Author: Syedur Rahman
30 August 2022
4 min read
Syed Rahman’s latest Rahman Ravelli Sanctions Monitor piece details the UK’s stance regarding Russia.
On 4 May 2022, the UK Government announced a ban on services exports to Russia.
The announcement was accompanied by an explanation which came in a formal statement that said: "The new measures will mean Russia’s businesses can no longer benefit from the UK’s world class accountancy, management consultancy, and PR services, which account for 10% of Russian imports in these sectors."
Now, some months later, that ban is now in force by virtue of regulation 54C of The Russia (Sanctions) (EU Exit) Regulations 2019 (as amended by The Russia (Sanctions) (EU Exit) (Amendment) (No. 14) Regulations 2022) (the Regulations). Regulation 54C prohibits the direct or indirect provision of such services to any "person connected with Russia":
The accounting services which are subject to the ban have been based on the Provisional Central Product Classification (CPC) Codes 1991: CPC 86212 Accounting Review Services, CPC 86213 Compilation of Financial Statements services, CPC 86219 Other Accounting Services and CPC 86220 Bookkeeping Services, except tax returns.
In more straightforward terms, those services are:
This category covers advisory, guidance and operational assistance services provided for business policy and strategy and for the overall planning, structuring and control of an organisation.
It includes – although it is not limited to - management auditing, market management, human resources, production management and project management consulting.
This means services that are provided as a means of improving the image of a client and enhancing their relationship with the public and other organisations. It does not include the planning and creation of services for advertising or public opinion polling services.
Connected with Russia covers:
The new prohibitions apply to UK persons, bodies incorporated or constituted under the law of any part of the UK, British citizens (including UK Crown Dependencies) and British Overseas Territories citizens. They cover the provision of services via any of the four modes of supplying services set out in the World Trade Organization’s General Agreement on Trade in Services: cross-border trade, consumption abroad, commercial presence and presence of natural persons.
There was a wind-down period, which ended on 20 August 2022, that allowed for obligations under contracts concluded before 20 July 2022 to be satisfied, provided that notification was given at least 10 working days before the day on which the act covered by regulation 54C was carried out. Services that were provided in relation to the discharge or compliance with UK statutory or regulatory (but not contractual) obligations were also an exception to the new prohibitions.
There is also the option of obtaining a licence from the Department for International Trade’s Export Control Joint Unit (ECJU) to provide services that would otherwise be prohibited by Regulation 54C. A licence can be granted for:
While the UK’s new sanctions are similar to those that the European Union (EU) adopted in June 2022, there are some significant differences.
While the EU sanctions only cover services that are provided to the Russian government or legal persons, entities or bodies established in Russia, sanctions that the UK has introduced cover the provision of services to natural persons (meaning a human being). The UK sanctions’ wind-down provision could prove to be broader than that in the EU’s sanctions, which only allows for the provision of services that are strictly necessary for the termination of non-compliant contracts. Unlike the UK sanctions, the EU sanctions cover auditing services and tax document preparation. The EU sanctions exclude the provision of services for the exclusive use of Russian subsidiaries of EU, European Economic Area and Swiss companies. Yet in the UK, a licence will be required to provide services to a Russian subsidiary of a UK company – and obtaining one could take a considerable amount of time, given the ECJU’s current workload.
UK entities that are unsure of whether they fall within the above categories will need to carefully consider their position. Obtaining legal advice in the form of written opinions will help ensure such companies have a fuller understanding of their situation. Advice may also be required when preparing licence applications, which is an intricate task. It requires careful consideration of all relevant issues, complete transparency in all communications with regulators and – as the regulators may not give a speedy response – an ability to explain the urgent need for such applications to be expedited.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.