Russia sanctions update: UK bans new investment into Russia

England and Wales

New UK sanctions regulations have come into force imposing the most rigorous restriction on doing business with Russia since the invasion of Ukraine on 24 February 2022.

The twelfth amendment to the Russia (Sanctions) (EU Exit) Regulations 2019 aims to “close off revenue streams that the Russian government could leverage” in order to “deepen…sanctions measures” and encourage Russia to “respect international law and the territorial integrity of sovereign nations”.

It is now a criminal offence, imprisonable by a maximum term of seven years, for a UK citizen or UK registered business knowingly to provide funds or economic resources directly or indirectly to any entity or inpidual “connected with” Russia, or to any entities controlled directly or indirectly by any such entities or inpiduals.

Criminal liability will be incurred by people and businesses located in the UK, or UK persons or registered entities who knowingly:

  • Directly acquire any ownership interest in land in Russia;
  • Indirectly acquire land or an ownership interest in land in Russia for the purpose of making funds or economic resources available to inpiduals or entities connected with Russia;
  • Directly acquire any ownership interest or control in any entity “connected with Russia”;
  • Directly or indirectly acquire any interest in or control over any entity in the world where the acquisition is for the purpose of making funds or economic resources available to inpiduals or entities connected with Russia;
  • Directly or indirectly establish a branch or subsidiary located in Russia;
  • Directly or indirectly establish a joint venture with a person connected with Russia; or
  • Provide investment services directly related to any of the above activities.

The ban extends to providing investment services, including but not limited to, the provision of advice or management in relation to any of the prohibited investments.

Civil penalties, of up to the greater of £1,000,000 or 50% of the estimated value of the assets concerned, will be available where prosecutors cannot establish knowledge or suspicion by an accused as to any alleged conduct. The new offence captures the acquisition of “any ownership interest” and we anticipate that the application will be broad.

Various exceptions may apply to the satisfaction of obligations which arose before the regulations came into force, subject to certain conditions. Applications may be made to the Office of Financial Sanctions Implementation (“OFSI”) to licence specific transactions which do not fall within those exceptions. OFSI have released updated guidance which may be accessed here.

The regulations came into force on 19 July 2022, but ongoing activities of this nature were permitted up to Tuesday 26 July 2022 under a transitional General Licence (INT/2022/2002560) issued by OFSI. Legal advice should now be sought by any business in ongoing concerns at risk.