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FINANCIAL SANCTIONS MEASURES IN RELATION TO RUSSIA

Last Updated: 16 March 2022

Introduction

Members will be aware of recent developments in Ukraine and the ongoing imposition of further financial and trade sanctions on Russian Government officials and other named individuals and entities, by countries around the world, including the UK, US and the EU.

These recent measures are directly relevant to both members in business and practice, as well as to those working in the charity and Not for Profit sector.

Whether in practice or in business, Members must comply fully with their legal and professional obligations relating to the Sanctions regimes in their respective jurisdictions; AIA expects that they will be willing to play their part in helping companies across the economy cope with any consequent disruptions.

United Kingdom

Following the United Kingdom Prime Minister’s statement to the House of Commons on 22 February 2022, the UK has announced a tranche of sanctions on Russia. The full details of the measures are available on the Foreign, Commonwealth & Development Office website. If you require a licence to permit any activity which would otherwise be prohibited by sanctions regulations, you must contact the relevant department.

We expect firms to have established systems and controls to counter the risk that they might be used to further financial crime, including compliance with financial sanctions obligations.

Where the AIA identifies failings in financial crime systems and controls, we can impose restrictions and/or take enforcement action. Additionally, the Office of Financial Sanctions Implementation (OFSI) has the power to levy civil monetary penalties for breaches of financial sanctions and works with law enforcement for the most egregious cases where criminal prosecution may be considered.

Firms should screen current and new clients against the UK Sanctions List to meet these new sanctions measures and screen against the OFSI list of asset freeze targets for financial sanctions obligations. You are legally obliged to report to OFSI if you know or suspect that a breach of financial sanctions has occurred; if a person you are dealing with, directly or indirectly is a designated person; if you hold any frozen assets; if knowledge or suspicion of these come to you while conducting your business. You must contact OFSI at the earliest opportunity.

Our expectations of firms’ systems and controls in relation to compliance with financial sanctions are set out in AML Guidance for the Accountancy Sector (AMLGAS). Where clients give rise to concerns about sanctions evasion or money laundering you should also consider you obligations to report to the UK Financial Intelligence Unit (UKFIU) at the National Crime Agency (NCA) under the Proceeds of Crime Act 2002.

For further details on financial sanctions you should contact OFSI or, for trade and export sanctions, you should contact the Department for International Trade’s Economic Control Joint Unit. Applications must be made in advance of any business agreement or transaction taking place.

READ: OFSI Russia sanctions: guidance.

DETAILED GUIDANCE FOR MEMBERS WITHIN THE UNITED KINGDOM

Republic of Ireland

The Republic of Ireland and European Union have imposed financial sanctions and other economic measures on the Russian Federation in response to its unprovoked and unjustified military aggression against Ukraine, including:

  • A ban on the sale, supply, transfer or export of Euro banknotes to Russia or to any natural or legal person, entity or body in Russia is being introduced. This includes the government and the Russian central bank.
  • The removal of 7 Russian banks from the SWIFT system with a 10 day lead in time. This includes any entity that the listed banks own 50% or more of. The banks affected are:
    • Bank Otkritie
    • Novikombank
    • Promsvyazbank
    • Bank Rossiya
    • Sovcombank
    • VNESHECONOMBANK (VEB)
    • VTB BANK
  • A prohibition on investing in, participating or contributing to projects co-financed by the Russian Direct Investment Fund.
  • A ban on broadcasting or enabling the broadcast of  RT-Russia Today or Sputnik tv channels.

Most recent measures imposed on Belarus in response to its unprovoked and unjustified military aggression against Ukraine:

  • An EU travel ban and asset freeze in respect of 22 persons associated with the Belarusian military and Ministry for Defence. These measures are imposed under the existing sanctions regime in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.
  • Further restrictions on trade between the EU and Belarus, relating to the trade of goods used for the production or manufacturing of tobacco products, mineral fuels, bituminous substances and gaseous hydrocarbon products, potassium chloride (“potash”) products, wood products, cement products, iron and steel products and rubber products.
  • Additional restrictions on exports of dual-use goods and technology and related services, as well as restrictions on exports of certain goods and technology which might contribute to Belarus’ military, technological, defence and security development, together with restrictions on related services.

On 9 March 2022, the EU published a further set of measures. These include:

  • Introduction of further restrictions on the export of maritime navigation goods and technology;
  • Expansion of the list of legal persons, entities and bodies subject to the prohibitions related to investment services, transferable securities, money market instruments, and loans;
  • Further clarification (in respect of previous restrictive measures) that “transferable securities” includes crypto-assets.
  • Limiting the financial inflows from Belarus to the Union, by prohibiting the acceptance, from Belarusian nationals or residents, of deposits exceeding certain values; the holding of accounts of Belarusian clients by the Union central securities depositories; and the selling of euro-denominated securities to Belarusian clients;
  • Exemptions under the sanctions measures, for Swiss, EU and EEA nationals in Belarus, in that deposits exceeding €100,000 can be accepted from them.
  • Introduction of clarifications on the exception for the provision of financing for small and medium-sized enterprises, as well as certain provisions in the Annexes, relating to prohibited goods and technology;
  • Adding 146 members of the Russian Federation Council to the sanctions list, as those individuals ratified the government decisions of the ‘Treaty of Friendship, Cooperation and Mutual Assistance’ between Russia and the two break-away regions in Donetsk and Luhansk;
  • Adding 14 persons to the sanctions list, as they supported and benefited from the Government of the Russian Federation and/or provided substantial revenue to it; or are associated with listed persons or entities.
  • Prohibition on the listing and provision of services, on Union trading venues, in relation to shares of Belarus State-owned entities;
  • Prohibition on transactions with the Central Bank of Belarus;
  • Restrictions on the provision of specialised financial messaging services (SWIFT) to certain Belarusian credit institutions and their Belarusian subsidiaries. These are:
    • Belagroprombank
    • Bank Dabrabyt
    • Development Bank of the Republic of Belarus
  • Additional obligations on the Network Manager for air traffic management network functions of the single European Sky, particularly that the Manager rejects all flight plans that violate the Regulations;
  • Further clarification (in respect of previous restrictive measures) that “transferable securities” includes crypto-assets.

