Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2023

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2023.

My Lords, these regulations amend the Russia (Sanctions) (EU Exit) Regulations 2019. These instruments were laid on 14 December 2023 under powers provided by the Sanctions and Anti-Money Laundering Act 2018. They entered into force on 15 and 26 December 2023, and 1 January 2024. The instrument has been considered and not reported on by the Joint Committee on Statutory Instruments.

These instruments contain trade and financial measures, co-ordinated with our international partners, to increase the pressure on Putin over his brutal and illegal war against Ukraine. They ratchet up the pressure on Russia’s war machine and economy as part of the most severe package of economic sanctions that that country has ever faced.

The No. 4 regulations continue the UK Government’s commitment to ban the export of all items that have been used by Russia on the battlefields to date. Building on existing extensive prohibitions, these regulations ban the export of further products that could be used by the Russian military or industry, including electronics and machine parts. The legislation also delivers on commitments made by the Prime Minister at the G7 leaders’ summit last May to ban imports of Russian metals, including copper, aluminium and nickel, by the end of 2023. It extends the existing prohibition on luxury goods to include a ban on services ancillary to their movement and use. This means that those subject to UK sanctions can no longer provide financial services and funds, technical assistance and brokering services related to luxury goods.

There are also amendments to other product definitions and coding to ensure clarity and consistency with partners. On the financial side, this includes new obligations for persons designated under the Russia financial sanctions regime to report any assets that they own, hold or control in the UK or worldwide as a UK person to the relevant authorities. A further requirement has been placed on relevant firms to inform HM Treasury of any foreign exchange reserves and assets belonging to the central bank of Russia, the Russian Ministry of Finance or the Russian National Wealth Fund.

The regulations also amend existing regulations that prohibit UK credit and financial institutions processing sterling payments that have travelled to, from or via sanctioned credit and financial institutions, in order to expand this prohibition to include non-sterling payments. The prohibition adds a new exception to enable UK credit and financial institutions to transfer funds internally in certain circumstances for the purpose of compliance and regulation.

Finally, alongside the No. 4 regulations, we have introduced a new financial sanctions licensing ground to support UK entities in divesting their Russian interests. The licensing ground will also permit UK entities to buy out investments from designated persons and the Russian state, provided those funds go into a frozen account. We will proceed with a further prohibition on ancillary services related to metals when this can be done in concert with international partners.

My Lords, I thank the Minister for outlining the instruments. My party supports them. I am grateful to the Minister for outlining them in clear terms. I understand that it is a long-held practice that, if Ministers write to inform about new things, they write to both Front Benches. I do not think I received the letter to the noble Lord, Lord Collins, that the Minister referred to.

I have just two points to raise. One is to welcome the diamonds element that was announced at the G7. I know there have been questions about how long it took, but nevertheless we are grateful that it is there. I have often raised Russia benefiting from the continuing gold trade, which is illegitimate and channelled through the Gulf. I would be grateful if this could be raised. On Friday, we will have a full-day debate on Ukraine, in which we will raise wider issues.

I have a question about the figures for the impact of the sanctions so far, to which the Minister referred. I read his colleague Leo Docherty MP citing the same statistics about UK imports from Russia falling by 94% but our exports to Russia falling by 74%. I have not been able to find a breakdown of the sectors, and I would be grateful if the Minister could provide one in writing because I am curious about why there is a differential, and why sanctions have been more impactful for the UK importing goods from Russia than for exports, which is what we should be trying to target. As the Government say, if sanctions are working, we need to be able see that.

