UK Russian Sanctions Extended to include Trust Services dealing with persons connected with Russia

Yesterday, 15 December 2022, the UK passed The Russia (Sanctions) (EU Exit) (Amendment) (No.17) Regulations 2022 to come into effect (in the most part) from 16 December 2022 ((https://www.legislation.gov.uk/uksi/2022/1331/contents/made.)

Due to various mechanisms (e.g., Jersey has an automatic extension https://www.jerseyfsc.org/news-and-events/automatic-implementation-of-uk-sanctions-on-russia/ ), the scope of these regulations will find their way into the Jersey legal regime along with the other British Overseas Territories and Crown Dependencies.

This is a heavy read but at first blush the following jumps out:-

One important factor in these changes appears to be:

(a) Trusts services must not be provided to or for the benefit of persons connected with Russia save under an "ongoing arrangement" already in place.

          a.The definition of connected with Russia is different to the EU.

                  i. The UK definition relates (in terms of individuals) to residence or location –

                  ii. The EU also relates to Russian "nationals" (but with exceptions for EU nationals or EU residents).

(b) Thus, the UK restriction would attach to non-Russians who are ordinarily resident/ located in Russia.

(c) In addition, it seems persons subject to the sanctions' regimes in the various jurisdictions (also by virtue of citizenship etc.) must not "engage in actions that, directly or indirectly, circumvent the financial sanctions prohibitions".

The fuller legal text is below with some closing thoughts

The regulations contain a new regulation 18C regarding "Trust Services".

• The Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (legislation.gov.uk) https://www.legislation.gov.uk/uksi/2022/1331/regulation/18/made

Insertion of regulation 18C (Trust services)

• The Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (legislation.gov.uk) https://www.legislation.gov.uk/uksi/2022/1331/regulation/7/made

18C.

(1) A person must not provide trust services to or for the benefit of a designated person.

(2) A person (“P”) must not provide trust services to or for the benefit of a person connected with Russia (“C”) unless pursuant to an ongoing arrangement pursuant to which P provided those trust services to or for the benefit of C immediately before 16th December 2022.

(3) Paragraphs (1) and (2) are subject to Part 7 (Exceptions and licences). https://www.legislation.gov.uk/uksi/2019/855/part/7/made

(4) A person who contravenes a prohibition in paragraph (1) or (2) commits an offence.

(5) For the purposes of paragraphs (1) and (2), trust services are provided for the benefit of a person (“B”) where—

          (a) B is a beneficiary of a trust or similar arrangement,

          (b) B is referred to as a potential beneficiary in a document from the settlor relating to a trust or similar arrangement (such as a letter of wishes), or

          (c) Having regard to all the circumstances, B might reasonably be expected to obtain, or to be able to obtain, a significant financial benefit from the trust or similar arrangement.

(6) For the purpose of paragraph (5), “beneficiary”, “potential beneficiary” and “settlor”, in relation to an arrangement similar to a trust, means those persons who hold equivalent or similar positions to those described in sub-paragraphs (a) to (c) of that paragraph in respect of a trust.

(7) In this regulation—

“designated person” means a person who is designated under regulation 5 (power to designate persons) for the purposes of this regulation;

• https://www.legislation.gov.uk/uksi/2019/855/regulation/5/made

trust services” means—

         (a) The creation of a trust or similar arrangement,

         (b) The provision of a registered office, business address, correspondence address or administrative address for a trust or similar arrangement,

         (c) The operation or management of a trust or similar arrangement, or

         (d) Acting or arranging for another person to act as trustee of a trust or similar arrangement, where “trustee”, in relation to an arrangement similar to a trust, means a person who holds an equivalent or similar position to a trustee of a trust.”

NEW REGULATION 60ZZB EXCEPTIONS RELATING TO TRUST SERVICES

For the sake of completeness, it is also necessary to refer to new regulation 60ZZB (exceptions relating to trust services).

• The Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (legislation.gov.uk) https://www.legislation.gov.uk/uksi/2022/1331/regulation/13/made

These exceptions relate to specific uses of trusts with the overriding condition that the trust services are not provided primarily to, or for the benefit of,

• A designated person or
• A person connected with Russia.

The concept of "designated person" is worth considering the concept of a person "connected with" Russia. This phrase is defined in regulation 19A of the main regulations:

For the purposes of this Part, a person is to be regarded as “connected with” Russia if the person is—

          (a) An individual who is, or an association or combination of individuals who are, ordinarily resident in Russia,

          (b) An individual who is, or an association or combination of individuals who are, located in Russia,

          (c) A person, other than an individual, which is incorporated or constituted under the law of Russia, or

          (d) A person, other than an individual, which is domiciled in Russia.

https://www.legislation.gov.uk/uksi/2019/855/regulation/19A#:~:text=The%20Russia%20(Sanctions)%20(EU%20Exit)%20Regulations%202019%2C,and%20are%20referenced%20with%20annotations.

SUMMARY

1. The new regulations say that they "must not" provide trust services and therefore puts trustees of existing trusts with designated persons as beneficiaries and / or settlors, in a conundrum..

          a. Trusts services must not be provided to or for the benefit of persons connected with Russia save under an "ongoing arrangement" already in place.

          b. The updated UK restriction captures non-Russians who are ordinarily resident/ located in Russia

     2. The definition of connected with Russia is different to the EU.

          a. The UK definition relates (in terms of individuals) to residence or location –

          b. The EU also relates to Russian "nationals" (but with exceptions for EU nationals or EU residents).

     3. Checks [Due diligence] will need to be carried out as to the wide scope of a trust including

          a. "Potential beneficiaries" and spouses/ partners of beneficiaries and potential beneficiaries.

     4. In addition, persons subject to the sanctions' regimes in the various jurisdictions (also by virtue of citizenship etc.) must not "engage in actions that, directly or indirectly, circumvent the financial sanctions prohibitions".

FOOT NOTE

(a) At present the assets are frozen, must not be dealt with and must not be made available to designated persons. The issues about "stopping" trust services were highlighted at the time of the EU measures earlier this year.

          a. [See step-position-paper-on-eu-sanctions-jun22.pdf]. https://www.step.org/system/files/media/files/2022-06/step-position-paper-on-eu-sanctions-jun22.pdf

          b. The EU measures are also in place in the EEA (to a large extent).