Importantly, the UK has introduced two new restrictions which we expect will have a significant impact on UK people doing business or entering into new business in Russia. These are:
- Prohibition of new investments in Russia; And
- Restriction on the provision of certain professional and commercial services.
Prohibition of new investments in Russia
In the year On 19 July 2022, the UK introduced a ban on new investments in Russia (the UK New Investment Ban) similar to the US bans set out in Executive Orders 14066, 14068 and 14071. Russia (Sanctions) (Withdrawal from the European Union) Regulations 2019/855 (UK Russia Regulations).
At a high level, the UK New Investment Prohibition covers the following functions:
- acquiring any ownership interest in land located in Russia;
- acquire or control any ownership interest of a Russian-related entity;
- Acquiring or controlling any ownership interest in an entity that has a place of business in Russia but is not connected to Russia[1];
- establishing any joint venture with a person connected to Russia;
- Opening a representative office or establishing a branch office in Russia; Or
- Providing investment services directly related to the above activities.
There are a number of exceptions to the UK new investment ban as follows.
- In order to fulfill an obligation under a contract concluded before 19 July 2022 or a related contract necessary for the satisfaction of such contract, H.M. Withdrawal if the Treasury is notified not later than five working days before the date of the action;
- Communicate with transferable securities if such communication is prohibited by UK Russia Regulation No. 16; Or
- Dealing with “adequate security” by a person connected to Russia or an entity that has a place of business in Russia but is not connected to Russia.
With regard to the third exception, the definition of “relevant security issued by a person connected with Russia” is complex, but the main point is that the security “must be admitted to trading on a regulated market or multilateral trading facility before 19. July 2022.”
Issued GL INT/2022/2002560 which allows activities covered by the UK’s new investment ban and transactions related to these activities to be wound up. This General License is effective from 19 July 2022 and expires on 26 July 2022. Special licenses may also apply.
Prohibition on the provision of certain professional and commercial services
In the year On 20 July 2022, the UK introduced a new ban on the provision of accounting services, business and management consultancy services or public relations to a person linked to Russia (UK Professional Services Ban). This is set out in regulation 54C of the UK Russia Regulations.
“Accounting services” are broadly defined to include:
- Accounting review services are services that include annual and interim financial statements and other accounting information, but excluding audit services;
- Completion of financial statement services, including, but not limited to, the preparation of business tax returns when a person compiles financial statements from information provided by the client, together with the preparation of single-fee financial statements. Business tax return services when provided as a separate service;
- Other accounting services such as verifications, valuations, proforma statement preparation services; And
- Accounting services, which are the services of classifying and recording business transactions in monetary or accounting terms, but excluding accounting services related to tax returns.
“Business and management consulting services” are similarly broadly defined, including advisory, guidance and operational assistance services, for business policy and strategy and general corporate planning, structuring and control, including (but not limited to) management. Auditing, Marketing Management, HR, Product Management and Project Management Consulting.
Finally, “public relations service” means a service provided by a person to improve their client’s image and improve their relationship with the public and other institutions, but does not include planning and creating services for advertising or public opinion polling.
There are exceptions to the prohibitions. The above services shall continue to be permitted when they are provided in satisfaction of one of the following obligations:
- In relation to the provision of professional and business services to a person connected with Russia where these services are provided in connection with UK legal or regulatory obligations or obligations not arising in a contract, or
- If they arise under a contract concluded before 20 July 2022 or any ancillary contract necessary for the satisfaction of this contract:
- (i) The act was committed before the expiry of a period of one month from 21st July 2022; Or
- (2) The service provider has notified the foreign secretary within 10 working days before the date of the act.
There are a number of key differences between the UK professional services ban and the equivalent EU ban set out in Article 5n of Council Regulation (EU) 833/2014. in particular:
- The EU ban targets entities established in Russia when services are provided for the exclusive use of entities owned or controlled by the EU, although there are exceptions. However, the UK ban is broad as it targets all people “connected to Russia”. Importantly, the UK prohibition does not include a general exception for subsidiaries of UK companies. And
- The EU ban includes audit and statutory audit services, but audit services are modeled after the UK ban.
The UK Professional Services Prohibition is not breached when the activity is carried out under a commercial licence. The Department for International Trade has published updated guidance on the specific circumstances in which a license may be granted to carry out activities that breach the UK professional services ban. The following are two of these conditions that are of particular importance for companies operating in Russia.
- for services required by non-Russian business customers to move away from Russia or facilitate other business activities in Russia; And
- For the services of a UK parent company or a person connected to a UK parent company in Russia.
The latter implies that the provision of intra-group services is covered by the ban, but this will ultimately need to be assessed on a case-by-case basis and may require further clarification from the UK Government. This prohibition should be carefully considered in relation to any transition service agreements that have been or are being concluded in the context of companies exiting Russia.
If you have any questions about the matters discussed in this article, please contact Matthew Townsend, Jonathan Benson, Dane Wheeler, or your usual contact at Allen & Overy LLP.
Footnotes
[1] “Person connected with Russia” is broadly defined as: – Individuals or association or consortium ordinarily resident in Russia; an individual or association or consortium of individuals located in Russia; A person other than an individual incorporated or organized under Russian law; Or a person, other than an individual, living in Russia.
