UK Sanctions Regime: Russia and Belarus

Commons Urgent Question

The following Answer to an Urgent Question was given in the House of Commons on Thursday 9 November.

“Sanctions are an important tool that we use to weaken Putin’s war effort and to underline our unyielding support for Ukraine. Britain alone has sanctioned more than 1,800 individuals and entities under the Russia sanctions regime, more than 1,600 of which have been sanctioned since Putin’s full-scale invasion. Although I cannot comment on individual cases, we are pleased that the High Court has in recent weeks recognised the Foreign Office’s expertise on deciding which persons should be sanctioned to ensure maximum effect.

We have frozen over £18 billion-worth of Russian assets through designations and over 60% of Russia’s central bank foreign reserves—assets that can no longer be funnelled back to Russia to fund its war machine. Rather than the surplus that the Russian Government predicted for 2022, Russia suffered an annual deficit of £47 billion—the second highest of the post-Soviet era. Its budget remains in deficit in 2023, despite tax increases. We have also targeted those who have enabled sanctioned persons to hide their assets in obscure and complex financial networks, and we are working to crack down on phoenix companies, which continue to operate after sanctions are imposed or which are developing fronts to avoid sanctions.

Just yesterday, we imposed 29 further sanctions targeting individuals and entities operating in and supporting Russia’s gold, oil and strategic sectors—critical sources of revenue for the Russian war machine. Those sanctions include Russia’s largest gold refiner, as well as international networks propping up Russia’s gold, oil and finance industries.

Our co-ordinated sanctions, working in line with our G7 partners, are having an impact. Without our sanctions and those of our partners, we estimate that Russia would have over $400 billion more to fund its war machine. We are starving Putin of the resources he needs to fund his illegal war on Ukraine. Sanctions are thwarting Russian access to western components and technology. Russia’s budget remains in deficit. Our oil price cap has contributed to a fall of 25% in Russian oil revenues between January and September 2023, compared with the same period in 2022, and our export bans have starved Russia of thousands of products needed for the battlefield.

His Majesty’s Government are fully aware, as Members will be, that sanctions are not static. We are constantly monitoring to see where and if they are being circumvented. Alongside our international partners, we are closing loopholes and tackling sanctions evasion, as Putin desperately scrambles to restructure the Russian economy and smuggle goods in through back channels. We will continue to isolate Russia’s financial system and support businesses that are seeking to divest from their links with Russia. We will bring forward further legislation in the coming weeks to deliver on our G7 commitments and further deprive Russia of lucrative remaining revenue sources, including banning imports of Russian diamonds and ending all imports of Russian copper, aluminium and nickel. Finally, we will continue to combat circumvention and seek to degrade Russia’s military capabilities by coming down hard on sanctions evaders and closing loopholes.”

My Lords, I start by saying how pleased I am to see the Minister in his place. I also repeat what I have said many times before: the Opposition are at one with the Government in supporting Ukraine and sanctioning those responsible for starting this horrendous war.

However, there are serious concerns about the effectiveness of our sanctions regime, nearly two years after the invasion. It is unacceptable that 130 UK companies have admitted breaching Russia-related sanctions. I welcome the Statement of the Minister in the other place, that the Government are closing loopholes, but can the Minister set out what assessment has been made of the alleged existence of specific loopholes to allow indirect imports of Russian- and Belarusian-origin steel, or indeed Russian-origin crude oil that has been refined in third countries? This is a really serious issue in terms of the loopholes that have been identified.

My Lords, first, I thank the noble Lord for his kind remarks. Your Lordships’ House will be pleased to know that we will be having two FCDO Ministers here, which underlines the strong commitment of the FCDO and, indeed, His Majesty’s Government to your Lordships’ House.

It should have been you!

