Sanctions: Extended from today
A ban on UK lawyers providing ‘legal advisory services’ to Russians comes into force today as the government ratchets up sanctions following the Ukraine invasion yet further.
Meanwhile, a Bar Standards Board (BSB) review of sanctions compliance has found commercial barristers generally aware of the risks of unwittingly engaging with a designated person without a licence and that they were taking a cautious approach to compliance.
Some nine months after the ban was first announced, the statutory instrument to implement it has been laid.
It defines legal advisory services as “the provision of legal advice to a client in non-contentious matters” that involves the application or interpretation of law, “acting on behalf of a client, or providing advice on or in connection with, a commercial transaction, negotiation or any other dealing with a third party”, or preparing, executing or verifying a legal document.
The prohibition does not extend to contentious matters.
There are a limited number of exceptions, such as where the service is provided in relation to the discharge of or compliance with UK statutory or regulatory obligations and where an obligation arises under a contract concluded before today.
The government said: “The new rules will extend existing regulations on Russia using UK legal professionals to facilitate certain commercial activity which benefits the country – and may block legal professionals from advising international companies on lending decisions to Russian businesses, for example.
“Russia is highly dependent on Western countries for legal expertise, with the UK previously exporting £56m in legal services to Russian businesses every year.”
Lord Chancellor Alex Chalk added: “The UK legal system underpins many international contracts and businesses, and we will no longer allow Russia to benefit from our knowledge and expertise.”
The government said that, in total, £19bn worth of UK-Russia trade has been wholly or partially sanctioned, based on 2021 trade flows.
Law Society president Lubna Shuja said: “We are supportive of all strong and effective measures which respond to Russia’s violation of international law, provided they protect the fundamental rights of access to justice and the rule of law.
“The government has taken a firm and principled stance with our international allies and partners. We will be providing continued support to the profession as it navigates the implementation of the statutory instrument.”
“The regulations apply regardless of whether are not the services are provided to a person or company based in the UK.
Julie Norris, a legal services regulatory partner at City firm Kingsley Napley, added: “Law firms will urgently need to review their risk assessments and sanctions screening for extant client matters to ensure compliance from today or potentially face criminal prosecution.
“Lawyers are seen as enablers of sanctions evasion. Lawyers should be in no doubt that the regulations need to be taken very seriously and whilst there has been little enforcement action seen to date, this is likely to change now the regime is implemented, allowing the focus to shift to enforcement. The risk of non-compliance is career ending in no uncertain terms.”
The BSB thematic review of sanctions compliance focused on 31 chambers that are members of the Commercial Bar Association (Combar), as they were assessed to be the most likely to have exposure to clients subject to the sanctions regime.
It found that, as soon as sanctions were imposed on Russia, chambers became very cautious of accepting instructions from a source that could be – either directly or through an ultimate beneficial owner – a designated person.
“In some cases, initial enquiries were withdrawn once chambers began to conduct due diligence. Some chambers noted a reduction in relevant instructions because of the sanctions.”
Three chambers received enquiries from instructing solicitors whose clients were a designated person: one returned all instructions, one would only accept instructions if a licence was in place, and the other raised concerns and the instructions were withdrawn.
Two chambers advised that they had made a report to the Office of Financial Sanctions Implementation (OFSI) as a matter of caution based on suspected breaches of the sanctions regime – one related to a potential breach by the instructing solicitor.
Twelve chambers said they had never acted for individuals or entities from regimes on the sanctioned list nor provided any services in those countries.
The BSB also received assurance about chambers’ understanding of methods designated persons were employing to evade the sanctions regime. “This included hiding assets in British Virgin Island registered companies, Russians in Dubai setting up trust funds and Chinese nationals instructing law firms in Hong Kong.
“The UAE was a common jurisdiction where Combar chambers received instructions from, however the instructions came from international branches of UK based law firms and chambers were alive to the risk of instructions potentially involving a Russian nexus.”
Where a licence was required from OFSI to receive fees from a sanctioned client, common practice was for the instructing solicitors to submit the application in conjunction with chambers; 24 chambers advised that they had not sought a licence.
The BSB reported that most of the chambers assessed their exposure to the sanction regime as low risk, which led to some having no, or minimum, controls at chambers level, putting the responsibility for assessing risk on the individual barristers.
Some cited confidentiality issues as the stumbling block, but the BSB said: “Our view is that chambers’ management committees need to have mechanisms and guidance in place to assure themselves that risk is appropriately and consistently assessed.
“Whilst barristers are individually responsible for their own compliance, chambers as a whole are exposed to reputational risk if an individual is found to have breached the sanctions regime.”
The review said documenting and implementing appropriate controls within chambers was the area where most improvement was needed – 14 had no policies or procedures in place to ensure compliance with sanctions, although they did by the time the review ended.
It added: “During our visits, a number of barristers were keen to stress that barristers may come across designated persons in other areas of practice such as family law (setting up trusts with obscure ownership), immigration (travel bans) and chancery.
“We are engaging with the Bar Council, who are developing guidance for the wider Bar, which we think is a priority.”
The best practice identified by the BSB included having the head of chambers, management committee and senior staff play a key role in promoting sanction compliance; conducting a chambers-wide risk assessment and having a chambers-wide policy; not relying on instructing solicitors’ due diligence and nominating one or more individuals in chambers with expertise and authority to consider sanction issues.
The BSB also said clerks should act as “the first line of defence for screening clients for sanction risks”.
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