On March 1, 2022, the United Kingdom (“UK”) announced the asset freeze of two companies, one Russian and four Belarusian individuals under its Russian sanctions regime: Kirill Alexandrovich Dmitriev, Andrei Burdyko, Victor Vladimirovich Gulevich, Sergei Simonenko, Andrey Zhuk, JSC 558 Aircraft Repair Plant, and JSC Integral, and the Russian Direct Investment Fund. The UK has also introduced additional legislation to implement new financial and trade sanctions against Russia, which are broadly in line with specific capital markets sanctions and certain trade restrictions already imposed by the US and the EU. EU. As a result of these new measures, it is now prohibited to establish or continue a correspondent banking relationship with, or to process sterling payments to, from or through Sberbank.

British sanctions

Asset Freeze Restrictions

On March 1, 2022, the UK imposed asset freeze restrictions on the following Russian and Belarusian individuals and entities¹:

• Kirill Alexandrovich Dmitriev (CEO of the Russian Direct Investment Fund);
• Andrei Burdyko (Belarusian Deputy Minister of Defense for Logistics and Chief of Logistics of the Armed Forces);
• Viktor Vladimirovich Gulevitch (Belarusian First Deputy Minister of Defense and Chief of the General Staff of the Armed Forces);
• Sergei Simonenko (Belarusian Deputy Minister of Defense for Armaments and Chief of Armaments of the Armed Forces);
• Andrey Jouk (Belarusian Deputy Defense Minister);
• JSC 558 Aircraft Repair Plant;
• JSC Integral; and
• The Russian direct investment fund.

Further asset freezes are expected to follow in the near future.

The asset freeze means that all funds and economic resources which are owned, held or controlled by such persons and which are subject to UK jurisdiction must be frozen and no funds or economic resources may be made available (directly or indirectly) of or for the benefit of such banks, unless permitted by license issued by HM Treasury.

Financial restrictions

Since 2014, UK capital market sanctions² prohibited certain transactions in new debt and new shares issued by certain Russian banks and companies and certain subsidiaries.³ They have been significantly modified and other measures in the financial field have been introduced:⁴

• Existing restrictions on trading in transferable securities and money market instruments (Regulation 16 of the Russia Regulations) are extended to cover transferable securities and money market instruments issued on or after March 1, 2022 when issued :
• by an entity incorporated or incorporated under UK law and owned by an entity listed in Schedule 2 (and an entity acting on behalf of or at the direction of such person). This applies to securities and instruments with a maturity of more than 30 days;
• by “Russian Related Persons”, subject to certain exceptions, (or to an entity owned or controlled by such a person, or to any entity acting on behalf of or at the direction of a “Russian Related Person” or a person owned or controlled by them). This applies regardless of the maturity of the security or instrument; Where
• by or on behalf of the Russian government (i.e. Russian sovereign debt). This applies regardless of the maturity of the security or instrument.
• The existing restrictions on granting loans and credits (rule 17 of the Russian regulations) are extended to cover loans and credits issued on or after March 1, 2022 granted or granted to:
  • an entity incorporated or incorporated under UK law and owned by an entity listed in Schedule 2. This applies to loans or credits with a maturity of more than 30 days;
  • “Russian-related persons” (or an entity owned or controlled by such a person, or any entity acting on behalf of or at the direction of a “Russian-related” person or a person owned or controlled by she). This applies to loans or credits with a maturity of more than 30 days; and
  • any loan or credit to the Government of Russia, regardless of the maturity period.
• Additional restrictions on correspondent banking relationships and the processing (which includes clearing and settlement) of sterling payments with nominated persons (or those owned or controlled by them) are also introduced (in new Regulation 17A of the Regulations of 2019 on Russia).
• The amendments also introduce a power for the Secretary of State to designate persons for the purposes of this provision. Sberbank has been appointed today under this authority.⁵
• Certain exceptions are provided. In particular, a provision clarifies that a license may authorize acts which would otherwise be prohibited by any of Regulations 11 to 17A for a specified period commencing on the effective date of the prohibition or the date of any designation made for the purposes of these provisions (i.e. to allow a progressive liquidation of transactions).