I shall carry on with the Answer. The noble Lord is totally right, and I appreciate him confirming again the importance of standing in solidarity against Russia’s continued invasion of Ukraine. As an aside, I have literally just come over from a Ukrainian survivor event that we were hosting at the Foreign Office—some of them very young survivors who have been through the most horrendous ordeals. It is important we send a message of unity.

On the specifics, I followed last week’s reports from City A.M. about 130 companies. There is a positive here, because this was voluntarily admitted, although there is of course inadvertent non-compliance. I assure noble Lords that we are working with our colleagues across government, particularly in the Treasury as well as other departments. The Office of Financial Sanctions Implementation is looking specifically at how we can further tighten some of the procedures. While we have fined companies that have acted inappropriately, and called others out, other methods are being put in place, including warning letters and mitigations. We are working particularly closely with the Treasury team to ensure, as I have always said, that loopholes are identified. Other loopholes identified as the sanctions are applied will also be closed.

The noble Lord rightly asked about some of the other specific industries and the sanctions we have imposed recently, including on areas such as oil and other contraventions. I assure noble Lords that, as we apply further sanctions, we will continue to identify such areas and loopholes. Only last week, on 8 November, we announced a further targeting of 29 individuals and entities operating in and supporting Russia’s gold, oil and strategic sectors, which are critical sources of revenue.

My Lords, I too admire the Minister’s reshuffle resilience and welcome him to the continuation of his post. I commend the Government on the latest sanctions on gold. The Minister knows that I have been warning about the UAE gold trade in Africa for a number of months now, and the measures in Zimbabwe are extremely welcome. Can he ensure that this will now be expanded to Sudan and other areas where that trade is so pernicious?

On implementation, I looked at the updates on enforcement on the Office of Financial Sanctions Implementation website just before coming into the Chamber. The Minister referred to enforcement. The OFSI has said that, since 2019, there has been £21 million of enforcement against UK businesses. But, since the Russian invasion in 2022, there has been only £45,000-worth of enforcement against UK companies. Is the Minister satisfied that there is nearly 100% adherence to sanctions, or could we be doing more on enforcement actions against those who are circumventing them?

My Lords, I record my thanks to the noble Lord for his kind remarks. I recognise, as he has, that this is about cross-party working and identifying what further steps we can take. I would not be bold enough to suggest that we have 100% compliance or that we are closing every loophole that has been identified; as I said, there will be further action in these areas. I also take on board some of the countries he mentioned where we can do further work. I will work with colleagues across government to ensure that, when we identify particular areas, I will notify the Front Benches in the usual way about action we are considering taking.

My Lords, what system do the Government have for monitoring these sanctions? It seems strange that the media seem to have been better informed than the Government. What measures will the Government put in place to make sure that they do this effectively?

My Lords, part and parcel of our work with the Treasury and, in particular, the Office of Financial Sanctions Implementation is, first, to ensure that we identify the actual structures being used and abused in this way to override sanctions and, then, to work directly with companies and inform them of mitigation methods that can be taken. This is ever-evolving, so, with the more sanctions we impose and the more sectors we look at, there is a lag time before they become effective. As I have already alluded to, we have identified that there will be a time lag while actions are implemented for particular sectors. I also accept that some companies act inadvertently and that we should not penalise them financially straight away; we should also look at other methods, including those we are deploying directly.

My Lords, would the Minister widen a little the response he has given so far and say what systems we have for working with the European Union so that our sanctions and their sanctions, which are very similar, are implemented in a properly concerted way and that we help each other to chase up over implementation?

My Lords, the noble Lord draws important attention to the key issue of co-operation with key partners. Not only are we working very closely with the European Union on the sanctions policy across the piece, but, particularly in light of Russia’s illegal war on Ukraine, we are working hand in glove with the European Union, as well as US partners and others, to ensure the consistency of application, so that all jurisdictions reflect the same types of sanctions applied to close those loopholes. As I have said before, if an individual or organisation is sanctioned either in the EU or in the UK and not in the other jurisdiction, there is a direct loophole that needs to be closed.