From Vladimir Putin’s former son-in-law to the chairman of Russia’s second largest bank, more than 100 individuals and entities have been added to the UK sanctions list, in what Boris Johnson has billed as the “largest ever” set of financial measures against Moscow, designed to “squeeze Russia from the global economy”.
The foreign secretary has promised that a further 570 names – elected politicians from the Duma and the Federation Council – will soon be added to the list.
While many anticipated the latest measures, the scale and complexity of what is being enacted will prove a legal minefield for British nationals or companies that have done business or had any kind of relationship with those now blacklisted.
So how will the restrictions imposed on oligarchs and other individuals work in practice?
First, any assets owned by those individuals and companies named are frozen. This does not result in a change of ownership, so the house, bank account, private jet, or yacht is not seized.
Second, those on the list are banned from all UK transactions. British businesses and UK nationals are not permitted to make funds available to these individuals or accept funds from them. Taking the example of a property owned by a person on the sanctions list, the person would not be able to rent it out, mortgage it, or sell it.
While the sanctions would not prevent someone from flying on their private jet, the accompanying travel ban would prevent them from going anywhere. In addition, sanctions would prevent the jet’s owner from paying for fuel or crew. Even if they were not using their plane to generate cash, the sanctions are designed to make it difficult for the owner to maintain and operate it.
“They can’t deal with their own asset in the way they otherwise might choose to,” says Alexandra Melia, partner at law firm Steptoe & Johnson. “They can’t gain access to benefits it would otherwise give them.”
Restrictions also apply to any business belonging to a sanctioned person, putting the onus on firms to look at their customer and supplier base, to ensure they know who the ultimate owners of those companies are.
The measures restrict “economic resources”, says Stacy Keen a senior associate at law firm Pinsent Masons. “This is essentially any assets of any kind that can be used to generate funds, and this includes individuals and businesses.
“If a business is on that list, you cannot provide them with any services that they can then use to generate funds. That could be provision of products that those businesses will use to manufacture another product and sell into the marketplace.”
Sanctions could mean bad news for British private schools, long favoured by wealthy Russian families. The government has said relatives will not be added to the list, but if the fees are paid by a sanctioned person, that money cannot be accepted.
However, if a house or jet needs to be maintained or repaired, it is possible to apply to the sanctions watchdog, the Office of Financial Sanctions Implementation (OFSI), which operates as a division of the Treasury, for permission to undertake the work.
Sanctions are subject to a “licence regime”, meaning those on the list can submit an application for a licence. This would give them written permission to carry out an act that would otherwise be in breach of the sanctions against them.
Essential spending is one of the reasons permitted by OFSI, although Melia says the grounds for a licence are “pretty limited, purposely so, to preserve the effect of the measures”.
Anyone requesting a licence from OFSI is required to make clear what they are requesting – including exact amounts of money and payment routes – as well as the legal basis for the request, and the urgency of the application. It’s unclear whether private school fees for a sanctioned person’s children would be considered essential spending.
Alongside frozen assets, sanctioned individuals who own shares would not be permitted to receive dividends from those investments. In practical terms, any dividend payments would be frozen and would remain sitting in a bank account, but could not be accessed. The same would apply for interest accrued in a bank account.
Experts say assets such as football clubs could be run by a separate management board, which would allow them to continue operating, while any profits would be held in a kind of distinct bank account.
In the past, such arrangements were made to allow the state-owned National Iranian Oil Company (NIOC) to continue trading, even while it was under US sanctions, and where payments for oil were placed in an escrow account in a different country.
On Saturday evening, as speculation mounted about which oligarchs could be added to sanctions lists, the billionaire Roman Abramovich announced he was handing “stewardship and care” of Chelsea FC, which he has owned since 2003, to the club’s charitable foundation. Without making any direct reference to sanctions, he said: “I believe that currently they are in the best position to look after the interests of the club, players, staff, and fans.” Abramovich has rejected any suggestion he or his companies could be blacklisted.
Some of the other measures announced by the UK government, which are expected to be brought into secondary legislation on Tuesday, are more wide-ranging. Johnson said the government would limit to £50,000 the amount of money which any Russian national – not just those named on the sanctions list – could deposit in a UK bank account.
Sanctions experts say banks will have been stepping up their monitoring of customers with links to Russia, and looking at patterns of payments. These monitoring systems would raise an alert if anyone was trying to avoid restrictions, such as by making regular, smaller deposits.
One thing is certain. The OFSI, which has issued only six fines for breaches of the rules since it was established in 2016, is going to have a much wider field to police.
