On Wednesday 4 May, Foreign Secretary Liz Truss announced a ban on the export of services by UK persons or entities to businesses in Russia. Prohibited services include accountancy, management consultancy, and public relations, sectors in which UK providers apparently account for approximately 10% of total import into Russia. The ban has not yet been implemented, and the UK government has not provided a timetable for its introduction.
The extent of the intended prohibition also remains unclear. For example, the announcement did not explain whether the prohibition would only apply to Russian-owned businesses in Russia or whether UK-, U.S.- or EU-owned business in Russia would also be subject to the prohibition on receiving such services. Similarly, it is unclear whether the prohibition will extend to Russian individuals or Russian-owned businesses not located in Russia, which could provide a potential loophole for related entities in Russia to obtain such services via such individuals or businesses operating outside Russia.
While this statement is said by Truss to be a move that will “put more pressure on the Kremlin,” many professional services providers have already taken steps to voluntarily withdraw from Russia. For example, all of the big four accountancy firms (Ernst & Young, KPMG, PricewaterhouseCoopers, and Deloitte) had already announced their plans to exit Russia by 7 March 2022.
Iain Wright, of the Institute of Charted Accountants, said “many of our individual members and member firms have already taken proactive steps to disengage as appropriate with Russia” and Tamzen Isacsson of the Management Consultancies Association issued a statement confirming that “UK consultancy firms already ceased services to Russia at the outset of hostilities in Ukraine.”
The precise plan and timeline for implementation of these changes is not yet clear, but it is not understood at this stage to prohibit the provision of UK legal services to Russian clients, subject to the existing licensing requirements for payment of legal fees where relevant.
Putin’s “Troll Factory” and Action Against Misinformation
In addition, the United Kingdom announced further designations of 31 people and 32 entities, geared towards reduction in the circulation of disinformation from and within Russia. Various media organizations, and individuals within these organizations, now face asset freezes and travel bans. Designated persons include significant individuals at Russia’s state-owned Channel One, as well as various war correspondents embedded with the Russian forces in Ukraine.
These changes follow a UK-funded research report on the Kremlin’s use of social media to perpetuate disinformation. The changes will work alongside sanctions amendments from the end of April, which require providers of social media and other Internet-based services to block content from RT and Sputnik.
UK professional services providers continuing to provide services in Russia, and to Russian individuals or Russian-owned businesses operating outside Russia, should review their operations in light of the announcement and in preparation for implementation of the ban. In particular, providers should determine whether a license will be required from the Office of Financial Sanctions Implementation for the ongoing provision of services and the receipt of fees for services either already provided or that will be provided in future.
The UK government will continue to expand its sanctions list to target those industries, including media, and individuals who are key to supporting the Russian invasion of Ukraine. Individuals and entities must ensure that they continue to review up-to-date UK sanctions lists to ensure compliance with applicable requirements.
K&L Gates will continue to follow the impact and changes to the United Kingdom’s imposition of economic sanctions with respect to Russia. If you have any questions regarding the UK sanctions discussed in this alert, please do not hesitate to contact Michael Ruck and Rosie Naylor.