The measures that came into force on 15 March include:

  • adding another 15 individuals and 9 entities to the list of those subject to asset freezes and travel bans.

The measures that came into force on 16 March include:

  • a ban on credit ratings agencies from providing ratings on Russian Federation debt.
  • further trade restrictions concerning iron and steel, as well as luxury goods;
  • expanding the list of persons connected to Russia’s defense and industrial base, to apply tighter export restrictions on dual-use goods and technology. A total of 81 persons and entities have been added;
  • prohibitions on new investments in the Russian energy sector and export restrictions on related equipment, technology and services, with the exception of nuclear industry and energy transport;
  • a ban on all transactions with certain State-owned enterprises which are already subject to refinancing restrictions. A total of 13 companies are listed;
  • a ban on the provision of insurance and reinsurance to any legal person, entity or body operating in the energy sector in Russia;
  • Derogations have been provided for activities necessary for ensuring critical energy supply within the EU, as well as the transport of fossil fuels, in particular coal, oil and natural gas, from or through Russia into the EU; and where humanitarian considerations arise.

The measures that come into force on 8 April 2022 include:

  • A prohibition on being a beneficiary, acting as a trustee or in similar capacities for Russian persons and entities, as well as a prohibition on providing certain services to trusts has been introduced.
  • An import ban on coal from Russia from 10 August 2022;
  • A full transaction ban on four key Russian banks. These four banks will now be fully excluded from the EU market. The banks affected are Otkritie, Novikombank, Sovkombank and VTB;
  • A ban on any vessel registered under the flag of Russian from accessing EU ports. This includes yachts and recreational craft. Some derogations are granted for the transport of medical, pharmaceutical, agricultural and food products, humanitarian aid, energy and other products as set out in the Regulations;
  • A ban on Russian and Belarusian road transport operators traveling the European Union, Switzerland, EEA and western Balkans, limiting their access to key goods;
  • Further targeted export bans on items such as quantum computers and advanced semiconductors, sensitive machinery and transportation equipment;
  • Specific new import bans on a range of goods as well closing loopholes between Russia and Belarus. This will be achieved by sanctioning certain individuals and entities used to bypass previous sanctions;
    • A €10,000 limit on crypto asset transactions;
  • Securities in all EU Member State currencies will now be banned from sale to Russia/Belarus and Russian/Belarusian entities;
  • A general EU ban on participation of Russian companies accessing public procurement in Member States;
  • An exclusion of all financial support at a national and European Union level to Russian public bodies; and
  • Listing of an additional 216 individuals who are Russian, members of 'the People’s Council' of the Donetsk and Luhansk breakaway republics as well as 18 new entities. The list also includes Oleg Deripaska and the 2 daughters of Vladimir Putin.

The Department of Finance ask that all entities familiarise themselves with the measures introduced and how they can comply with the sanctions. The relevant Statutory Instruments are available on the Irish Statute Book.

Further information on restrictive measures can be viewed also at:

The European Union sanctions whistleblower tool is accessible via the Commission’s website. It facilitates the anonymous reporting of possible violations of EU sanctions. It can be used to report past, ongoing or planned sanctions violations, as well as attempts to circumvent EU sanctions. More details about the tool are available here

Please monitor the websites referenced above closely in the event that further information is available or further restrictive measures are adopted. It is important that all Members in Practice operating within the Republic of Ireland keeps up to date on developments.

DETAILED GUIDANCE FOR MEMBERS WITHIN THE REPUBLIC OF IRELAND

AIA Supervisory Expectations

The recent imposition of further sanctions on Russia and named individuals and entities has increased the potential risk of money laundering as individuals and business may seek to evade these respective sanctions regimes.

Recent developments in Russia and Ukraine may also potentially impact on the classification of new and existing clients and cause them to fall within the definition of Politically Exposed Persons (“PEP”).

Members in Practice are reminded of their obligation under the UK Money Laundering Regulations 2017 and the Republic of Ireland Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (as amended) respectively, to conduct risk assessments and to perform Enhanced Due Diligence checks where required.

In particular, Members should ensure that they fully understand the source of funds and wealth in relation to their clients identified as high-risk.

Since many of those who are subject to sanctions may also be PEPs, Members are reminded of their obligation to ensure that they have adequate and up to date procedures in place to identify whether a client, or the beneficial owner of a client, is a PEP or a family member or known close associate of a PEP.

Firms should be aware that these sanctions are subject to change and should maintain up to date screening processes.

FURTHER SANCTIONS AND AML GUIDANCE