Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022

Motion to Approve

Moved by

That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022

My Lords, the instrument before us was laid on 15 December 2022 under powers provided by the Sanctions and Anti-Money Laundering Act 2018. It makes amendments to the Russia (Sanctions) (EU Exit) Regulations 2019. The instrument has been considered and not reported by the Joint Committee on Statutory Instruments.

Our unprecedented package of sanctions makes it clear to Mr Putin and the wider international community that Russia’s territorial expansionism is unacceptable and will be met with a serious and escalating response. With these amendments, the UK, with our international partners, continues to put immense pressure on Mr Putin and Russia. The measure forms another part of the largest and most severe package of economic sanctions that Russia has ever faced.

I begin by outlining the main measures introduced through this latest piece of legislation. First, this instrument tightens existing regulations on investments, loans, securities and money market instruments to further close off indirect finance and further constrain the availability of international capital to Russia. It also prohibits new investments in Russia via third countries.

Secondly, this legislation introduces new restrictions on the provision of trust services to persons connected with Russia. This will particularly affect high net worth Russians who use trust services to manage their assets. The SI also suspends the Bank of England’s duty to recognise resolution action in respect of persons designated under the Russia regulations—the process by which the failure of financial institutions is managed—stemming a potential income stream for Mr Putin’s war machine.

Thirdly, the regulations prohibit the export of further specific goods across a range of sectors, including oil production and mining equipment, electronics and chemicals, as well as advanced materials and camouflage gear.

My Lords, I thank the Minister for that thorough introduction to this SI. I do not think many of us will have any objection to the direction of this. What the Government are doing here is right. The fact that we can support them on this would make a pleasant change if it were not in such tragic circumstances.

The only real questions I can think of to add to that thorough introduction is: how are we reviewing the effect of sanctions? What is the input of our allies, which may have other intelligence resources, et cetera, to go on with this?

Nobody enjoys doing this. We are doing it because we have to, because Russia has decided to behave in a manner that may have been acceptable in the 1700s but is not acceptable any more. When a nation has determined that it does not want to be a part of another, it should not be forced to at gunpoint. Can the Minister give us some indication of how we are monitoring the effect and making sure that Russia totally understands what it can do to get rid of this, which is to leave Ukraine?

My Lords, I thank the Minister for his introduction. I repeat that the Opposition are totally at one with the Government and their actions to ensure that the illegal and immoral invasion of Ukraine is halted and that we take all possible steps against Russia for its breach of international law.

I have just a few questions about this additional SI on sanctions. The Minister mentioned that we are working with our allies, in particular the EU and other G7 partners. Can he tell us exactly how much these measures are aligned with the actions of the EU? Is there complete alignment now? On credit and securities, reference was made to closing loopholes. Are these loopholes that we have collectively discovered and want to stop or is this something that we focus on particularly because of the situation with London?

On that subject, according to the impact assessment, London still seems to trade significantly with Russia and imports more than other regions. Can the Minister say a little more about what more we need to do in terms of cleaning up London and the role of money laundering in particular?

We repeatedly pass legislation on sanctions. We have good law, if you like. But, of course, none of these laws is necessarily effective unless we also focus on enforcement. Can the Minister tell us a bit more about the capacity in the department and across Whitehall to ensure that all these sanctions that we are approving are effectively enforced? I suppose that it relates to the question the noble Lord asked about what assessment we make of effectiveness. Enforcement is really important.

Finally, on the penalties that arise—and we have covered this point before with regard to the Act and the statutory instruments that have come out of it—these new measures carry a maximum sentence of 10 years or a fine. Are there circumstances in which the Minister believes that the violations are so serious that they may lead to custodial sentences rather than fines? This relates to how much we focus on enforcement and what we can do to provide a deterrent to others breaching these regulations.

My Lords, I thank the noble Lords, Lord Addington and Lord Collins, for their strong support. That sends out a very strong message, not just to Russia and Mr Putin but to those who are trying to circumvent the impact of sanctions.

I assure the noble Lord, Lord Addington, that, partly as the sanctions come into play and we identify where the gaps are, we are monitoring the impact of these with our key partners to ensure that when it comes to the circumvention of the new rules—those who are trying to get round sanctions—we can close those loopholes, as I said in my introduction.

We co-ordinate with our key allies. The noble Lord, Lord Collins, asked about differences that arise. Because of the different governance regimes that exist, there are occasions when we may be slightly ahead of others. Sometimes the American system does not require the same level of governance in terms of imposing the sanctions. What we are seeking to do is to work very closely with our allies.

