We wanted to share an update on Russia sanctions developments in the United Kingdom, European Union, and the United States that occurred between March 16 and 24. Key global jurisdictions have continued to announce new measures targeting Russian elites and strategic industries, although the pace of new announcements has slowed since the first weeks of the war.

United Kingdom

OFSI Guidance on Aggregation of Ownership Interests.  On Tuesday, March 22, the United Kingdom (UK) Office of Financial Sanctions Implementation (OFSI) released updated guidance regarding assessments of ownership and control. The guidance states that OFSI "would not simply aggregate different designated persons' holdings in a company, unless for example, the shares or rights are subject to a joint arrangement between the designated parties or one party controls the rights of another." It leaves open the possibility that, where multiple designated persons have a collective holding in a company which exceeds 50%, additional facts and circumstances may still indicate effective control by one of those persons. For example, they may be acting in concert, such that they have control of the company, or one may be able to exert effective control over. The guidance is important in underscoring the fact that any such conclusion would need to be supported by specific evidence – mere aggregation of ownership is not enough. 

This guidance is especially significant as it followed two days after the European Union (EU) released guidance stating that it would aggregate ownership (discussed below). The OFSI guidance is also at variance with the US Treasury Department's so-called 50% Rule, in which ownership shares of sanctioned parties are aggregated in order to determine whether companies owned by such parties are also sanctioned by operation of law.

New General Licences. Also on March 22, OFSI issued a general licence in respect of the Central Bank of Russia, the National Wealth Fund of Russia and the Russian Ministry of Finance (the Three Entities). The licence was amended on March 24 to include persons owned or controlled, directly or indirectly, or acting at the behalf or direction of one of the Three Entities. Under the licence, persons may provide financial services for the purposes of winding down any derivatives, repurchase and reverse repurchase transactions entered into prior to March 1, 2022 with the Three Entities. The licence expires on May 2, 2022. Under Regulation 18A of The Russia (Sanctions) (EU Exit) Regulations 2019, persons are prohibited from providing financial services relating to foreign exchange and asset management in respect of the Three Entities. On March 24, OFSI also issued a general licence in respect of Alfa-Bank, Gazprombank, Rosselkhozbank, SMP Bank, Ural Bank and their subsidiaries. This licence permits persons to wind down transactions involving those banks, and expires on April 23.

Treasury Select Committee Report.  On Wednesday, March 23, the House of Commons Treasury Committee released its report on "Defeating Putin: the development, implementation and impact of economic sanctions on Russia" (the Report). Considering the sanctions imposed on different banks in different jurisdictions, it noted, "a complex and sometimes unclear regime has resulted." The Report expressed concern that guidance relating to the implementation of sanctions has lagged behind, for instance, the United States (US), and said that the Government must ensure that its guidance is clear, precise and readily available. It also advocated increasing OFSI's resources and recruiting expert staff. The UK has sanctioned over 1,000 individuals and entities, but the Report highlighted one witness who said that in relation to sanctions against individuals, "the UK is not progressing well in contrast to our peers." The Report stressed that the most serious economic sanctions would target the Russian energy industry, and these have not been imposed yet.

New Asset Freeze Designations.  On Wednesday, March 16, the UK designated 14 persons, and a further 65 on Thursday, March 24. The updated list includes Oleg Tinkov, founder of Tinkoff Bank, and Eugene Shvidler. Prior to his designation, Shvidler had been cited in the Statement of Reasons for Roman Abramovich's designation, where he is described as a close associate of Abramovich, through whom Abramovich could exercise effective control of Evraz PLC. In our last update we discussed the Economic Crime (Transparency and Enforcement) Act, which came into force on March 15. This Act enabled persons to be sanctioned on the basis that they had been designated by a specified body (US, EU, Australia, Canada or another country specified by the government). Some of the new UK designations have been imposed under this provision, for instance Alfa-Bank and Gazprombank, both of which were designated by Canada.

