Sanctions: Unintended consequences
City lawyers have warned the government that the recent tightening of sanctions on lawyers providing legal advisory services to Russians has gone too far.
The City of London Law Society (CLLS) told the Ministry of Justice that the language used had “created a problem for the UK legal services industry in the UK and beyond”, including for non-Russian companies seeking advice from UK lawyers.
The Russia (Sanctions) (EU Exit) (Amendment) (No.3) Regulations 2023, which came into force on 30 June, aim to prevent UK lawyers from advising Russian companies in certain business deals and prevent Russia from benefitting economically from UK legal expertise.
The CLLS said a group of members, co-ordinated by the national Law Society, had prepared a detailed response for the government setting out the profession’s concerns.
It warned that the amended regulations have “criminalised a huge range of legal advice which is not the intended target of the sanctions”, extending to advice “which benefits multi-national companies and banks, not Russia or Russian companies”.
The “unintended consequences” of the measures could be that specialist lawyers and in-house counsel “won’t be able to provide sanctions advice to their clients, forcing UK and international businesses to seek advice elsewhere or proceed with no sanctions advice at all”.
The paper continued: “This in turn will impact, not just UK firms’ practices, but more significantly the business of their clients and their ability to comply with sanctions. The net effect will be to weaken, rather than strengthen, the robustness of UK and allied nations’ sanctions regimes.”
The lawyers said there was a “narrow exemption” for advice on how to comply with the new UK sanctions, but it would not allow them to advise on whether a particular activity complied with the US or EU regimes.
“If clients cannot get advice of this type from UK lawyers, they will turn elsewhere. We see no obvious policy objective that can be served by this.”
Further, the exemption would not allow the UK lawyer to advise on other compliance risks that may arise from the same facts, such as under anti-money laundering, anti-bribery or export control laws.
Where law firms had their HQ in the UK, their overseas offices were obliged to comply with the new sanctions rules. In any case, many firms used their London office as a “hub for their sanctions practice”.
“As things are, firms are declining instructions on a daily basis, and their global clients are being prevented from obtaining the advice they need to operate their businesses.” As a result, the impact would be particularly felt by UK–headquartered international firms.
If in-house lawyers were also covered by the new regulations – and there was nothing to suggest they were not – they would be prevented from fulfilling their duties, the paper added.
When it came to advice to clients who wanted to terminate relationships with Russia, the City lawyers “strongly” suggested a general ‘divestment licence’ was created, so that “firms can continue to support their clients in their attempts to exit Russia and Russia-related relationships”.
The lawyers predicted that, while some problems could be “ameliorated, to a limited extent and in the near term” by a general licence to carry out the work, “very significant difficulties will remain”.
Echoing these concerns, the national Law Society said the regulations as published “will likely harm non-Russian businesses more than Russian businesses and are significantly more onerous than both US and EU sanctions”.
The society added: “Clear action from the government is needed to address these concerns.”
Leave a Comment