The UK Government continues to expand the UK financial sanctions regime in response to the sustained invasion of Ukraine by Russia.

You can read our previous update here.

The lists of designated individuals are being regularly added to, including high profile individuals, and there are important legal changes coming regarding sanctions breaches worthy of note.

Upcoming legal changes you should be aware of

An important upcoming development under the Economic Crime (Transparency and Enforcement) Act 2022 is that it will be a strict liability civil offence to deal with a listed entity or individual.

This means that it will no longer be necessary for OFSI to prove that an organisation or individual had knowledge that they were dealing with a listed party, and the fact that a listed party has been dealt with is enough for the offence to be committed.

This change removes the existing defence in civil cases of an individual or entity having no knowledge or awareness that their actions would breach sanctions.  The test for criminal liability has not been changed, and knowledge or awareness that an individual was engaging in activity in breach of sanctions will still need to be proven.

The change means that it will likely be easier for OFSI to impose civil fines where an individual or entity breaches sanctions. Taking a cynical view this may mean that OFSI will opt for the arguably easier route of imposing a civil penalty rather than taking a case to a criminal trial and a resulting uptick in the level of penalties issued. With civil offences punishable by fines of up to £1m or half the value of the breach (whichever is greater) the consequences can still be severe making compliance crucial.

The commencement date for this part of the Act has not yet been published (which will be by way of Treasury regulations), and OFSI has not made any updates to its enforcement guidance yet. Current guidance can be found here.

Another key change is that OFSI will be able to publish details of companies and individuals who breach UK financial sanctions, even where they receive no civil penalty or do not face criminal prosecution. This could cause reputational damage, frustrating existing commercial relationships or jeopardising new ones.

Accordingly, it is as important as ever that rigorous checks are carried out at key stages of any transaction where the Russian sanctions could be triggered, and that records of the results of those checks are retained, as this would be relevant as a defence in any criminal proceedings or in mitigation when determining the level of any civil penalty to be imposed.

Impact of Russian sanctions on Chelsea FC

One of the most well-known targets of the new UK sanctions so far has been Chelsea FC owner, Roman Abramovich. Mr Abramovich was added to the UK financial sanctions list on 10 March 2022.  The UK was the first of the Ukrainian allies to take such a step, through the Office of Financial Sanctions Implementation (OFSI), although the EU shortly followed.

The UK sanctions were intended to be a full asset freeze and travel ban, resulting in problems around what should happen with Chelsea FC. Against the backdrop of continued military actions of Russia, ownership of Chelsea FC by an individual subject to the highest level of sanctions created a media storm and complicated operational legalities. The club faced scrutiny and questions about its activities, and ultimately its future.

A deal was eventually struck but it serves as a very public example of the issues which can arise when businesses are owned or controlled by sanctioned parties. More importantly it demonstrates why careful steps need to be taken to ensure that those involved in the deal do not fall foul of the sanctions, particularly as the law is about to change introducing strict liability for dealing with a listed entity or individual.

The UK Government recognised the potentially massive impact the sanctions could have on Chelsea FC, particularly during the football season.

As reassurance, when announcing the sanctions the UK Government simultaneously published a licence authorising a number of football-related activities to continue at Chelsea, including permissions for the club to continue playing matches and other football related activity.  The purpose of this was to protect the wider parties implicated – the fans, the players, the Premier League, and the wider football pyramid.

The licence only allowed certain explicitly named actions to ensure that Mr Abramovich was not able to circumvent UK sanctions. The licence has been under constant review, and OFSI announced yesterday that it is not being extended and will no longer apply.

Sale of Chelsea FC

To safeguard the future of the club, it was agreed that the club would be sold.

Mr Abramovich put the club up for sale, promising a percentage of proceeds would be donated to a charitable organisation benefitting victims of the war in Ukraine. However, a sale was not possible without first finding a buyer and obtaining consent by way of a further licence from the UK Government, as well as various consents from regulators and international partners.

As Mr Abramovich holds a Portuguese passport, Portugal had to consent to the sale and had to engage with the EU Commission before agreeing to the transaction terms.

The mechanics of the sale has now been approved by the UK Government. It will be achieved by a two-part transaction, involving the proceeds being placed into a frozen escrow account until the UK Government is satisfied that the recipient is an appropriate independent charity.

Key takeaways

While on a smaller scale, in this political environment there is a risk of negative media attention when engaging with designated individuals or Russian entities.

Where an individual is subject to sanctions at any level in the UK or internationally it will be essential that those involved in any transaction assess the risks of any potential breach of sanctions and consider a de-risking strategy, if appropriate.

In some circumstances a licence may be obtainable from OFSI to allow transactions to proceed – but only in very limited cases and where it can be shown the designated individuals or entities will not benefit, and there is a suitable purpose.

Get in touch if you do business in these regions and you need advice on how to ensure you comply with your legal duties.

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