European Union

EU Guidance on Aggregation of Ownership Interests.  The EU has not announced any further substantive sanctions measures since our last update on March 17. However, on March 20, the European Commission issued new guidance regarding, inter alia, the asset freeze prohibitions. This included an important clarification regarding the application of the test for "ownership" of an entity by a sanctioned party (i.e., how to calculate the threshold of 50% for an entity to be considered owned by a listed person). The guidance confirms that, where an entity is owned by two or more listed persons, their ownership stakes should be aggregated when applying the ownership test. Therefore, if one listed person owns 30% of a company and another listed person owns 25% of the company, the company should be considered as jointly owned and controlled by listed persons and therefore subject to sanctions itself.

New Enforcement Task Forces.  On the enforcement side, the European Commission announced on March 17 that it had established a "Freeze and Seize" Task Force to ensure the efficient implementation of EU sanctions against listed Russian and Belarusian oligarchs across the EU. The Task Force is composed of the EU Commission, national contact points from each Member State, Eurojust and Europol. It will coordinate actions by EU Member States, Eurojust, Europol and other agencies to seize and, where permitted under national law, confiscate assets of Russian and Belarussian oligarchs. The first two meetings of the Task Force took place on March 11 and 18.

Also on March 17, the EU announced the creation of the International "Russian Elites, Proxies and Oligarchs" (REPO) Task Force, whose participants are the G7 countries, Australia, and the EU. REPO will work alongside the "Freeze and Seize" Task Force to ensure the effective implementation of international sanctions, to assist other cooperating nations in locating and freezing assets, and to determine whether frozen assets can be forfeited.

United States

Blocking Sanctions.  On March 24, 2022, the United States announced new blocking sanctions on parties that it considers to be key enablers of the invasion. This includes:

  • Russian Parliamentarians. The new sanctions apply to the more than 300 members of the Russian State Duma. Previously, the US had only sanctioned the 12 members of the Duma that had signed a letter appealing to Russian President Putin to recognize the so-called Luhansk People's Republic and Donetsk People's Republic. These sanctions further align the US with the EU, the UK, and Canada, which had previously imposed sanctions directly on all members of the Duma.
  • Defense Industry. The United States also designated dozens of Russian defense companies, including Tactical Missiles JSC (KTRV), Tekhmash, Russian Helicopters, and Kronshtadt. Many of these companies were already subject to debt and equity restrictions as subsidiaries of Rostec, a sanctioned Russian state-owned defense conglomerate.
  • Financial Leaders. The US has designated Herman Gref, the CEO of Sberbank. Since February 24, Sberbank has been subject to prohibitions on dealings in new debt or equity and correspondent and payable through account restrictions (with March 26, 2022 effective dates), but not full blocking sanctions. Although this designation will not directly create new restrictions on dealings with Sberbank, US parties that continue to do business with the Russian bank will need to take care to avoid providing any services or engaging in other commercial dealings with Gref specifically (such as entering into agreements for which Gref is the signatory). The US also sanctioned several key executives of Sovcombank, which has been subject to blocking sanctions since February 24.

New Guidance on Gold Transactions. The Office of Foreign Assets Control (OFAC) has issued FAQ 1029, which makes it clear that US sanctions, including those imposed on Russia's Central Bank, already prohibit transactions involving gold. OFAC is closely monitoring efforts to circumvent or evade Russia-related sanctions, including through the use of gold or other precious metals. The new guidance comes a day after Treasury Secretary Janet Yellen met with US Senators to discuss pending legislation that would apply secondary sanctions to any American entities knowingly transacting with, or transporting gold from, Russia's central bank holdings, or selling gold physically or electronically in Russia.

Legislation to Revoke Permanent Normal Trade Relations (PNTR) with Russia and Belarus. Following a 424-8 vote in the House of Representatives last week, legislation to strip PNTR status for Russia and Belarus (the domestic process to eliminate most-favored nation status) has been delayed in the US Senate. Despite widespread bipartisan support for the PNTR measure, the debate is focusing on whether to pass a stand-alone PNTR measure or to include additional sanctions measures, including a statutory ban on Russian energy imports and an expansion of the Global Magnitsky Human Rights Accountability Act, in the legislation.

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.