Trade Restrictions

As of March 1, 2022, the UK also passed legislation providing for new trade sanctions measures against Russia.⁶ These provisions include the following:

• Previous bans on the export, supply, delivery and making available of military goods are now extended to dual-use goods and goods from critical industries; and prohibitions on the provision and transfer of military technology are also extended to include dual-use technologies and technologies from critical industries. In line with the UK’s announcement yesterday, this effectively bans the export of dual-use items to or intended for use in Russia (the ban previously applied to dual-use items intended for military use in Russia or to, or intended for use by, certain named persons).
• This prohibition also covers the provision of technical assistance, financial services, funds and brokerage services related to these goods and technologies.
• Like the corresponding EU legislation, Critical Industries Goods and Technologies, which are listed in Annex 2A, include extensive restrictions that are also covered by the US Trade Control List (even showing the same Export Control Classification Numbers (ECCN); this includes items for the electronics industry (e.g. microprocessors, semiconductors) and information security, sensors, lasers, navigation / avionics, marine and aerospace / propulsion items, this sanctions package, for example, that the EU has imposed.
• A number of exceptions to trade bans on critical industry goods and technology are provided, relating to personal effects and diplomatic missions, consular posts and international organizations, movement of aircraft and vessels, consumer communication devices and software updates, and emergencies. Transitional provisions also allow licenses issued to authorize trade under the superseded prohibitions to remain valid.

General licenses

The OFSI has issued three new Russian general licenses (“GL“), making it possible to settle transactions relating to some of these new measures:

• GLINT/2022/1277777⁷ allows a 7-day liquidation period (until March 8, 2022) in respect of measures relating to sovereign debt, loans and money market instruments – this allows anyone to (i) trade in a security or a Regulation 16 money market instrument; or (ii) grant or enter into an agreement to grant a loan or credit (under Article 17(1)) (except with respect to loans made or granted to the Government of Russia). The relevant institutions are also authorized to process payments in pounds sterling pursuant to the trading of such securities or instruments, or the granting of loans or credits.
• GLINT/2022/1277778⁸ allows a 30-day liquidation period (until March 31, 2022) with respect to clearing and correspondent banking bans – this allows a UK financial or credit institution to continue a correspondent banking relationship with Sberbank and allows also the first to process sterling payments to, from or through Sberbank (or a financial or credit institution owned or controlled by Sberbank).
• GL INT/2022/1277877⁹ allows a wind-up period until 24 June 2022 in relation to the ban on clearing and correspondent banking where payments relate to relevant energy products – this allows a UK financial or credit institution to process a payment in sterling to, from or through Sberbank (or one of the aforementioned related entities) for the purpose of making “relevant energy products” (crude oil, petroleum products or gas) available for use in the UK.

In addition, the OFSI has issued two other licenses concerning VTB (in addition to the license which was issued last Friday) which are valid for one year until March 1, 2023:

• GLINT/2022/1280876^ten allows VTB Capital and its UK subsidiaries to make payments, including for basic needs, reasonable fees or service charges arising from the day-to-day holding and maintenance of its frozen funds and economic resources, and reasonable professional fees for the provision of legal services. The GL also allows a person to receive these payments and a competent institution to process these payments. GL is subject to a notification requirement which requires VTB’s UK branch to provide written notice to HM Treasury, within 7 days of payment, that it is carrying out an authorized activity hereunder; and
• GL INT/2022/1280976 allows the competent financial authorities (the FCA, the PRA and the Financial Services Compensation Scheme or the Bank of England) to do all things relating to VTB Capital and its UK subsidiaries in terms of prudential supervision, or protect, maintain or enhance the financial stability of the United Kingdom.¹¹

Economic Crime Bill

Finally, the Economic Crimes (Transparency and Law Enforcement) Bill (the “ECB“)¹² was also tabled in Parliament today. These provisions are not yet in force and will have to be debated in Parliament. As expected, the legislation includes provisions to reform transparency over UK business and property ownership and to strengthen the enforcement of financial sanctions. With regard to the latter, the ECB is proposing a number of amendments relating to the power of the Treasury (via the OFSI) to impose pecuniary civil penalties for breaches of financial sanctions legislation, namely:

• The removal of the obligation for the OFSI to prove that the person had knowledge or had reasonable grounds to suspect that he was infringing the legislation on financial sanctions. This would mean the OFSI could impose a fine on a strict liability basis if it is satisfied on a balance of probabilities that a person has breached financial sanctions legislation.¹³
• The removal of the mandatory review of a civil sanction imposed by the OFSI, at the request of the person on whom the sanction was imposed.¹⁴
• Additional power for the OFSI to publish reports where a monetary penalty has not been imposed but where it is satisfied on a balance of probabilities that it has breached financial penalties legislation.¹⁵