UK sanctions: the ban on providing professional and business services to persons “connected with Russia”

The prohibition

The Regulations amongst other things, prohibit the direct or indirect provision of the following services to any "person connected with Russia":

• “Accounting services”, which comprise:

• Accounting review services, which are services involving the review by a person of annual and interim financial statements and other accounting information, but excluding auditing services;
• Compilation of financial statements services, which are services involving the compilation by a person of financial statements from information provided by a client, including preparation services of business tax returns when provided together with the preparation of financial statements for a single fee, but excluding such preparation services of business tax returns when provided as a separate service;
• Other accounting services such as attestations, valuations, preparation services of pro forma statements; and
• Bookkeeping services, which are services consisting of classifying and recording business transactions in terms of money or some unit of measurement in the books of account, but excluding bookkeeping services related to tax returns; and

• “Business and management consulting services”, which comprises advisory, guidance and operational assistance services provided for business policy and strategy and the overall planning, structuring and control of an organisation, which includes (but is not limited to) management auditing; market management; human resources; production management and project management consulting.

The new prohibitions apply to UK persons, which includes bodies incorporated or constituted under the law of any part of the UK, British citizens (including the Crown Dependencies) and British Overseas Territories citizens.

Exemptions to the prohibition

The Regulations provide certain exceptions to the new prohibitions, including any act done:

a) In satisfaction of an obligation:

i. In respect of the provision of professional and business services by a person (“P”) to a person connected with Russia where those services are provided in relation to the discharge or compliance with UK statutory or regulatory obligations, such obligations not arising under contract;

ii. Arising under a contract concluded before 20th July 2022, or an ancillary contract necessary for the satisfaction of such a contract, provided that:

aa) the act is carried out before the end of the period of one month beginning with the day on which this regulation comes into force;

bb) P has notified the Secretary of State no later than the day 10 working days before the day on which the act is carried out; [or]

b) That is necessary for the official purposes of a diplomatic mission or consular post in Russia, or of an international organisation enjoying immunities in accordance with international law.

Availability of licences

Licences may also be issued for activities that would otherwise be prohibited by the Regulations. The Department for International Trade (DIT) has overall responsibility for trade sanctions licensing and the Secretary of State for International Trade is ultimately responsible for decisions to grant or refuse a trade sanctions licence in any individual case. Government Guidance (the Guidance¹) suggests that the considerations for granting licences in a professional and business services context considered by DIT to be consistent with the aims of the sanctions are as follows:

1. A licence may be granted for the delivery of humanitarian assistance activity.
2. A licence may be granted for the production or distribution of food provided that this is for the benefit of the civilian population;
3. A licence may be granted for medical and pharmaceutical purposes, provided that this is for the benefit of the civilian population;
4. A licence may be granted for civil society activities that directly promote democracy, human rights or the rule of law in Russia;
5. A licence may be granted for services required by non-Russian business customers in order to divest from Russia, or to wind down other business operations in Russia; and
6. A licence may be granted for services to a person connected with Russia by a UK parent company or UK subsidiary of that parent company.

The Guidance highlights that an applicant should not assume that a licence will be granted or engage in any activities prohibited by trade sanctions until a licence has been granted.

Interpretative challenges

There is currently limited formal guidance as to how these provisions should be interpreted and applied in practice, although it seems evident from information published by the DIT that authorities will be taking a broad interpretation of the activities that may be considered prohibited. Companies with on-going activities that have a Russian touchpoint will need to work through the relevant facts and related legal documentation carefully, to determine how the prohibitions may apply to their services and specific structures that are currently in place.  Companies seeking to conduct activity that would otherwise be prohibited after the end of the 1-month wind-down period (i.e. after 20 August 2022) will need to apply for a licence where available and ensure that such activity is not undertaken pending approval.

If you would like to discuss the new prohibitions or require assistance navigating some of these complex issues, please contact us.