The UK introduced restrictions on the provision of legal services to Russia in June 2023 (as summarised in our previous post). Since then, the legal industry has raised a number of concerns about the drafting of the relevant legislation, culminating in the issuance of a new general licence (the “GL”) which seeks to address some of the most significant unintended consequences arising from the new restrictions. In this post, we review the provisions of the GL and the remaining issues with these restrictions, as well as providing a round-up of key recent Russia sanctions developments in the UK and EU.
UK
New GL regarding legal services restrictions
The UK’s legal services restrictions are set out in Regulation 54D of the Russia (Sanctions) (EU Exit) Regulations 2019, as amended (the “UK Regulations”). As outlined in our previous post, they prohibit the direct or indirect provision of “legal advisory services” to any non UK person in relation to, or in connection with, any activity which would be prohibited by the UK Regulations, if done by a UK person or carried out within the UK. The UK Regulations contain an exemption for advice as to whether an act or proposed act complies with the UK Regulations.
One of the immediate issues arising from these provisions was that this exemption did not cover advice relating to compliance with EU or US sanctions (or any other law), such that it had the practical effect of restricting UK lawyers/firms from assisting (for example) EU clients to comply with EU sanctions regimes. Various industry bodies including the Law Society raised immediate concerns about this issue and, in the Parliamentary debates (see also here) regarding approval of the relevant amendments to the UK Regulations, it was confirmed that it was not the UK government’s intention to ban these types of services.
As an immediate “sticking plaster”, the UK has therefore issued the GL which took effect on 11 August, and permits the following legal advisory services:
- advice as to whether an act or proposed act complies with, or could trigger punitive measures in relation to, restrictive measures imposed on Russia by any jurisdiction;
- advice in relation to or in connection with compliance with, or addressing the risk of punitive measures in relation to, such restrictive measures, Russian “counter-sanctions” or any criminal law imposed by any jurisdiction; and/or
- advice provided in relation to the discharge of or compliance with UK statutory or regulatory obligations.
Any lawyer or firm relying on the GL must register through the SPIRE system within 30 calendar days of their first use of the GL.
The GL also provides that records required by the GL must be kept for a period of four years and that the relevant lawyer/firm must permit them to be inspected and copied by an authorised person. Those records are of course likely to be subject to legal professional privilege in many cases. This is currently addressed by an amendment to the Russia statutory guidance which refers back to regulation 79(3) of the UK Regulations, which confirms that none of the record-keeping or information provisions in the UK Regulations require the disclosure of privileged information (applying English/Scottish law privilege concepts). The guidance goes on to note that the UK government’s view is that the retention of privileged information, and information which is privileged under the laws of other jurisdictions, is not “appropriate” for the purposes of the recordkeeping provisions of the GL.
Issues still to be resolved regarding legal services restrictions
Although welcome as a short term partial “fix”, there are a number of issues which the GL does not resolve (or does not resolve in a fully satisfactory manner).
- In relation to the issue of non-UK compliance advice (as outlined above), although this is addressed by the GL, the GL does not itself have the force of legislation; it can therefore be revoked or amended at any time. This may disincentivise lawyers from relying on the GL to provide advice and/or clients from seeking such advice from UK lawyers.
- The record-keeping and inspection provisions in the GL are also potentially problematic, in particular in relation to foreign privilege (for example, a US client seeks US law advice from a UK lawyer at a US firm, who relies on the GL to provide the advice). The client would of course expect its lawyer to follow US concepts of privilege in protecting its information, which are in some respects wider than the equivalent English law concepts. The statutory guidance is helpful in this regard, but clients may be reluctant to rely on this as the government’s stated position without a legislative basis and given it could be withdrawn at any time.
- The GL covers only specific types of advice. Clients, typically in connection with pre-sanctions relationships with Russian parties or winding down their Russian activities, will often need a broader scope of advice which may not fall within the GL.
- The practicalities of registration to use the General Licence are particularly challenging for in-house lawyers (who it appears are caught by the restriction, but perhaps unintentionally).
Fundamentally, the legal services sanctions criminalise conduct which was not intended to be prohibited, and the GL is not a satisfactory solution to this. Instead, the Regulations should be amended so that the restrictions target the activity which they were stated to be aimed at – prohibiting law firms from enabling clients to undertake acts which would, for a UK person, be prohibited.
