UK Government introduces new sanctions measures and extends the reporting obligations to Cryptoasset exchange and custodian wallet providers. The UK Government has implemented new restrictions in relation to investments in Russia and updates to the UK sanctions regime over the past week.
The UK Government has implemented new restrictions in relation to investments in Russia and updates to the UK sanctions regime over the past week.
We have summarised the key changes below.
Investments in relation to Russia
The UK published the Russia (Sanctions) (EU Exit) (Amendment) (No. 12) Regulations 2022 (which came into force 20 July 2022) which sets out new prohibitions that have been inserted at Regulation 18B, prohibiting certain outward investments into Russia. Pursuant to Regulation 18B, it is now prohibited to:
- directly acquire any ownership interest in land located in Russia;
- indirectly acquire any ownership interest in land located in Russia, where the purpose of such activity is making funds or economic resources available (i) directly or indirectly to a person connected with Russia; or (ii) for the benefit of a person connected with Russia;
- directly acquire any ownership interest in or control over a person, other than an individual, connected with Russia (Note – “ownership interest” is defined very broadly as the direct or indirect acquisition of any share, voting rights or right to appoint or remove a majority of directors in a person or entity, or the direct or indirect acquisition of any means of ensuring that the relevant entity’s affairs are conducted in accordance with the wishes of the acquirer);
- indirectly acquire any ownership interest in or control over a person, other than an individual, connected with Russia, for the purpose mentioned at (b) above;
- directly or indirectly acquire any ownership interest in or control over a relevant entity for the purpose mentioned at (b) above;
- directly or indirectly establishing any joint venture with a person connected with Russia;
- open a representative office or establishing a branch or subsidiary located in Russia; or
- provide investment services (using the same definition as at Regulation 16) directly related to an activity referred to in paragraphs (a) to (g) above.
Pursuant to Regulation 60ZZA, Regulation 18B does not apply to any act done in satisfaction of an obligation arising under a contract concluded before 19 July 2022, or an ancillary contract necessary for the satisfaction of such a contract, provided that the Treasury has been notified no later than the day five working days before the day on which the act is carried out.
OFSI has also published General Licence INT/2022/2002560, which allows for a 7-day wind down period in respect of the prohibitions set out at Regulation 18B.
In addition, a number of licencing grounds have been inserted in respect of the 18B Prohibition, including, amongst other things:
- to enable anything to be done to deal with an extraordinary situation;
- to enable anything to be done in connection with the performance of any humanitarian assistance activity;
- to enable anything to be done in connection with the provision of medical goods or services for the benefit of the civilian population of a country;
- to enable the import, export or use of medical goods;
- to enable anything to be done in connection with the production or distribution of food for the benefit of the civilian population of a country;
- to enable anything to be done in order that the functions of a diplomatic mission or consular post in Russia, or of an international organisation enjoying immunities in accordance with international law, may be carried out, or that the functions of a diplomatic mission or consular post of Russia in the United Kingdom may be carried out;
- to enable anything to be done, following consultation with the relevant supervising authority or authorities, that is necessary or expedient in order to promote the safety and soundness of a firm which is supervised by certain institutions (i.e. the Bank of England, the PRA or the FCA); or
- to enable anything to be done for a UK person to undertake spaceflight activity.
New designation criteria
The primary purpose of Russia (Sanctions) (EU Exit) (Amendment) (No. 13) Regulations 2022 (which came into force on 19 July 2022) is to broaden the scope of the designation criteria for the purposes of the asset freezes. A new paragraph 4A is included in Regulation 6 which provides for a longer list of roles that a person may play in relation to the Government of Russia that will be considered as meeting the criteria for being involved in “destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine” or “obtaining a benefit from or supporting the Government of Russia”.
A new paragraph 6 is substituted into Regulation 6 which expands the definition of being “associated with” a designated person to include “an immediate family member” of that person. The UK government is widening the designation power to allow it to target for designation family members of designated individuals.
Finally, this Regulation introduces an exception at Regulation 61ZA to the trade sanctions included in the UK’s Russia sanctions allowing for the “timely delivery of humanitarian assistance activity in the non-government controlled areas of the Donetsk and Luhansk oblasts”.
Reporting obligations extended to cryptoasset exchange providers and custodian wallet providers
From 30 August 2022, cryptoasset exchange providers and custodian wallet providers will be required to comply with OFSI’S reporting obligations.
On 19 July 2022, UK Government published the Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2022 and the Sanctions (EU Exit) Miscellaneous Amendments) (No 2) 2022 (together, the “Amending Regulations”) which amends the reporting obligations set out in legislation enacting various sanctions regimes, including but not limited to, Iran, Venezeula, Guinea--Bissau, Belarus, Zimbabwe, Syria and Russia.
Prior to the amendments, firms were under an obligation to inform Treasury as soon as practicable if it knows, or has reasonable cause to suspect, that a person—
- is a designated person, or
- has committed an offence under any provision of Part 3 (Finance) or s.67 (finance: licensing offences) of the Regulations.
This above reporting obligation extended to “relevant firms” which was defined in the relevant regulations as:
- a person that has permission under Part 4A of the Financial Services and Markets Act 2000 (permission to carry on regulated activity);
- an undertaking that by way of business—
- operates a currency exchange office,
- transmits money (or any representation of monetary value) by any means, or
- cashes cheques that are made payable to customers;
- a firm or sole practitioner that is—
- a statutory auditor within the meaning of Part 42 of the Companies Act 2006 (statutory auditors)(1), or
- a local auditor within the meaning of section 4(1) of the Local Audit and Accountability Act 2014 (general requirements for audit)(2);
- a firm or sole practitioner that provides to other persons, by way of business—
- accountancy services,
- legal or notarial services,
- advice about tax affairs, or
- trust or company services within the meaning of paragraph (2);
- a firm or sole practitioner that carries out, or whose employees carry out, estate agency work;
- the holder of a casino operating licence within the meaning given by section 65(2)(a) of the Gambling Act 2005 (nature of a licence)(3);
- a person engaged in the business of making, supplying, selling (including selling by auction) or exchanging
- articles made from gold, silver, platinum or palladium, or
- precious stones or pearls.
Following the enactment of the Amending Regulations, the definition of “relevant firms” has been expanded to now include cryptoasset exchange providers and custodian wallet providers.
The Amending Regulations define a cryptoasset exchange provider as “a firm or sole practitioner that by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved—
- exchanging, or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets,
- exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another, or
- operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets.”
Further, the Amending Regulations define a custodian wallet provider as: “custodian wallet provider” means a firm or sole practitioner that by way of business provides services to safeguard, or to safeguard and administer—
- cryptoassets on behalf of its customers, or
- private cryptographic keys on behalf of its customers in order to hold, store and transfer cryptoassets.”
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