Scope of the Prohibition
The amendments to the Regulations prohibit UK Persons A citizen of the United Kingdom or an entity incorporated or constituted under the laws of any part of the United Kingdom ("UK Persons") who are UK lawyers from providing legal advisory servicesAs defined in paragraph 8а of Schedule 3J(19) of the Regulations:- to clients who are not UK Persons (ie, not only Russian clients);
- in respect of certain financial or trade activities prohibited by UK sanctions (“Prohibition”).
Definition of legal advisory services
This term has the meaning given in paragraph 8а of Schedule 3J(19) of the Regulations.Legal advisory services mean the provision of legal advice to a client in non-contentious matters, involving any of the following:
- the application or interpretation of law;
- actions on behalf of a client, or the provision of advice on or in connection with, a commercial transaction, negotiation or any other dealing with a third party; or
- the preparation, execution or verification of a legal document.
The definition expressly excludes services connected with arbitral or mediation proceedings or any proceedings before administrative agencies, courts or other duly constituted official tribunals. Therefore, the Prohibition does not affect such legal services or sanctions compliance services (as defined below).
Scope and application of the Prohibition
It is currently difficult to assess how the language of the Prohibition will be applied in practice. In our opinion, in contrast to EU sanctions, the wording of the Prohibition does not cover any legal advisory services to companies from Russia.According to the official press release, the Prohibition will affect, in particular, trade deals between global corporations and international money lending.
Nevertheless, the text of the Prohibition covers certain transactions that would be prohibited by the UK sanctions if they were carried out/performed by a UK Person or in the United Kingdom (“UK Nexus”). Specifically, the text of the Prohibition expressly mentions the following designated transactions:
- transactions prohibited under any of regulations 11 to 18C of Part 3Regulation 11 (“Asset-freeze in relation to designated persons”),
regulation 12 (“Making funds available to designated person”),
regulation 13 (“Making funds available for benefit of designated person”),
regulation 14 (“Making economic resources available to a designated person”),
regulation 15 (“Making economic resources available for benefit of designated person”),
regulation 16 (“Dealing with transferable securities or money-market instruments”),
regulation 17 (“Loans and credit arrangements”),
regulation 17A (“Correspondent banking relationships, etc”),
regulation 18 (“Investments in relation to certain territories”),
regulation 18A (“Provision of financial services relating to foreign exchange reserve and asset management”),
regulation 18B (“Investments in relation to Russia”),
regulation 18C (“Trust services”) (Finance), Chapters 2 to 6 or Chapter 6B of Part 5Chapters 2 to 6 or
Chapter 6B of Part 5 span class="reference-text">
Chapter 2 (“Restricted goods, restricted technology and related activities”), Chapter 2A (“Goods and technology relating to certain territories”),
Chapter 3 (“Dual-use goods, dual-use technology and related activities”),
Chapter 4 (“Energy-related goods and related activities”),
Chapter 4A (“Aircraft and ships“),
Chapter 4B (“Luxury goods”),
Chapter 4C (“Iron and steel products”),
Chapter 4D (“Interception and monitoring services”),
Chapter 4E (“Banknotes”),
Chapter 4F (“Jet fuel and fuel additives”),
Chapter 4G Schedule 3D (“Revenue generating goods”),
Chapter 4GA Schedule 3DA (“Revenue generating goods”),
Chapter 4H G7 (“Dependency and Further Goods”),
Chapter 4I (“Oil and Oil Products”),
Chapter 4IA (“Maritime transportation of certain oil and oil products”),
Chapter 4J (“Gold”),
Chapter 4JA (“Gold jewellery and relevant processed gold”),
Chapter 4K (“Coal and Coal Products”),
Chapter 4L (“Liquefied natural gas”),
Chapter 4M (“Russia’s vulnerable goods”),
Chapter 5 (“Exports and imports, and related activities, in relation to non-government controlled Ukrainian territory”),
Chapter 6 (“Other services relating to certain territories”),
Chapter 6B (“Professional and Business Services”) (Trade); - transactions that contravene regulation 19 or 55Regulations 19 and 55 provide a prohibition against circumventing the prohibitions above.
Purpose of the Prohibition
A large number of contracts, including those involving Russian persons, continue to be entered into under English law. As a result, Russian persons often engage English lawyers. As the UK Government notes, UK lawyers annually provided services to Russian persons to the amount of GBP 56 million (59% of all legal services imported by Russia).UK Persons (including lawyers) are prohibited from contributing to the violation or circumvention of UK sanctions.
However, there was a formal view that this restriction previously did not apply to transactions in which there was no UK Nexus. The adoption of the Prohibition is aimed at eliminating this gap.
Nevertheless, even before the introduction of the Prohibition, English lawyers were extremely cautious about providing services for such transactions (even in the absence of a UK Nexus) and often refused to issue legal opinions or advice on such transactions. This approach was often based on the internal policies of law firms and involved additional complexities of insuring lawyers’ professional liability.
Exceptions to the Prohibition
The following types of services and actions are expressly excluded from the scope of the Prohibition:- any act that is necessary for the official purposes of a diplomatic mission or consular post in Russia, or of an international organisation enjoying immunities in accordance with international law;
- legal advice in relation to the discharge of or compliance with UK laws (ie compliance services);
- legal advice as to whether a certain act complies with the Regulations (ie sanctions compliance services); and
- auditing services to comply with obligations under UK laws.
Ability to obtain licences and provide services under prior agreements
The Regulations permit the provision of services under a contract concluded before 30 June 2023, or an ancillary contract necessary for the satisfaction of such a contract, provided that:- the act is carried out before the end of 29 September 2023, and
- the Secretary of State is notified of the provision of the services, before or after the act is carried out, by the end of 29 September 2023.
UK Persons may apply for a licence to provide services covered by the Prohibition. However, it is unlikely that the regulator will issue a licence if the services do not meet the purpose and spirit of the restrictive measures.
Significance of the Prohibition
The Prohibition continues the UK’s policy of increasing sanctions restrictions and limiting access to professional services for Russian individuals.While previously the main focus of the UK authorities was aimed at designated persons (in respect of them a general licence was issued and then prolonged, the Prohibition covers a wider range of persons.
Nevertheless, since the text of the Prohibition expressly excludes services in administrative, arbitration and court proceedings, as well as on compliance issues (including sanctions compliance), Russian persons may still have access to these professional services. However, the practical ability of obtaining such services will depend on a case-by-case basis.
