Author: Zulfi Meerza
10 February 2023
2 min read
Zulfi Meerza of Rahman Ravelli outlines the sanctions-related obligations recently imposed by the UK on those providing trust services.
The value of trusts lies in their versatility. As highly-adaptable financial vehicles that can protect assets and direct them into the right hands long after the death of their original owner(s), they are an extremely useful resource. It is no surprise, therefore, that they are a regular feature of sanctions cases; especially when complicated corporate structures are involved.
On 15 December 2022, the UK adopted the Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (the Regulations), which implement new financial and trade sanctions. Crucially, but perhaps unsurprisingly, the new measures introduced a new prohibition on the provision of trust services to Russia. This prohibition states that a person must not provide trust services to - or for the benefit of - a designated person or a person connected with Russia. The only exception is if the trust services are being provided under an ongoing arrangement that existed prior to 16 December 2022 or if any of the exceptions set out in the Regulations apply.
For the purposes of the prohibition, an individual is considered to be connected with Russia if they normally live in or are located in Russia. Corporate bodies are considered to be connected with Russia if they are incorporated or constituted under Russian law or domiciled in Russia. The Regulations define trust services as trust creation, provision of offices, management of a trust and acting as trustee of a trust or arranging for another person to act as trustee. This is deliberately very widely drafted, with even basic administrative services such as providing a registered office or correspondence address for a trust being prohibited.
Unlike the restrictions in force in the European Union and Switzerland, the UK’s approach is only forward looking and allows trust services to continue if they were provided prior to 16 December 2022. Although crucially, this is not the case for the designated person prohibition where pre-existing trust arrangements will be caught – it is only the case for those deemed to be persons connected with Russia.
At this stage, it remains unclear whether providing new or additional trust services in relation to an existing trust structure would fall under the ongoing arrangement exemption (and would therefore be protected in the same way), or whether new work would be considered a separate instruction.
It should be remembered that the cross-agency Red Alert issued in July 2022 on financial sanctions evasion typologies, which targeted Russian elites and enablers, clearly identified trust service providers as part of the key ‘enabler’ professions that could be at risk of facilitating sanctions evasion and associated money laundering. In addition, the use of trust arrangements was identified in the Red Alert as a possible indicator of attempts to evade sanctions.
Contravening the Regulations will constitute an offence, unless a licence has been obtained for a specified activity, as will intentionally participating in activities that are intended to directly or indirectly circumvent the prohibitions.
It is therefore vitally important that trust service providers ensure they are fully aware of all their legal obligations. Given the continually-evolving nature of the UK sanctions regime, particularly the complexity of the Regulations covered in this article, professional advice should be sought if you think either you or a trust you are connected to may be caught by the aforementioned prohibitions.
Senior Associate Solicitor
Zulfi’s in-depth expertise in corporate crime investigations, serious regulatory matters and complex commercial litigation makes him a logical choice to represent corporates, board members, senior business figures and high net worth individuals.