New investments into Russia banned in Bermuda, BVI, and Cayman following UK’s twelfth amendment to the Russia sanctions regime
The Russia (Sanctions) (EU Exit) (Amendment) (No. 12) Regulations 2022 (the Twelfth Amendment) was made on 14 July 2022, laid before Parliament on 18 July 2022, and came into force on 19 July 2022. The Twelfth Amendment was made as subsidiary legislation to the Sanctions and Anti-Money Laundering Act 2018 and it applies in the UK’s Overseas Territories (including Anguilla, Bermuda, the British Virgin Islands, and the Cayman Islands), (together the UKOTs) by virtue of The Russia (Sanctions) (Overseas Territories) Order 2020 and other implementing legislation in the case of Bermuda.
Under the Twelfth Amendment, inserted as regulation 18B to the consolidated Regulations and Order, a UKOT person (which includes a company domiciled in a UKOT) is prohibited from carrying on any of the activities in (a) to (h) below.
The prohibited activities comprise the following:
- directly acquiring an ownership interest in land located in Russia;
- indirectly acquiring any ownership interest in land located in Russia;
- directly acquiring any ownership interest in or control over a person, other than an individual, connected with Russia;
- indirectly acquiring any ownership interest in or control over a person, other than an individual, connected with Russia;
- directly or indirectly acquiring any ownership interest in or control over a “relevant entity” (ie a person with a place of business in Russia but may not be a person connected with Russia);
- directly or indirectly establishing any joint venture with a person connected with Russia;
- operating a representative office or establishing a branch or subsidiary located in Russia; or
- providing investment services directly related to an activity referred to in (a) to (g) above.
The activities mentioned in (b), (d) and (e) need to additionally be conducted with the purpose of making funds or economic resources available (directly or indirectly) to a person connected with Russia or for the benefit of a person connected with Russia.
It should be noted that:
- economic resources are made available to a person connected with Russia only if that person would be likely to exchange the economic resources for, or use them in exchange for funds, goods, or services;
- making funds or economic resources indirectly available to a person connected with Russia, includes, in particular, a reference to making them available to a person who is owned or controlled directly or indirectly by a person connected with Russia; and
- funds or economic resources are made available for the benefit of a person connected with Russia only if that person obtains, or is able to obtain, a significant financial benefit. “Financial benefit” includes the discharge (or partial discharge) of a financial obligation for which the person connected with Russia is wholly or partly responsible.
References to a UKOT person directly or indirectly acquiring any ownership interest in or control over a person or entity means, the UKOT person:
- directly or indirectly acquire any share in the person or entity;
- directly or indirectly acquire any voting rights in the person or entity;
- directly or indirectly acquire any right to appoint or remove a majority of the board of directors of the person or entity; or
- directly or indirectly acquire any means of ensuring that the affairs of the person or entity are conducted in accordance with the wishes of the UKOT person where it is reasonable having regard to all the circumstances to expect that the UKOT person would in most cases or significant respects, by whatever means, be able to do so.
Licences and offences
Licences can be obtained to deal with some of the above matters.
A UKOT person can use the following ground to obtain a financial sanctions licence from the relevant UKOT competent authorities: extraordinary situations, humanitarian assistance activity, medical goods or services, food, diplomatic missions etc, safety and soundness of a firm and space.
A UKOT person who contravenes the above prohibitions commits an offence.
Exceptions relating to investments to Russia
The Twelfth Amendment does create various statutory exceptions. Most prominently, the prohibitions described above would not be contravened by an act done by a UKOT person in satisfaction of an obligation arising under a contract concluded before the coming into force of the Twelfth Amendment or an ancillary contract necessary for the satisfaction of such a contract, provided that the UKOT person has notified the relevant UKOT competent authority no later than five working days before the day on which the act is carried out.
Other technical exceptions apply and legal advice should be obtained when interpreting these.
What UKOT persons should do
UKOT persons, particularly those in the financial sector, should review their portfolios to ensure that clients are not in any way breaching any of the prohibitions created by the Twelfth Amendment.
In cases where there may be a suspicion that this may take place or is taking place, the UKOT person should obtain the necessary sanctions advice in the relevant UKOT, take the necessary actions including but not limited to implementing their internal controls and procedures and apply for any suitable financial sanctions licences.
If any UKOT person would like assistance with any of the above, please feel free to reach out to your usual Harneys contact or any of the listed authors to this blog post.
Finally OFSI in the UK has released relevant guidance on this, available here.