My second question is about the ability to effectively buy frozen assets, which the Minister raised. This will require further consideration and debate because there could well be some complexities with regard to it, especially in the context of the decision made by the EU yesterday to approve a windfall tax on frozen assets. I believe the UK should be moving ahead on this. I would be grateful if the Minister could outline His Majesty’s Government’s policy on this because it could be significant. The Minister referred to sums of £20 billion. As I understand it, the EU has estimated that it would be able to utilise €2.3 billion in interest and taxes on the assets alone. Given that €125 billion-worth went through Euroclear Belgium and €300 million is immobilised across Europe as a whole, the decision to have a windfall tax on that means it could be used to benefit Ukraine. I hope that allowing entities to buy frozen assets would not mean that, if the UK were to decide to recover the interest on the assets by having a windfall tax on them, that would effectively mean that those assets would be frozen not just from the Russians whom we are sanctioning but effectively from the Ukrainian people, who should be able to benefit from taking interest or a windfall tax or recovering them. I hope the Minister can provide clarity on those points.

My Lords, I very much welcome these additional amendments on further sanctions. I certainly welcome the fact that we are focusing on trying to weaken the war machine that this illegal invasion of Ukraine is supporting. I certainty welcome Regulation 5, on luxury goods, too.

In the previous debate, the Minister mentioned the Office of Trade Sanctions Implementation, which aims to crack down on sanctions evasion. I very much welcome that because, as I mentioned, we have seen before evidence of companies circumventing the sanctions. He also mentioned the toolkit, which will, I hope, enable us to avoid repeating some mistakes made in the past. It would be good to better engage on how we will support this new office.

One thing that the noble Lord, Lord Purvis, has raised previously is this: how do we ensure that Britain’s offshore financial centres are properly able to implement the sanctions? Of course, we have been extremely concerned about transparency and the need to introduce public beneficial ownership registers speedily. Without them, we will not be able to see exactly what UK firms or individuals are up to. With opaque entities, sanctions will sometimes be evaded, though perhaps not deliberately. We need to address this properly.

The Government recently updated Parliament with another timeline for the expected delivery of public registers. However, I note that the British Virgin Islands will not have its appropriate frameworks in place as late as 2025. I hope that the Minister will express the same opinion as me: that this is too late and we really need to speed things up.

The noble Lord, Lord Purvis—I nearly called him Lord Putin then—mentioned frozen assets. We will certainly address them in our debate on Friday. Since we also raised this issue in Oral Questions, I note that the Foreign Secretary—the noble Lord, Lord Cameron—mentioned his belief at Davos that frozen assets are an issue that need international co-operation. Can the Minister give us a bit more detail on that?

I again thank both noble Lords for their interest and support for these measures. I will seek to answer all the questions raised. I will ensure that future letters go to both Front Benches; I apologise to the noble Lord for missing him out in that exchange.

Gold is a sanctionable trade. Sometimes it is harder to detect, but it is certainly an element of trade that is within the sanctions regime.

I cannot give the noble Lord a breakdown of the sectors that create the 74%. I do not know why there is a discrepancy with the letter he received from my colleague Anne-Marie Trevelyan, but I will look into it. My understanding is that there has been a 96% reduction in trade from Russia and a 74% reduction in trade in the other direction. That will have caused hardship to some legitimate businesses, and we respect that, but this is an international incident which requires the strongest possible response, and our sanctions regime has had to take this decision.

I will write to both noble Lords about the buying of frozen assets and what impact that could have if those assets were then released, say, to Ukraine, to help pay for the war. We want to make sure that we are not diminishing the amount that that country should get to pay for the damage that has been done to it.

The G7 has repeatedly underscored that Russia’s obligations under international law are clear: it must pay for the damage it has caused to Ukraine. How we ensure that Russia does so is the subject of active and urgent discussions with G7 partners. Leaders have tasked the relevant G7 Ministers to report back on progress by the two-year mark of Russia’s invasion at the end of February. The UK remains fully committed to working with allies to pursue all lawful routes through which Russian assets can be used to support Ukraine.

While these G7 discussions continue, we have taken a number of steps domestically. We were the first to introduce legislation explicitly enabling us to keep sanctions in place until Russia pays for the damage it has caused; we have announced a route by which sanctioned individuals who want to do the right thing can donate frozen funds for Ukraine’s reconstruction; we introduced new powers to compel sanctioned individuals and entities to disclose assets they hold in the UK; and we are stepping up efforts to use funds from the sale of Chelsea Football Club to support humanitarian causes in Ukraine.

