Russia sanctions: time to seize the day?
Tuesday 13 December 2022
Aisling O’Sullivan
South32, London
Menelaos Karampetsos
Brown Rudnick, London
Russia’s invasion of Ukraine prompted the UK to deploy an unprecedented package of sanctions. Hundreds of individuals, from well-known oligarchs to members of the Duma, had their assets frozen. Real estate, vessels and even Chelsea FC became targets for restrictions; new sanctions continue to be introduced at pace.
Despite this unprecedented action, there are real issues in enforcing sanctions in practice. This is because information regarding beneficial ownership is difficult to establish, as assets are not always directly owned by a designated person but are instead owned via complex offshore trust structures or other legal vehicles. This issue is illustrated by a recent case in Antigua involving the alleged yachts of Roman Abramovich. In that case, local authorities received information from their British Virgin Islands counterpart which suggested that two yachts moored there belonged to Roman Abramovich. However, the following day the Antiguan authorities received evidence to the contrary from a German law firm.1
The UK has stepped up its response to economic crime and ‘dirty money’, with former Prime Minister Boris Johnson warning that the government is ‘going faster and harder to tear back the façade’. In this regard, the long-awaited Economic Crime Act (the Act)2 was fast-tracked through Parliament, and a second Bill is due to be introduced soon. Those pieces of legislation aim to increase transparency around property ownership, corporate governance, and give law enforcement enhanced capabilities to trace and seize illicit assets.
The Act has already introduced a beneficial ownership register (the Register) requiring overseas entities to identify beneficial owners of UK property and register them with Companies House. Those who fail to comply with the registration requirements face fines and even imprisonment. While the Register is a welcome step, commentators are lobbying the government to go one step further and introduce a similar register for luxury assets such as yachts and private planes.3
The Act has also brought forth reforms to unexplained wealth orders (UWOs); that is, a type of investigatory court order which compels a respondent to reveal the source of their unexplained wealth. Those reforms will enable law enforcement to go after illicit assets without fear of costs liability for those enforcement agencies who pursue such orders.
A ‘Combating Kleptocracy’ cell has also been created, which will operate within the National Crime Agency (NCA) and the UK’s national law enforcement agency, which is tasked with fighting serious organised crime.4 It will facilitate cooperation between UK law enforcement agencies, and target assets and so-called ‘enablers’ of those sanctioned.
In the cryptocurrency space, the UK’s regulatory authorities5 have clarified that crypto assets are subject to the asset-freezing provisions of the UK’s financial sanctions regime.
Accordingly, the use of crypto assets to circumvent sanctions is a criminal offence.6 The UK’s regulatory authorities have also made it clear that it expects UK financial services firms, including those in the crypto asset sector, to play their part in ensuring that sanctions are complied with.7 The government will also bring forward legislation which will introduce a civil forfeiture power that will allow for the seizure of crypto assets in a more expedient manner.8
On the international front, the UK has joined other allies to establish the Russian Elites, Proxies and Oligarchs Task Force (REPO).9 Its mandate is to pool resources and facilitate asset tracing, including subsequent confiscation or forfeiture of sanctioned assets.
There are additional steps the UK could take to ramp up its approach to Russian sanctions. Commentators have recommended that the UK should encourage the Overseas Territories and Crown Dependencies to swiftly implement public beneficial ownership registers.10 The government has also declared that it is considering temporary asset seizures.11
On the international cooperation front, REPO would benefit from broadened membership by inviting countries such as Switzerland to join; this would ensure that countries with a key role in the management of assets of those sanctioned are not out of REPO’s reach. REPO’s work would also benefit from increased resourcing for national Financial Intelligence Units (FIUs). The UK’s FIU received 5,300 suspicious transaction reports per staff member according to most recent annual data, which prompted calls for increased resourcing.12
Similarly, the announcement of the NCA’s kleptocracy cell has not included details about staffing or budgeting; for the unit to accomplish its mandate, it is imperative that it is appropriately staffed and resourced.
While the task of identifying and seizing sanctioned assets can appear Sisyphean, current efforts and discrete future steps such as those outlined above can have a tangible impact. Political tradecraft will be paramount, however, as the UK balances its national interests with the need to ensure that those benefitting from wrongdoing account for their own personal gains.
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1. Robert Smith, Cynthia O’Murchu, Arash Massoudi, Max Seddon, ‘“Not my yacht” – how murky structures cloud ownership of oligarch toys’ (Financial Times, 5 April 2022), see www.ft.com/content/2a5abdec-1bd1-4a5c-99a6-5aa1fc722d1b, accessed 20 May 2022.
2. Economic Crime (Transparency and Enforcement) Act 2022.
3. ‘Up to the task? The state of play in countries committed to freezing and seizing Russian dirty money’ (Transparency International, 24 May 2022), see https://images.transparencycdn.org/images/2022-Report-Up-to-the-task.pdf, accessed 25 May 2022, 20.
4. SARS in Action (National Crime Agency, 24 February 2022), see https://nationalcrimeagency.gov.uk/who-we-are/publications/591-sars-in-action-march-2022/file, accessed 24 May 2022, 4.
5. The Financial Conduct Authority, the Office of Financial Sanctions Implementation and the Bank of England.
6. Joint statement from UK financial regulatory authorities on sanctions and the crypto asset sector (11 March 2022), see www.fca.org.uk/news/statements/uk-financial-regulatory-authorities-sanctions-cryptoasset-sector, accessed 25 May 2022
7. See note 5.
8. ‘Economic Crime: responses to the Committee’s Eleventh Report’ (Treasury Committee of the House of Commons, 28 April 2022) see https://committees.parliament.uk/publications/22029/documents/163644/default/, accessed on 19 May 2022, 24
9. Ministerial joint statement (Russian Elites, Proxies, and Oligarchs Task Force, 17 March 2022), see www.gov.uk/government/publications/russian-elites-proxies-and-oligarchs-task-force-ministerial-joint-statement/russian-elites-proxies-and-oligarchs-task-force-ministerial-joint-statement, accessed 19 May 2022.
10. ‘Up to the task? The state of play in countries committed to freezing and seizing Russian dirty money’ (Transparency International, 24 May 2022), see https://images.transparencycdn.org/images/2022-Report-Up-to-the-task.pdf, accessed 25 May 2022, 36.
11. ‘Sanctions: Asset Seizure’, (Hansard, 22 March 2022), see https://hansard.parliament.uk/commons/2022-03-22/debates/F8F17282-2AEF-4293-AE7D-612D061B3553/SanctionsAssetsSeizure, accessed on 24 May 2022.
12. ‘Up to the task? The state of play in countries committed to freezing and seizing Russian dirty money’ (Transparency International, 24 May 2022), see https://images.transparencycdn.org/images/2022-Report-Up-to-the-task.pdf, accessed 25 May 2022, 8.