On the issue of enforcement, which both noble Lords raised, first and foremost we are working with our G7 partners to ensure effective implementation of sanctions on Kremlin-related entities and elites, including through the Russian Elites, Proxies, and Oligarchs Task Force. Following further commitments by the former Prime Minister in February, the Government have also continued to work on this issue and have delivered the economic crime Act to crack down further. One issue, which will be subject to further debates as we seek further to strengthen these provisions, is whether it is done through the register of overseas entities, reforming our unexplained wealth orders or our ability to take action. I fully accept that we need to keep this under very close scrutiny to ensure that any gaps can be addressed.

On 22 September 2022, the Government introduced the Economic Crime and Corporate Transparency Bill, which includes the fundamental reform of Companies House, reforms to prevent abuse in limited partnerships, and additional powers, which I know that noble Lords are aware of. Just to complete that element and to reassure the noble Lord, Lord Addington, we will keep this under review. If there are further areas that we need to act on, we will certainly take those measures as appropriate.

On sanctions circumvention, the actual package itself, as I said in the introduction, amends existing financial measures and restrictions on various financial instruments to close loopholes and prohibit this with regard to Russia via third countries. That is an issue that we have debated in your Lordships’ House. More broadly, in 2023, we will continue to bear down on Russia, ratcheting up economic pressure by implementing further sanctions and by leaning in to tackle Russia’s attempts to circumvent measures that are in place.

Just anecdotally, when I was working in the City and there were restrictions on particular countries, the private sector itself was involved, because of the added burden, challenges and requirements for compliance. We are beginning to see that very much: companies are themselves taking action to not deal with those that have associations. This package amends existing financial measures, restrictions on investments, loans, securities and money market instruments, to address those very issues, particularly the issue that we raised before about third-party actions.

To pick up the point that the noble Lord, Lord Collins, raised about the EU announcing that designated people are circumventing sanctions, we welcome the EU’s focus on this. On the issue of offences, it is a criminal offence under UK sanctions legislation intentionally to participate in circumvention of any sanctions prohibitions, including financial or trade sanctions, or to enable or facilitate the breach of sanctions prohibitions—and, yes, we have the powers to fine, prosecute and impose civil monetary penalties.

On the issue of whether there would be further sanctions in this regard, I do not want to speculate at this point, but I note what the noble Lord said. On the severity of certain sanctions and broader issues of the criminality of Russia’s actions, as the noble Lord will be aware, we are looking at that specifically. Tomorrow I hope, together with the Attorney-General, to brief the APPG on Ukraine specifically to look at what further actions we can take in holding to account those who perpetrate these crimes.

I am a new Member of this House, and this is my first time on an SI in Grand Committee. I apologise to the Minister if I am intervening on him inadvertently, but I am looking for one point of clarification. As I understand it, these regulations widen the scope to include advertising services within the remit of sanctions. Could the Minister confirm that that would also apply to data-targeted social media marketing services?

My Lords, for clarity and for the record, it covers all elements of that advertising, but on the specific points I will go back to the department to ensure I give a full answer. In welcoming the noble Lord and his scrutiny of legislation, I very much welcome his intervention. One thing I can say to him is that, over time, bearing in mind this package of sanctions, areas will arise that have not been looked at or, in practical terms, have not been covered by existing legislation. It is important, first, to identify and, secondly, to co-ordinate with key partners; we are doing both things. We are also monitoring the impact on private sector behaviour. All those things were reflected in my opening remarks that Russia is being impacted. The IMF’s forecast should not be taken lightly, and the reduction it shows is reflective of Russia’s actions. If there are further details, I will of course write to the noble Lord.

On the issue of FCDO staffing and the specifics of the question from the noble Lord, Lord Collins, at the end of 2021 and continuing through 2022, there were 48 substantive roles in the sanctions unit, which has now become the sanctions directorate. One would have hoped that we would not need to expand, but going from a unit to a directorate recognises the importance of this. We have doubled the number of officials focused on our response and we now have more than 100 permanent staff delivering that response. This number does not include those working across the FCDO and its overseas network who also cover sanctions as part of their designated roles.

On the financing of the Office of Financial Sanctions Implementation, the office has also doubled in size this financial year and continues to grow. As set out in its annual report released on 10 November 2022, OFSI scaled up to more than 100 full-time employees by the end of 2022, accelerating and enhancing the transformation programme. I also have a personal anecdote: one of the current senior officers who sits behind me and is now a full member of the sanctions team used to be a member of my private office, so Ministers are adding to the weight of our sanctions directorate.

Motion agreed.