February 26, 2024

UK publishes Russia sanctions guidance

On February 13, 2024, the Office of Financial Sanctions Implementation of HM Treasury published guidance for UK financial sanctions pursuant to the Russia (Sanctions)(EU Exit) Regulations 2019.  The Regulations entered into force on January 1, 2020.

The Guidance addresses new reporting obligations for designated persons and relevant firms, and expands on the financial and investment restrictions resulting from the sanctions.  Whereas, under other sanctions regimes, asset freezes are the primary vehicle, the current Russia sanctions entail measures that also restrict access to capital markets, loans and credit arrangements, clearing services, transactions involving reserves for certain Russian state-owned financial institutions, investments in Russia and Russia-controlled areas of Ukraine, and the provision of trust services.

The Guidance expands on each of these concepts, defining the term “government of Russia,” “money-market instrument,” and “transferable security” as used in the Regulations and Guidance.  There is a section covering Asset Freezes — how and to whom they apply – and a section addressing other restrictions encompassed by the sanctions.

For example, transactions involving certain transferable securities and money market instruments are prohibited if issued after the enumerated dates either by one of the 11 sanctioned Russian banks and bank-like corporations, or an entity incorporated or constituted outside the United Kingdom that is owned, directly or indirectly, by one of those banks.  With some exceptions enumerated in the Guidance, loan and credit arrangements with a maturity exceeding 30 days are also prohibited, to the extent they involve one of the listed 11 entities or entities owned by them.

The Guidance reiterates the prohibition on UK credit or financial institutions establishing or continuing a correspondent banking relationship with a designated person, a UK or non-UK financial or credit institution that is owned or controlled by a designated person.  Similarly, UK persons must not provide financial services for the purpose of foreign exchange reserve or asset management to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, the Ministry of Finance of the Russian Federation or any person owned, controlled, or acting on behalf of any of those institutions.

The Guidance reviews the prohibitions on investment in Crimea and in Russia, and on the provision of trust services to or for the benefit of persons connected with Russia and designated persons, and describes the exceptions to the prohibited investment and trust activities.

Additionally, the Guidance describes the scope of exceptions applicable to the prohibitions, and offers detailed information about how to obtain a license from OFSI to conduct activities otherwise prohibited by the Regulations.
Reporting plays an important role in sanctions compliance.  The Guidance lays out the legal framework for reporting to OFSI under the Regulations.  The Guidance describes the powers of HM Treasury to impose penalties for breaches of the Regulations, and reviews OFSI’s procedures for assessing breaches of the Regulations and the appropriate penalty, where applicable.

The Guidance concludes with answers to 56 Frequently Asked Questions, the last of which was added o February 20, 2024.  An appendix to the Guidance contains  sample scenarios illustrating correspondent banking transactions in response to FAQ 5.