Finally, and as mentioned in our original post on the GL, the introduction of the legal advice restrictions has implications for the interpretation of the UK Regulations’ prohibitions on circumvention. The Explanatory Memorandum to the relevant amending regulations notes that the provision of legal services was already partially restricted by the circumvention provisions in the UK Regulations, and the existing restrictions on the provision of ancillary services relating to restricted goods and technology, stating that the circumvention restrictions would prevent a person intentionally providing legal advisory services where the object or effect of those services directly or indirectly circumvents restrictions in the UK Regulations. It goes on to state that this generally only applies to legal advisory services provided in relation to prohibited activity undertaken in the UK or by a UK person. The Explanatory Memorandum states that, without the amendments to the UK Regulations, it would potentially be lawful for a UK legal services provider to support commercial activity which advances the interests of Russia, where that activity does not have sufficient connection to the UK to be prohibited under the UK sanctions regime. Regulation 54D therefore seeks to close that potential loophole. However, this would seem to suggest that, for UK persons other than lawyers providing legal advisory services, it remains potentially lawful to otherwise support or assist non-UK activity which would be prohibited by the UK Regulations if a sufficient UK nexus were present. For example, a UK national director of a French company who approves (in France) the receipt of funds from a Russian bank which is a UK (but not EU) designated person would, on this analysis, not be circumventing the UK asset freeze restrictions if there is no UK nexus to the French company’s conduct. We anticipate that UK nationals and companies will be reluctant to engage in activity of this type purely on the basis of commentary in an explanatory memorandum, given that the position remains unclear and has been an area of long-standing debate. However, the commentary in the Explanatory Memorandum will no doubt be closely reviewed by any companies considering the extent to which non-UK conduct may be regarded as circumvention by the UK authorities, and this remains an area where further clarification would be welcome.
New UK designations
The UK has made a number of new Russia-related designations since our last update, as summarised below.
- On 20 July, the Foreign, Commonwealth & Development Office (the “FCDO”) announced the designation of 13 individuals and entities linked to the Russian Wagner Group, in connection with their activities in Mali, Central African Republic and Sudan.
- On 31 July, the FCDO announced the designation of six individuals involved in the trial of Vladimir Kara-Murza.
- On 8 August, the FCDO announced the designation of 22 individuals and entities based outside Russia but who are said to support the invasion, together with three Russian companies involved in importing electronics for use in Russian military equipment.
Trade sanctions enforcement
In a Notice to Exporters, the FCDO, Department for Business and Trade, and HMRC have confirmed that, in August 2023, an unnamed company was fined £1 million in relation to the “unlicensed trade of goods” in breach of the UK Regulations.
Given the relatively small number of sanctions-related enforcement cases made public to date, companies may have hoped that there would be some compliance “lessons learned” to be drawn from this settlement. However, the Notice to Exporters does not provide any further detail on the specific conduct or breach of the UK Regulations.
GTLK general licence
In addition to the legal services GL mentioned above, on 1 August the Office of Financial Sanctions Implementation also issued a further General Licence GL INT/2023/3263556) which allows payment and certain other activities to take place in relation to insolvency proceedings associated with two GTLK companies (GTLK Europe Designated Activity Company and GTLK Europe Capital Designated Activity Company, both of which are incorporated in Ireland).
This general licence will expire on 31 July 2025.
FCA updates
On 17 July, the FCA (in its capacity as UK Listing Authority) published a new webpage on Russia and Belarus sanctions, setting out the confirmations required in respect of compliance with various provisions of the UK Regulations (and the equivalent Belarus restrictions) before it will begin work on a vetting, guidance or listing application request. These include the relevant asset freeze, restrictions on dealing in particular Russian/Belarussian securities, and the investment bans in force in relation to each jurisdiction.
EU
New EU designations
The Council of the EU announced on 28 July that it was adding seven Russian individuals and five entities to the EU’s asset freeze list in response to a digital information manipulation campaign called Recent Reliable News.
The full list of designated persons can be found in Council Implementing Regulation (EU) 2023/1563.
New Belarus sanctions
The EU announced a new package of sanctions against Belarus on 3 August. These comprise:
- the listing of 38 individuals and three entities said to be responsible for human rights violations, contributing to the repression of civil society and/or benefitting from or supporting the Lukashenko regime; and
- extended trade sanctions including an export ban on goods and technology suited for use in the aviation and space industry, restrictions on the sale, supply, transfer or export of firearms, and export restrictions on goods used in the Russian war effort.
These measures are set out in Council Implementing Regulation (EU) 2023/1591 (in respect of the asset freeze) and Council Regulation (EU) 2023/1594 in respect of the new trade sanctions.
The Commission’s related press release notes that the new measures create a closer alignment of the EU sanctions targeting Russia and Belarus and will help to ensure that the former cannot be circumvented via Belarus.
New Iran sanctions
The EU has announced expanded sanctions on Iran, including in relation to its support for Russia. The new measures include the addition of six Iranian individuals to the EU’s asset freeze (for supporting Iran’s unmanned aerial vehicle (“UAV”) programme, and supporting Russian military efforts).
The new restrictions also prohibit the export from the EU to Iran of components used in the construction and production of UAVs. These new restrictions are contained in Council Regulation (EU) 2023/1529.
Renewal of EU sanctions against Russia
In light of the continuing war with Ukraine, the Council announced its decision to extend the current measures against Russia set out in Regulation No 833/2014 (as amended) for a further six months, until 31 January 2024.
For further information, please contact:
Susannah Cogman, Partner, Herbert Smith Freehills
susannah.cogman@hsf.com
