UK sanctions relating to Russia: New legal advisory services ban, trade sanctions enforcement and non-government controlled Ukrainian territory additions
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In relation to Russia, the UK has introduced a new sanctions prohibition on the provision of legal advisory services, amended the process for the investigation of trade sanctions offences, and added the Kherson and Zaporizhzhia oblasts to the definition of "non-government controlled Ukrainian territory".
New Prohibition of Legal Advisory Services
On 30 June 2023, a new UK sanctions prohibition on the provision of legal advisory services came into effect.1 It is now prohibited for a person subject to UK sanctions jurisdiction to directly or indirectly provide legal advisory services to non-UK individuals or entities in relation to certain financial or trade activities that would be prohibited under the Russia (Sanctions) (EU Exit) Regulations 2019 ("Russia Regulations") if those activities were performed by a UK person or took place in the UK. This prohibition is subject to limited exceptions and the services it prohibits are licensable by the Export Control Joint Unit ("ECJU").
What types of legal advisory services are caught by the prohibition?
The legal advisory services caught by the new prohibition are limited to the provision of legal advice in non-contentious matters only. These services include, amongst others, acting on behalf of a client, or providing advice on or in connection with a commercial transaction, negotiation or any other dealing with a third party. Legal representation services (e.g. legal services provided in respect of court, arbitral or mediation proceedings) are excluded from the definition of covered legal advisory services.
The prohibition applies to in-house counsel providing covered legal advisory services as well as lawyers in private practice, so long as they fall within UK sanctions jurisdiction. This will include in-house counsel who are UK nationals providing relevant legal advice to non-UK-incorporated companies (wherever they may be located), as well as in-house counsel of whatever nationality located in the UK and providing relevant legal advice to non-UK companies.
There is also an exception to the new prohibition that permits the provision of legal advice on compliance with the Russia Regulations. HM Government has announced that they intend to introduce a general license to also allow legal advice on compliance with the sanctions imposed by the UK's partner countries (e.g. the US and the EU), as well as Russian counter-sanctions. The general license is expected to be issued by the end of July 2023, and HM Government is still considering whether legislative amendments to the legal advisory services provisions will follow.
The legal advisory services prohibition also includes a wind-down exception for covered services provided under contracts concluded before 30 June 2023, or an ancillary contract necessary for the satisfaction of such a contract, but only provided that the act is carried out before 29 September 2023 and the Secretary of State is notified of such provision of covered services by that date.
Substantive compliance with UK sanctions becomes a prerequisite even outside of UK jurisdiction
Before the new prohibition came into force, it was prohibited for a UK person to enable or facilitate the contravention of the Russia Regulations. However, a gap in the Russia Regulations allowed legal advisory services to be provided in relation to activities that fell within the substantive prohibitions of UK sanctions but did not have a sufficient connection to the UK to be technically prohibited. For example, notwithstanding the ban on new Russian investments under Regulation 18B, it was in theory permissible for a UK lawyer to provide transactional legal advice to a non-UK client in relation to the acquisition of a Russian company, as long as that transaction featured no UK nexus.
The new prohibition closes this gap in respect of legal advisory services provided to non-UK persons. It essentially means that, subject to the exceptions and any applicable licenses, UK lawyers can provide legal advisory services to non-UK persons only if they relate to an activity that would be compliant with the Russia Regulations if there were a UK nexus to that activity.
Comparison with US and EU sanctions relating to legal services
The new prohibition brings the UK sanctions regime in relation to Russia in line with its EU counterparts in that it broadly speaking aims to limit the ability of Russian entities to obtain transactional legal advisory services. However, it differs from the EU ban in some important respects and more closely aligns with the US ban on the facilitation of transactions that are prohibited as to US persons.
The EU legal services ban is both narrower and broader than its UK counterpart. It is narrower in that it prohibits the direct or indirect provision of legal advisory services only to Russian incorporated entities (as well as the Government of Russia), whereas under the UK sanctions regime the new prohibition applies in relation to services provided to any non-UK persons (which may include non-Russian entities and individuals). The EU sanction restriction is, however, broader (and more akin to the UK prohibition on providing other professional and business services) in that it prohibits the provision of legal advisory services (including sanctions compliance advice) regardless of whether the activity to which the services relate would be prohibited under EU sanctions. Both EU and UK generally allow legal advice for contentious work, but other exemptions and grounds for derogations differ.
As for the United States, US sanctions regimes do not prohibit legal advisory services as such. Instead, various broad US restrictions often capture the provision of legal services. For example, US blocking measures prohibit direct or indirect dealings, including the provision of practically any services (including legal services) to blocked persons, absent OFAC authorization; US sanctions also prohibit the facilitation (including by means of the provision of legal services) by a US person of a transaction performed by a non-US person that would be prohibited if performed by a US person. Indeed, the new UK prohibition looks a lot like a narrower version of the US facilitation prohibition, with the UK prohibition focused only on legal services (and Russia, for now). Like the UK and EU bans, however, the United States makes limited exceptions for the provision of sanctions compliance advice and/or representation of persons in litigation and arbitration matters, amongst other exceptions.
New Limits on Enforcement of Trade Sanctions
The 30 June amendments have also introduced a limitation on HMRC's enforcement powers with respect to certain trade sanctions against Russia. The HMRC Commissioners may no longer investigate the suspected commission of any of a set of listed offences unless the suspected offence has been referred to them by the Secretary of State, the Treasury or (with respect to the internet services prohibitions) OFCOM. The Commissioners may also investigate if they decide to treat the suspected offence as if it had been so referred.
The listed offences largely relate to the movement of goods between third countries (i.e. not the UK, the Isle of Man, or Russia) and Russia and the provision of ancillary services in relation to such movement. That is, the limitations on HMRC's investigatory powers largely relate to the movement of goods wholly outside the United Kingdom, where HMRC's investigatory powers would already have been limited. The amendments similarly limit HMRC's investigatory powers with respect to the prohibitions on the provision of professional and business services to persons connected with Russia. The enforcement of these services prohibitions would also have posed a challenge to HMRC's traditional focus on enforcement related to goods.
Given the availability of the referral power and HMRC's power to decide for itself whether to investigate these offences, at present it is unclear how much of an enforcement gap these new limitations will create or whether an alternative enforcement mechanism will be needed to fill that gap.
Amended Definition of Non-Government Controlled Ukrainian Territory
The Russia Regulations prohibit certain financial and trade activities in relation to non-government controlled Ukrainian territory. For example, it is prohibited for a person subject to UK sanctions jurisdiction to directly or indirectly acquire (unless a relevant exception or OFSI license applies) an ownership interest in an entity which has a place of business located in non-government controlled Ukrainian territory. It is also prohibited for a person subject to UK sanctions jurisdiction to import goods that originate in non-government controlled Ukrainian territory (unless a relevant exception or ECJU license applies).
On 20 June 2023, the definition of "non-government controlled Ukrainian territory" under the Russia Regulations was expanded to include the non-government controlled areas of the Kherson and Zaporizhzhia oblasts.2 As such, the definition now encompasses Crimea and non-government controlled areas of the Donetsk, Kherson, Luhansk and Zaporizhzhia oblasts. By way of comparison, the EU extended its equivalent sanctions to the Kherson and Zaporizhzhia oblasts on 6 October 2022.3
1 The Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023.
2 The Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2023.
3 Council Regulation (EU) 2022/1903 of 6 October 2022 amending Regulation (EU) 2022/263; see White & Case alert on the EU's 8th sanctions package here.
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