On Thursday 10^th February the UK Government published the text of the enhanced UK sanctions regime against Russia. The new sanctions contained in The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022 No.123 are very wide ranging and could be used at very short notice. Accordingly, firms should now be thinking about the potential impact on their business.

The text of the new sanctions can be found here.

Who is in-scope of the new sanctions?

The UK Government’s ability to designate a person for the purposes of the new sanctions is very broad. If there are reasonable grounds to suspect that a person has been involved in:

• destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine, or
• obtaining a benefit from or supporting the Government of Russia

then that person is liable to being designated as a sanctions target by the UK Government.

Full details of who could be an involved person can be found here.

Are the new sanctions being used now?

No.

In its press release, the UK Government states: “These changes will not designate or impose sanctions on any individuals or businesses automatically, but will provide the additional powers we need to be able to do so in the event of any further Russian incursion into Ukraine”.

Ok, given that the new sanctions are not yet being used, what should my firm be thinking about now?

Operational implementation. In short, how quickly could your business react to the swift use of the new sanctions by the British Government?

Has your firm identified all:

• customers;
• beneficial owners of customers; and
• direct or indirect controllers of customers, e.g. trustees or directors

who could be “involved persons” for the purposes of the new sanctions?

Is your customer screening system set to produce at least daily alerts to flag potentially “involved persons” using “fuzzy matching” to identify non-exact matches? Do you need to create custom “blacklists” to identify indirect controllers who may not be within the ambit of “out of the box” screening lists?

Has your firm briefed:

• senior management;
• customer facing staff;
• staff performing screening (on-boarding and transactional);
• treasury; and
• operational teams

on the potential consequences if the sanctions are used? 

Are relevant personnel ready to:

• report true matches (i.e. to designated persons) and asset freezes to the Office of Financial Sanctions Implementation (“OFSI”);
• report any breaches of the new sanctions regime to OFSI and the Financial Conduct Authority (“FCA”);
• cease the provision of services;
• cease making payments; and
• freeze assets

at very short notice?

If your firm uses an outsourced provider to conduct onboarding or transactions screening, have you made enquiries of the provider to check its readiness for the use of the new sanctions?

Does your firm have a plan handling communications with customers who are the subject of the sanctions? Part III of the Joint Money Laundering Steering Group’s (“JMLSG”) Guidance states: 

“It will…generally be good practice to tell customers involved that they are subject to financial sanctions such as an asset freeze, and to explain the effect of any restrictions to them, and how to contact OFSI. When discussing matters with the customer a firm should still be aware that it is a criminal offence to circumvent, or enable or facilitate circumvention of sanctions”.

A.C.Culley & Co. has extensive experience of trading floor operations. Contact us today if you would like help with strengthening your systems and controls.

References

2022. Strengthened UK Russian sanctions legislation comes into force, Gov.UK, available at: https://www.gov.uk/government/news/strengthened-uk-russian-sanctions-legislation-comes-into-force#:~:text=The%20Government%20now%20has%20the,campaign%20of%20aggression%20in%20Ukraine (last accessed 14^th February 2022).
2023. The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022. Available at: https://www.legislation.gov.uk/uksi/2022/123/contents/made (last accessed 14th February 2022).