In the first week of March 2022, the UK published four further Regulations which introduce new financial, trade and shipping sanctions against Russia. The government have said these sanctions are for the purpose of encouraging Russia to cease actions which destabilise Ukraine, or undermine or threaten the territorial integrity, sovereignty or independence of Ukraine. These prohibitions and requirements are in relation to British nationals as well as companies incorporated or constituted under the law of any part of the UK. We are going to look at these sanctions and what businesses should consider due to their introduction.
The UK has imposed financial sanctions through a targeted asset freeze. This means that it is generally prohibited to deal with the frozen funds or economic resources, belonging to or owned, held or controlled by a designated person. This asset freeze list includes the Russian president, Bank Rossiya, IS Bank, Genbank, Promsvyazbank, the Black Sea Bank for Development and Reconstruction and five Russian companies operating in the defence sector.
The regulations prohibit any financial transactions involving:
- VTB bank
- Vnesheconombank (VEB)
- OPK Oboronprom
- United Aircraft Corporation
- Gazprom Neft
- And any person connected with Russia (including Russian incorporated entities and residents) or the Russian Government.
These restrictions also apply to their UK subsidiaries. This means that previously largely immune subsidiaries in the UK, which have previously traded as FCA registered institutions in the UK, will also be affected.
UK Credit/Financial institutions are also prohibited from establishing or continuing a correspondent banking relationship, and from processing sterling payments to, from or via, a credit or financial institution owned or controlled by them. For Sberbank, this also includes transactions through a ’designated person’.
Further to the above sanctions, the UK have issued various General Licences to allow the wind down of certain activities caught by these new restrictions. For example, a wind down period of up to 31st March 2022 was given in respect to new clearing and correspondent banking prohibitions with respect to Sberbank and a period of up to 24th June 2022 was given in respect of the processing of sterling transactions to, from or via Sberbank for the purposes of making certain energy products available for use in the UK.
Lastly, it is prohibited to provide financial services for the purpose of foreign exchange reserve and asset management to the Central Bank of the Russian Federations, the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian federation. This includes any person acting on behalf of or controlled by the above companies.
The UK has banned the export, supply, delivery and making available of:
- Military goods and military technology
- Dual-use goods
- Critical-industry goods and technology
- Energy related goods and services
- Infrastructure-related goods
- Goods originating in Crimea, services relating to tourism in Crimea and services relating to a relevant infrastructure sector in Crimea
Critical industry goods and technology include certain listed electronics, computers, telecommunications equipment, information security, sensors and lasers, navigation and avionics, marine and aerospace and propulsion.
The UK has also banned the provision of technical assistance, financial services and funds and brokering services in relation to dual-use goods/technology and critical-industry goods/technology.
Russian ships, and other ships specified by the Secretary of State have been prohibited from entering UK ports. The registration of ships on the UK Ship Register is also prohibited where they are owned, controlled, chartered, or operated by a designated person or persons connected with Russia, or where they are a specified ship.
Not only this, but the Secretary of State also has powers to:
- Issue port barring directions to the master or pilot of a specified ship;
- Control the movement of Russian ships or specified ships by requiring them to leave or enter specified ports, proceed to a specified place or remain where they are;
- Direct the UK Ship Registrar to terminate the registration of such ships; and
- Detain Russian ships or specified ships at ports or anchorages.
Contractual Considerations for Businesses
There have been disputes arising from parties terminating, failing to perform or restructuring contracts in response to the UK’s sanctions against Russia. Companies must review any contractual arrangements in place with Russian counterparties carefully, in order to identify any contractual remedies which may be open to them should the UK’s new sanctions impact their business relationships.
Force majeure clauses are often included within contracts and provide reasons which excuse a party’s performance under the contract as a result of specified events. Events which fall under force majeure provisions typically include war, invasions, riots, acts of God and various other events which are beyond the control of the involved parties. Regulations and restrictions imposed by government authorities may also come under this type of clause. Consequently, a company which may be implicated by the Russian sanctions should ascertain whether its affected contracts contain force majeure provisions. They must also consider whether the Russian sanctions appropriately constitute an event which excuses full or delayed performance under the contract.
In some cases, force majeure clauses detail that the suspended performance is only excused for the length of time that the force majeure event exists. Sometimes the clauses require the party to engage in efforts to mitigate the effects of the force majeure event. There may need to be an analysis as to whether the Russian invasion of Ukraine, can excuse performance or whether the UK’s Russian sanctions fall within the scope of the force majeure clause.
Therefore, it is important that companies should review existing sanctions and force majeure clauses in their contracts to consider whether the imposition of sanctions will enable the parties to suspend performance without liability. Within new contracts, adding a clause which enables the contract to be suspended should sanctions escalate, would provide further protection for the business.
Furthermore, should a company wish to terminate an ongoing contract, a legal team should be instructed to carry out a careful review of the termination provisions within the contract. This ensures the company is protected and will be able to leave the contract correctly without liability.
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