Background

The Russia (Sanctions) (EU Exit) Regulations 2019 (the Sanctions Regulations) were introduced by the UK government in response to Russia's invasion of Ukraine.

The latest package of sanctions, The Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (the Amendment Regulations) introduce several new and amended restrictions relating to financial services and trade.

One of the new restrictions, effective as of 16 December 2022, relates to the provision of trust services to Prohibited Persons.

The Prohibition

The prohibition provides that a person must not provide trust services to or for the benefit of the following people (Prohibited Persons):

  • a designated person, already defined in the Sanctions Regulations as a named person, or persons of a specified description, as designated by the Secretary of State; or
  • a person connected with Russia, unless the trust services were provided under an ongoing arrangement that existed prior to 16 December 2022.

In a marked contrast to the restrictions in force in the EU and Switzerland, the regulations allow a grandfathering of trust arrangements, where the trust services were provided before 16 December 2022. Although crucially, the grandfathering is not allowable in the case of the designated person prohibition where pre-existing trust arrangements will be caught.

Trust Services

The prohibited trust services are as follows:

  • the creation of a trust;
  • the provision of a registered office, business address, correspondence address or administrative address for a trust;
  • the operation or management of a trust; or
  • acting as trustee or arranging for another person to act as trustee of a trust.

The definition of trust services is intended to be broad, as it also includes the provision of the services listed above in relation to a trust "or similar arrangements".

For the benefit of...

Under the Prohibition, for the benefit of applies where a Prohibited Person is:

  • a beneficiary of a trust or similar arrangement;
  • a potential beneficiary referred to in a document from a settlor relating to a trust or similar arrangement (i.e. they are included in a letter of wishes); or
  • having regard to the circumstances, where a Prohibited Person is reasonably expected to, or be able to, obtain a significant financial benefit from the trust or similar arrangement.

The Prohibition also provides that "beneficiary", "potential beneficiary" and "settlor" also includes a person who holds a similar position in relation to a trust or similar arrangement.

Persons connected with Russia

The Sanctions Regulations already define the meaning of a "person connected with Russia" referred to in the Prohibition at Regulation 19A(2). A person is connected to Russia if they are:

  • an individual who is, or combination of individuals who are, a) ordinarily resident in Russia, or b) located in Russia; or
  • a person, other than an individual, which is a) incorporated or constituted under Russian law, or b) domiciled in Russia.

Therefore, not only will the Prohibited Persons include natural people, but also companies.

However, unlike the position under the Swiss and EU restrictions, it is clear that Russian nationals or citizens who are no longer resident or located in Russia, will not be caught.

Consequences of breaching the Prohibition

Save where permitted by the exemptions and exceptions detailed below, it is an offence under the Sanctions Regulations to intentionally (whether directly or indirectly) contravene or facilitate the contravention of the Prohibition. It is also an offence intentionally participate in an activity that (directly or indirectly) circumvents the Prohibition.

In addition to a potential fine, a person who commits an offence may be liable, on summary conviction, to imprisonment for up to 12 months and, on indictment, to imprisonment for up to 7 years.

Exemptions and exceptions to the Prohibition

The Amendment Regulations, at regulation 13, also adds a new regulation 60ZZB into the Sanction Regulations, dealing with the exceptions relating to the provision of trust services.

Briefly, the Prohibition will not be circumvented where trust services are provided in relation to the discharge of UK statutory or regulatory obligations, including under the other Sanctions Regulations relating to financial services.

Additionally, on condition that the trust services are not primarily provided to or for the benefit of Prohibited Persons, there will be no contravention of the Prohibition when those services are provided to:

  • community amateur sports clubs registered with HMRC;
  • charitable trusts, for the benefit of certain charities;
  • certain registered pension schemes; and
  • other, more specialised trusts, as defined in the Amendment Regulations.

Further, on the condition that the trust services are not primarily provided to or for the benefit of a designated person, there will no breach of the Prohibition where trust services are provided for the purpose of making funds or economic resources available to a person under the age of 18 or to a person who lacks capacity (as defined in legislation).

It is also possible, albeit difficult, to be relieved under the prohibition by obtaining a licence from the Office for Financial Sanctions Implementation (OFSI). Trust work for which the OFSI may consider granting a licence for includes (amongst other work) humanitarian assistance, medical goods or services, and financial stability.

Conclusion

Given the fast evolving nature of the Sanctions Regulations, particularly the complexity of the latest Amendment Regulations, professional advice should be sought if you think you, or a trust you are involved with may be caught by the Prohibition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.