Sanctions and Russia: what’s next – and what’s the impact on legal services
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By Stephanie Maloney and Magdalena Grzybulska
Sanctions aimed at Russia have been in place since 2014, following its annexation of Crimea and ongoing role in the destabilisation of eastern Ukraine. Sanctions were imposed in a coordinated move by the EU (of which the UK was a Member State at the time), the US, and other Western allies such as Canada. Sanctions were targeted against individuals and entities, including freezing assets and travel bans. They also included arms embargoes and restrictions on other trade, such as exporting technology to Russia needed for oil exploration, and restrictions on lending money to certain Russian companies and banks. The third set of sanctions banned investment in, and trade with, Crimea.
Do International Sanctions Apply to Bermuda?
The primary Bermuda law that gives effect to international sanctions is the International Sanctions Regulations 2013, Schedule 1 of which lists the UK legislation (in the form of Orders in Council) that is given force of law in Bermuda. These regulations are amended from time to time as new measures are extended to the British Overseas Territories and as existing ones are repealed. Such Orders in Council include the Russia (Sanctions) (Overseas Territories) Order 2020, which in turn extends the Regulations referred to below to the British Overseas Territories.
UK Sanctions
As Bermuda gives effect to particular sanctions introduced by the UK, it is worth considering how sanctions have recently developed in the UK and how they have impacted the professional industries in particular.
Throughout the Ukraine crisis, the UK has always indicated its intention to implement far-reaching sanctions and continues to turn the screw, with the implementation by the end of 2022 of the most significant set of sanctions ever.
Most recent focus has been on the adoption of strong sectoral sanctions measures against finance and trade, including transport, shipping and air, and more recently in the later part of this year against a whole suite of professional services.
As well as these trade sanctions which prohibit the carrying out of business by any UK (or UK overseas territory, including Bermuda) entity or individual with any entity or person connected with Russia, over 1500 individuals and entities are specifically designated under sanctions, including over 120 Oligarchs and those close to Putin with assets of over £140 billion.
In the UK, the introduction of The Russia (Sanctions) (EU Exit) Regulations 2019 (“the Regulations”) ensured that UK sanctions relating to Russia continued to operate effectively after Brexit.
The Regulations impose financial, trade, aircraft, shipping and immigration sanctions for the purposes of encouraging Russia to cease actions which destabilise Ukraine, or undermine or threaten the territorial integrity, sovereignty or independence of Ukraine. As a firm, we have been actively involved in advising on the potential application of various Russia-focused international sanctions. In May 2022, the UK Government announced a ban on the export of services, including management consulting, accounting and public relations, on the basis that ‘Our professional services exports are extraordinarily valuable to many countries, which is exactly why we’re locking Russia out. By restricting Russia’s access to our world-class management consultants, accountants and PR firms, we’re ratcheting up economic pressure on the Kremlin to change course”.
These took effect by an amendment to the Regulations in July 2022, the effect of which was to bar services to anyone connected to Russia, meaning:
- an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia;
- an individual who is, or an association or combination of individuals who are, located in Russia;
- a person, other than an individual, which is incorporated or constituted under the law of Russia; or
- a person, other than an individual, which is domiciled in Russia.
Legal services were not covered by those sanctions.
Following the EU announcing further trade bans in July 2022, on 30 September 2022 the UK announced a further ban on the export of services relating to IT consultancy (including the design of IT systems and software applications), architectural services, engineering, advertising, auditing and transactional legal advisory services.
In announcing these measures, the UK government stated ‘In the area of transactional legal services alone, the Russian government is estimated to import 85% of such services from G7 countries, of which 59% is provided by the UK. The new legal advisory measures will cover certain commercial and transactional services and hamper Russia’s businesses’ ability to operate internationally.’
Effective 16December 2022, the UK introduced further restrictions (the Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022), and also included a ban on the provision of trust services. The new restrictions prohibit the provision of services related to trusts or similar arrangements to, or for the benefit of, persons connected with Russia.
Regulation no. 17 also amends existing restrictions on dealing with securities or money-market instruments, loan and credit arrangements to persons connected with Russia.
What has not been adopted in this latest round of sanctions, however, is the anticipated ban on the provision of transactional legal advisory services.
What is the impact on legal services?
Consequently, as of yet the specifics of the legal services ban are not known, but it would seem likely to be a prohibition on the provision of legal advice in all non-contentious matters, as well as participation in commercial transactions with third parties, where there is a connection to an individual or legal person defined as being resident, incorporated or domiciled in Russia.
As matters currently stand, the legal world in Bermuda, the UK and, indeed, all developed countries have taken a cautious approach and most lawyers will not contemplate providing legal advice to Russian individuals resident or domiciled in Russia or where the underlying legal matter concerns Russian property or sanctioned individuals.
Under the UK framework of rights, which is still finally governed by the European Convention of Human Rights, there is no absolute right to a lawyer in civil disputes, and whether that right can be enforced in particular conditions depends on a list of circumstances, which the European Court of Human Rights has defined in case law.
Consequently, there is no absolute right to a lawyer to undertake commercial transactions (which may not sit easily with everyone, given the traditional view that legal services should be available to all; to deny that right may, therefore, appear contrary to settled norms).
The EU legislation also states that (the sanctioned) “legal advisory services do not include any representation, advice, preparation of documents or verification of documents in the context of legal representation services, namely in matters or proceedings before administrative agencies, courts or other duly constituted official tribunals, or in arbitral or mediation proceedings.”
Legal services, including legal advice, is not an easy concept to define (likewise the distinction between what might be commercial advisory services or legal representation services).
Although this debate may appear to be somewhat academic, the potential penalties for breach of trade sanctions and the expectations of lawyers’ professional indemnity insurers mean that, regardless of any nuance of legislative wording, it would be a brave firm to take on work which might be in breach.
It also remains to be seen whether there are to be any “wind down provisions” to allow for services already undertaken to be completed and, if so, whether this will need to be under licence from the OSFI in the UK or the FSIU in Bermuda.
What is evident that the raft of recent sanctions is heavily impacting the services which professional industries are able to provide where Russians or Russian property is involved.