UK updates to Russia Sanctions statutory and OFSI guidance

Viewpoints
March 10, 2022
3 minutes

The United Kingdom updated both the statutory Russia Sanctions Guidance (“Statutory Guidance”) and OFSI’s guidance on financial sanctions against Russia (“OFSI Guidance”). Both include certain helpful clarifications on different aspects of the sanctions. For example, among the sanctions updates last week included capital markets restrictions with “persons connected with Russia” and further trade restrictions with “persons connected with Russia”. The Statutory Guidance clarifies that the definition for capital markets restrictions is set out in Regulation 19, while for trade restrictions, the term “persons connected with Russia” is defined in Regulation 2, which will apply where the terms are used in other trade prohibitions of the Russia sanctions.

A person connected with Russia for the purposes of capital markets restrictions[1] is defined as:

  • an individual who is, or an association or combination of persons who are, ordinarily resident or located in Russia, or
  • a person, other than an individual who is incorporated or constituted under the law of Russia, or domiciled in Russia.

While Regulation 21 defines “persons connected with Russia” as:

  • an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia,
  • an individual who is, or an association or combination of individuals who are, located in Russia,
  • a person, other than an individual, which is incorporated or constituted under the law of Russia, or
  • a person, other than an individual, which is domiciled in Russia.

This definition under Regulation 21 applies to new trade and transport restrictions such as the prohibition on the registration of ships owned, controlled, chartered or operated by designated persons or persons connected with Russia, and the prohibition on transfer of certain technology and related brokering and technical services to persons connected with Russia.

The FAQs at the end of the OFSI Guidance do not appear to have not been updated, and still cover the previous sectoral sanctions. However the body of the document includes some key updates. One key update in the body of the OFSI Guidance related to processing payments related to designated persons. The OFSI Guidance underscores that the new sanctions also prohibit a UK credit or financial institution from processing a sterling payment to, from or via, a designated person (or a financial institution owned by the designated person), if the UK credit or financial institution has reasonable cause to suspect that the sterling payment is to, from or via a designated person. Included in the definition of processing a payment is clearing and settling a payment. Importantly, according to the OFSI Guidance, this prohibition also applies to payment chains or third party payments.

Additional useful clarifications in the OFSI Guidance include summaries of the licensing grounds available for the new financial sanctions.

Under the “securities, loans and credit restrictions” OFSI may issue specific licenses for:

  • humanitarian assistance activity,
  • medical goods and services,
  • production or distribution of food for the civilian population, and
  • diplomatic missions.

Under the “correspondent banking relationships restrictions” OFSI may issue specific licenses for:

  • basic needs,
  • legal services,
  • financial regulation, and
  • extraordinary situations.

Under the “processing sterling payments restrictions”, OFSI may issue specific licenses for:

  • humanitarian assistance activity,
  • medical goods and services,
  • production or distribution of food for the civilian population,
  • diplomatic missions, and
  • space activity.

Under the “prohibitions relating to foreign exchanges reserve and asset management”, OFSI may issue specific licenses for:

  • humanitarian assistance activity,
  • financial regulation,
  • financial stability,
  • safety and soundness of a firm, and
  • extraordinary situations.

[1] New UK capital markets restrictions implemented on 1 March prohibit dealing “directly or indirectly with a transferable security or money-market instrument” issued after 1 March 2022 “by or on behalf of a person connected with Russia”. It is also prohibited to directly or indirectly grant or enter into any arrangement to grant a new loan or credit, with a maturity exceeding 30 days to persons connected with Russia. This excludes banks already subject to capital markets restrictions under Schedule 2 and excludes individuals domiciled outside of Russia as of 1 March.