The new sanctions, which are contained in five new statutory instruments (SI 2022/194, SI 2022/195, SI 2022/203, SI 2022/205 and SI 2022/241) extend existing import and export restrictions and restrictions on financing and trading in transferable securities, and introduce new restrictions in relation to shipping, aviation, and payments and foreign exchange. We have set out below the key changes insofar as they affect dealing with securities, financing, payments and foreign exchange.

The Government has also updated its guidance on Russian sanctions.

Dealing with securities and money market instruments

Under existing sanctions, it was already a criminal offence to deal in “transferable securities” or “money-market instruments” issued by any of 11 specific Russian entities or by a non-UK undertaking “owned” by any of those entities. That restriction applies to securities issued on or after 1 August 2014 or 12 September 2014, depending on the entity in question.

“Transferable securities” includes shares, depositary receipts, bonds, options, warrants and futures that are negotiable on the capital markets This extends to unlisted securities.

With effect from 1 March 2022, this restriction has been extended. It is now a criminal offence to deal (directly or indirectly) in transferable securities issued on or after 1 March 2022 by any of the following persons.

• Any of the 11 specifically sanctioned entities in Schedule 2 to the 2019 Regulations. (See the list of Schedule 2 entities at the end of this article.)
• Any other person who is “connected with Russia”, unless that person is, on 1 March 2022, either an entity domiciled outside Russia or a branch or subsidiary of an entity domiciled outside Russia.
• Any undertaking in which anyone in either of the categories above holds (directly or indirectly) more than 50% of the shares or voting rights.
• Any undertaking acting on behalf of, or at the direction of, anyone described above. This is a wide provision designed to capture nominees that act for persons connected with Russia.
• The Government of Russia.

In each case, the person dealing with the securities must know or have reasonable cause to suspect that they are dealing in securities of an entity of a kind that is subject to restrictions.

It remains lawful to deal in securities issued before 1 March 2022 by persons falling within the extended sanctions. In theory, this allows existing investors to liquidate their position and exit from any investments, where possible.

(For entities listed in Schedule 2 and non-UK undertakings owned by any of those entities, the restrictions continue to apply to securities issued since the relevant date in 2014. There are also some exceptions for short-term securities.)

Loans and other credit arrangements

Existing restrictions in relation to the making of loans and granting of other credit have been extended in a similar way. However, there are some differences in how the sanctions are applied, including in relation to certain borrowers of loans which, on 1 March 2022, are domiciled outside Russia.    

It remains lawful to make loans and grant other credit to persons falling within the extended sanctions under certain facilities and other arrangements entered into before 1 March 2022. In theory, this allows existing contractual obligations to be performed, though in practice it will be subject to the impact of developing sanctions in connection with payments infrastructure in relevant jurisdictions and internationally.

(For entities listed in Schedule 2 and non-UK undertakings owned by any of those entities, the restrictions apply to loans made and other credit granted since 31 December 2020 (unless made or granted under certain facilities and other arrangements entered into before 15 September 2014). There are also some exceptions for short-term financing.)

Correspondent banking relationships and sterling payments

Unlike the restrictions above, which are extensions to existing sanctions, restrictions on correspondent banking relationships and processing sterling payments are new.

It is now a criminal offence for a UK credit or financial institution to establish or continue a correspondent banking relationship with, or process a sterling payment to, from or via, any of the following persons.

• A “designated person” under the Russian sanctions regime.
• A UK credit or financial institution that is owned or controlled directly or indirectly by such a designated person.
• A non-UK credit or financial institution that is owned or controlled directly or indirectly by such a designated person.

The primary aim of these restrictions is to prevent certain Russian-connected banks (including, as of 1 March 2022, Sberbank) from accessing and dealing in sterling. They are, however, subject to limited exemptions and existing licences, including in relation to certain payments for oil, gas and other energy products that are to be made available for use in the UK.

Foreign exchange reserve and asset management services

Finally (for now), there is a new restriction on providing financial services relating to foreign exchange reserve and asset management to certain specified persons.

These persons are:

• the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation;
• anyone owned or controlled by any of those bodies; and
• anyone acting on behalf of or at the direction of someone falling into either category above.

This is obviously a more much targeted and limited restriction. However, it may be a sign of the direction of any future sanctions.

Exceptions

The Government also has the power to grant licences setting out circumstances in which certain restrictions do not apply. It has already granted a number of licences to this effect and, on 1 March 2022, published three more.

For example:

• under General Licence INT/2022/1277777, trading in transferable securities and money market instruments was permitted, and category 1, 2 and 3 loans were able to be made, until 11:59 p.m. on 8 March 2022;
• under General Licence INT/2022/1295476, the restrictions on dealing with transferable securities and money market instruments, on loans and credit arrangements, and on correspondent banking relationships and sterling payments, do not apply to action taken between 4 March 2022 and 3 April 2022 which is reasonably necessary to wind down a transaction (including to close out a position) involving certain named entities. (See the list of INT/2022/1295476 entities at the end of this article.);
• under General Licence INT/2022/1272278, a similar position applies to action taken between 25 February 2022 and 27 March 2022 which is reasonably necessary to wind down a transaction (including to close out a position) involving VTB Bank or an entity owned or controlled by it;
• under General Licences INT/2022/1277778 and INT/2022/1277877, correspondent banking relationships with Sberbank may continue until 11:59 p.m. on 31 March 2022 or (for certain energy-related payments) until 24 June 2022; and
• under General Licence INT/2022/1298776, the restrictions on foreign exchange reserve and asset management services do not apply between 4 March 2022 and 3 April 2022 if provided for the purpose of winding down activity with Sberbank or an entity owned or controlled by it.

Final points to remember

As noted above, there are also sanctions on importing and exporting certain items to and from Russia.

The extended UK sanctions described above also apply alongside any sanctions issued by any other country or bloc, such as US, EU or Russian sanctions.

The situation regarding sanctions is evolving rapidly. If you are currently involved in a transaction or potential transaction that may involve a Russian entity, we recommend you seek legal advice to understand your position.

The entities mentioned in Schedule 2 are:

1. Sberbank

2. VTB Bank

3. Gazprombank

4. Vnesheconombank (VEB)

5. Rosselkhozbank

6. OPK Oboronprom

7. United Aircraft Corporation

8. Uralvagonzavod

9. Rosneft

10. Transneft

11. Gazprom Neft

Dealing with transferable securities and money market instruments is unlawful for those issued on after 1 August 2014 for entities 1 to 5 (inclusive) above and for those issued on or after 12 September 2014 for entities 6 to 11 (inclusive) above.

The entities mentioned in General Licence INT/2022/1295476 are:

1. Bank Okritie

2. Promsvyazbank

3. Bank Rossiya

4. Sovcombank

5. Vnesheconombank (VEB)

6. Any entity owned or controlled by any of (1) to (5) above.

7. JSCB Novikombank