Through a separate annual frozen asset review process, £21.6 billion of assets were reported frozen due to UK financial sanctions regulations, across all sanction regimes, as of 30 September 2022. This £21.6 billion is a marked increase on the frozen asset review 2021 figure of £12.4 billion, provided in the OFSI annual report. This included £7.9 billion reported under the Russia sanctions regime, an increase from £44.5 million in 2021.

We want to make our position on overseas territories absolutely clear. They are self-governing jurisdictions, responsible for their own financial services regulation. There should be no safe havens for illicit funds and the OTs are committed to meeting the highest standards in tackling illicit finance, including those set by the Financial Action Task Force. UK and OT senior officials met the British Virgin Islands between 12 and 14 September 2023 as part of a ministerial-level annual dialogue on tackling illicit finance. The OTs already share confidential information on company beneficial ownerships with UK law enforcement bodies via exchange-of-notes arrangements.

I will finish by setting out what has happened recently. Over the last few months, Ukraine has pushed significant parts of the Black Sea fleet out of Crimea and opened up export routes that do not depend on Russia. This has assisted its economy. Russia remains internationally isolated: in the last few weeks, it has failed to get elected on to the Human Rights Council—it would have been a hideous result if it had been. It has failed to get on to the International Court of Justice, the executive board of UNESCO, the council of the International Maritime Organization and the executive council of the Organisation for the Prohibition of Chemical Weapons, and rightly so.

Since February 2022, total military, humanitarian and economic support has been more than £3.9 billion; we have given £4.7 billion in non-military support to Ukraine. With our allies, we are providing the military and economic capabilities that Ukraine requires, including winter support. We are maintaining pressure on Russia’s ability to wage its war of aggression, including through sanctions, and supporting Ukraine to export its goods, including grain. This includes ensuring that the maritime corridor it has established is secure against Russian attacks and commercially viable. We have helped to develop a private sector insurance facility for shipping, using the corridor, and are working with allies to support our military-industrial complexes to provide the sustainable support that Ukraine needs.

In Kyiv this month, the Prime Minister announced a further £8 million to fortify and rebuild Ukraine’s energy infrastructure and a number of events are coming up where further international collaboration on this can be achieved. For example, at the UK-hosted European Political Community in the spring and at NATO’s 75th anniversary summit in Washington in July, we want to make sure of this continued level of support. The programme we are debating can be seen in the context of that wide international support.

The noble Lord, Lord Collins, talked about public registers. I will write to him on that because I want to make sure we get that absolutely right. I have said what we are doing with BVI but there are other issues relating to that.

In terms of other countries’ trade with Russia—not just its neighbours—we monitor that and use our status in various diplomatic organisations, not least the UN, to ensure that we are putting pressure, with our allies, on other countries not to liberalise their trade with that country. In doing so, we show our support for the Russian people but our condemnation of the Russian regime, which is stealing money from its people and putting them in danger, not least on the front line in Ukraine and through its horrendous human rights abuses.

Can I just interrupt the Minister on this point? It is something that I picked up from Anne-Marie Trevelyan’s letter of 19 January, where she talks about these joint delegations “yielding positive results”. I agree with the Minister that this is not about attacking the Russian people but is about luxury goods, which are certainly leaking in. I wondered what the Minister meant in her letter about yielding positive results. Do we have figures on that? Has there been an impact on the trade, which seems to be leaking?

I am sure that we do have figures, although I do not have them here. I will write to the noble Lord setting out what successes we are having in those negotiations and bilateral discussions.

These measures are the latest addition to our package of sanctions, which is having a damaging effect on Putin’s war machine and regime. The UK Government are committed to using sanctions to keep up the pressure until Putin ends his brutal and senseless war. We in this Committee stand resolute with the people of Ukraine and will continue to support them until they prevail.

Motion agreed.