Law firms have ‘key role to play’ in response to Ukraine, says regulator

Ruth Green, IBA Multimedia JournalistFriday 11 November 2022

The Solicitors Regulation Authority says ‘all firms that provide legal services’ must comply with new UK restrictions on providing transactional legal advisory services to Russian clients.

The SRA, which regulates solicitors in England and Wales, last published guidance for law firms on complying with the UK’s Russian sanctions regime in March in the immediate aftermath of the invasion.

Many UK businesses, including law firms, rapidly closed their offices in Russia and severed relationships with Russian clients in the weeks that followed. However, until recently, the UK government had noticeably refrained from including legal and other professional advisory services on its sanctions list despite mounting criticism that the UK – and its legal sector – had become a favoured destination for affluent Russians.

This all changed on 30 September when the UK joined global condemnation over Russia’s illegal annexation of four Ukrainian regions following sham ‘referenda’ and announced it was prohibiting the provision of transactional legal advice, IT consultancy, architecture, engineering, advertising and auditing to Russian individuals and entities.

Speaking to Global Insight exclusively ahead of publishing updated guidance, an SRA spokesperson said: ‘Strengthening the financial sanctions regime is an important part of the government’s response to war in Europe, and law firms have to a key role to play. The sanctions regime is fast moving and applies to all firms that provide legal services, not just those that are captured by the anti-money laundering regulations. So to help everyone keep up to date, we will publish guidance to explain to firms what we expect from them and advise them on how best to meet their obligations.'

There is a risk that it will lead to the sort of over-compliance we have seen with the financial sector in relation to other sanctions regimes

Emma Oettinger
Head of Financial Crime & Risk, Ashurst

The guidance, which is due to be published in the coming weeks, will also clarify differences with anti-money laundering rules, explain what solicitors should do when providing services under licence and highlight ‘red flags’ to watch out for if clients are trying to circumvent the new regulations.

Prior to the most recent sanctions, UK law firms have been under increasing pressure to confront the reality of their role in holding Putin’s regime to account. Many have already voluntarily stopped advising Russian clients, which may mean the latest sanctions have limited impact on the legal sector, says Tom Cummins, a partner and sanctions specialist at Ashurst in London. ‘In practice it may not have a material effect on the instructions being accepted by UK-based lawyers given that many firms have already stopped acting for Russian clients,’ he says. ‘For the profession and sector as a whole, there may be longer term implications for how the UK legal system is perceived in terms of its certainty and stability.’

Michael O’Kane, a Senior Partner at Peters & Peters in London, agrees that advisory work on behalf of Russian clients has already dropped off significantly. However, he cautions against what he views as ‘virtue signalling’ across the legal profession in response to the ongoing war. ‘Obviously, the invasion was a very seminal moment for all of us and for the global order, [but] there are quite a lot of people standing on the moral high ground,’ he says. ‘I get it that people think that the invasion of Ukraine tips the balance, but one does wonder what everybody was doing before and to what degree people were really thinking about it?’

O’Kane points to the contrast in law firms’ behaviour in 2014, when many international law firms downsized their Russian operations after the country annexed Crimea, but stopped short of exiting the country altogether. ‘Litvinenko was murdered with a bio-weapon in London in 2006, Russia invaded Georgia in 2008, it annexed Crimea in 2014, the Skripal poisoning was in 2018,’ says O’Kane. ‘They're now taking a moral position, but why were they not taking the same moral position before?’

Figures released on 10 November by the UK’s Office of Financial Sanctions Implementation revealed that the UK has frozen £18.4bn in Russian assets since the country invaded Ukraine. Together with its allies, the UK has sanctioned more than 1,200 individuals, 120 entities and frozen the assets of 19 Russian banks with global assets of £940bn.

As the war continues, the threat of consumer boycotts has also forced growing numbers of retailers, automakers and other global brands to exit the Russian market. However, there are concerns the trend for sanctions over-compliance could create more harm than good.

‘One of the real challenges today is keeping targeted sanctions targeted,’ says Thomas Biersteker, a renowned sanctions expert and Gasteyger Professor Honoraire at the Graduate Institute in Geneva. ‘Oftentimes we find what we call over-compliance from the official sanctions. Therefore, we have the situation of unintended consequences on the entire Russian population. It's particularly difficult in this case because the divestments – and I'm certainly a supporter of the kinds of moves that have been taken – [are] broadening the impact of the sanctions because companies are doing much more than they're required to do.’

Emma Oettinger is Head of Financial Crime & Risk at Ashurst and Co-Chair of the IBA Regulation of Lawyers' Compliance Committee. Although the UK’s latest moves to include legal advisory work on the Russian sanctions list may not intentionally result in over-compliance, she’s concerned it could threaten access to justice.

‘Any type of restriction backed by a criminal penalty will result in more careful consideration of the work being undertaken by a law firm,’ says Oettinger. ‘There is a risk that it will lead to the sort of over-compliance we have seen with the financial sector in relation to other sanctions regimes, and could result in ordinary individuals resident in the UK for many years, but who were born in Russia, finding it more difficult to get legal representation, especially if smaller firms are concerned about how to navigate these requirements.’

O’Kane agrees that access to necessary legal support for Russian clients must continue. ‘Lawyers should still be able to act for Russian individuals and high-net worth individuals, particularly in relation to the provision of compliance advice and the protection of their rights in the UK and EU courts,’ he says.

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