Our experts break down the latest moves as the UK adds 386 political figures to sanctions list, while EU sets out agenda for fourth package of measures against Russia
Further to our most recent article discussing developments in the UK and EU sanctions landscape in response to the conflict in Ukraine, in this post we cover subsequent UK and EU developments. As ever, the position continues to change rapidly and we will continue to provide updates via our FSR and Corporate Crime Notes blog.
On Friday, 11 March, the UK designated 386 members of the Russian Duma who voted to recognise the independence of the Luhansk and Donetsk regions of Ukraine, and separately amended GL INT/2022/1277778 related to correspondent banking relationships and the processing of sterling payments. The Office of Financial Sanctions Implementation (OFSI), the Financial Conduct Authority (FCA) and the Bank of England also published a joint statement in respect of cryptoassets and sanctions. These changes are summarised below.
A further 386 individuals, all members of the Russian Duma who voted to recognise independence of the Luhansk and Donetsk regions of Ukraine, were designated on 11 March and are now subject to UK asset freeze and travel restrictions. A total of 400 members of the Duma are now subject to UK sanctions according to a statement released by the Foreign, Commonwealth and Development Office.
The UK first announced that it intended to sanction members of the Duma and the Federation Council on 23 February, and these new designations are in line with those made by the EU on 1 March.
Amendments to two General Licences
Sberbank was designated for the purposes of the new correspondent banking/sterling payment restrictions under regulation 17A of the Russia (Sanctions) (EU Exit) Regulations 2019, introduced on 1 March.
Two general licences relating to Sberbank were published in parallel on 1 March 2022, one to allow for a 30-day wind-down period in respect of the correspondent banking and sterling payment provisions (GL INT/2022/1277778), and one relating specifically to certain payments for energy products.
On 11 March, the former licence was amended to clarify that a UK credit or financial institution may continue a correspondent banking relationship with all of: (i) Sberbank; (ii) any non-UK credit or financial institution directly or indirectly owned or controlled by Sberbank; or (iii) a UK credit or financial institution directly or indirectly owned or controlled by Sberbank during this period.
The general licence in respect of Chelsea Football Club (INT/2022/1327076) was also amended on 12 March to clarify certain payments the Club may make or receive and to include further permissions (eg, in relation to payment in respect of prior obligations to non-designated persons).
In a joint statement on 11 March, the OFSI, FCA and the Bank of England reiterated that all UK financial services firms, including those in the cryptoasset sector, are expected to comply with UK sanctions. This statement, along with a statement issued by the US Financial Crimes Enforcement Network (FinCEN) on 7 March and EU amendments to the definition of “transferable securities” Regulation 833/2014 to expressly include cryptoassets, reflects concerns that cryptoassets may be used to circumvent sanctions.
The UK sanctions regime does not differentiate between cryptoassets and other forms of assets, and any cryptoassets owned, held or controlled by a designated person should be frozen.
The statement reminds firms of their obligations under the Proceeds of Crime Act 2002 to report any suspicion of sanctions evasion or money laundering to the National Crime Agency. This obligation is in addition to that imposed under sanctions regulations, which requires firms who know or have reasonable cause to suspect that they are in possession or control of, or otherwise dealing with, the funds or economic resources of a designated person to make a report to OFSI.
The statement sets out six sanctions-specific controls that firms should consider implementing, including updating business-wide and customer risk assessments to account for changes in the nature and type of sanctions measures, and in respect of customer onboarding, screening and re-screening processes to ensure they are appropriately attuned to sanctions risks. The guidance notes that where blockchain analytics solutions are used, compliance teams should understand how they can be best deployed to identify transactions linked to higher risk wallet addresses.
In addition, several red flags for sanctions evasion are identified, including, in addition to jurisdictional risk:
- transactions to/from a wallet address associated with a sanctioned entity or otherwise deemed to be high-risk (based on transaction history or that of associated addresses, for example);
- transactions involving cryptoasset exchanges or custodian wallet providers known to have poor customer due diligence procedures or which are otherwise considered high risk; and
- the use of tools to obfuscate the location of a customer or the source of cryptoassets.
Firms should review this guidance and consider whether their onboarding and customer due diligence procedures require any enhancements in light of the new wide-reaching sanctions introduced in respect of Russia.
We previously discussed the supervision of cryptoasset exchange providers and custodian wallet providers with operations in the UK by the FCA for the purposes of the Money Laundering Regulations more broadly on our blog.
EU developments (not yet in force)
On Friday, 11 March the EU published a statement made by President Von Der Leyen regarding the fourth package of sanctions measures against Russia. This indicated that the EU will:
- deny Russia the status of most-favoured-nation in EU markets (revoking certain benefits that Russia enjoys as a WTO member, and working to suspend Russia’s membership rights in leading multilateral financial institutions, including the International Monetary Fund and the World Bank, and its ability to obtain financing or loans from these institutions);
- continue initiatives to pressur[ise] Russian elites close to Putin as well as their families and enablers” and “mak[e] sure that the Russian state and its elites cannot use crypto assets to circumvent the sanctions”;
- ban the export of any EU luxury goods from the EU to Russia;
- prohibit the import of “key goods in the iron and steel sector” from Russia;
- propose “a big ban on new European investments across Russia’s energy sector…This ban will cover all investments, technology transfers, financial services, etcetera, for energy exploration and production”.
The legislative details of these proposals are awaited at the time of writing.
In separate remarks, Von Der Leyen indicated that “by mid-May, we will come up with a proposal to phase out our dependency on Russian gas, oil and coal by 2027, backed by the necessary national and European resources”. This suggests (as has been reported in the media) that there is no immediate proposal to replicate the US oil embargo that was announced last week.