themselves with the potential ramifications of the Amended Regulations.
