Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
My Lords, I ask noble Lords to leave some distance between themselves and others. If there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after a few minutes.
Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations
Lord Sharpe of Epsom
That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations.
Relevant document: 32nd Report from the Secondary Legislation Scrutiny Committee
Lord Sharpe of Epsom (Con)
My Lords, I shall speak to the following three statutory instruments, copies of which were laid before this House on 1 and 8 March: first, the Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2022; secondly, the Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations 2022; and. thirdly, the Russia (Sanctions) (EU Exit) (Amendment) (No. 6) Regulations 2022.
The instruments before us were laid under the powers provided by the Sanctions and Anti-Money Laundering Act 2018, also known as the sanctions Act, and came into effect under the “made affirmative” procedure. As part of our wider package of sanctions measures and designations, these new regulations ratchet up the pressure to further isolate Russia, degrade its economy, and starve out Putin’s war machine. We have worked tirelessly with allies across the world in response to Putin’s abhorrent war. Since Russia’s invasion began, the UK has delivered its largest package of sanctions ever imposed.
With your Lordships’ permission, I will tackle each of the three statutory instruments in turn. First, on the maritime statutory instrument, on 1 March the UK was the first country to turn any Russian vessels away from its ports. We introduced new restrictions, barring all ships that are Russian owned, operated, controlled, chartered, registered or flagged, and we did not stop there. These measures provide new powers to direct Russian vessels out of British ports and to detain Russian vessels already in port. These powers offer an important tool for targeting oligarchs and wealthy individuals closely associated with the Putin regime. Finally, anyone connected with Russia can no longer register a vessel and will have any existing registrations terminated. This strips away the competitive advantage provided by being a member of the UK Ship Register. We are working closely with those in the port sector to support them in upholding the regulations, and we have issued detailed guidance to support those on the ground.
The second statutory instrument—the No. 5 regulations —relates to the Russia central bank. Also on 1 March, we introduced new restrictions that prohibit any individual or entity from providing financial services, relating to foreign exchange reserve and asset management, involving the Central Bank of Russia, the Russian National Wealth Fund, and the Ministry of Finance of the Russian Federation. This action, taken in close co-ordination with the US and the EU, prevents the Russian central bank from deploying its reserves in ways that undermine the impact of sanctions imposed by us and our allies. It undercuts the bank’s ability to make foreign exchange transactions to support the Russian rouble. Alongside the existing raft of financial sanctions, this really locks down the most severe restrictions.
The third and final SI, concerning aviation, space and insurance products, was laid on 8 March. We introduced a new suite of aircraft sanctions and established new government powers to detain Russian aircraft in the UK. We were the first country to ban Russian aircraft from our airspace, on the 25 February. We have now extended this ban, making it a criminal offence for any Russian aircraft to fly or land here. The ban includes any aircraft owned, operated or chartered by anyone connected with Russia, and any individuals operating in UK airspace. The new powers will also allow the Government to remove aircraft belonging to designated Russian individuals from the UK aircraft register. The statutory instrument builds on critical industry trade prohibitions which came into force on 1 March. It will go further by extending the above prohibitions to cover all aviation and space goods, technology and related services, including the provision of insurance and reinsurance services. With similar action taken by our partners, these measures are designed to severely constrain Russia’s commercial air operations and logistics, with consequential impact on its economy.
Noble Lords will wish to be aware that the Government are intending to make some corrections to this SI shortly.
Russia’s assault is reprehensible, unprovoked, premeditated and a barbaric attack on Ukraine and on the very foundation of our societies and the rules by which we coexist. As my right honourable friend the Foreign Secretary has said previously, the UK will continue, as promised, to impose further sanctions against Putin and his regime if he does not change course. We will ratchet up our sanctions until Putin ends this invasion of choice, which represents a clear breach of international law and the UN charter. The UK and our international partners stand united in the face of Russian aggression. Putin has led the Russian people into a quagmire and turned Russia into an international pariah.
It does not stop at Governments. Indeed, we have seen all organisations—from banks to oil companies and from football leagues to singing competitions—make it clear that Putin and his allies must be isolated from the international community for his actions. The UK’s latest designations, announced on 14 March, mean that the UK’s total number of designated persons, entities and subsidiaries now stands above 1,000. Together with our allies, we are making Putin and his allies pay the price. Our unity demonstrates the strength of opposition against Russian aggression.
We are unwavering in our support for the people of Ukraine. We hold them in our hearts and minds at this terrible moment in their nation’s history. As a free and democratic country, Ukraine has the right to determine its own future, but it is clear that the Russian Government were never serious about engaging in diplomacy. They were only ever focused on their territorial ambitions. The UK and the international community stand against this naked aggression and for freedom, democracy and the sovereignty of nations around the world. Our new and upcoming sanctions regulations and measures will continue to show Putin that his abhorrent war is a massive strategic mistake. I beg to move.
Baroness McIntosh of Pickering (Con)
I am most grateful to my noble friend for setting out the instruments before us, which I am delighted to say I support most warmly.
There seems to be a general trend in each of the statutory instruments that I have participated in, and that is that corrections are being made. I understand the pressure and the timeframe that my noble friend and the department are under. I wonder whether he can set out to us what the corrections are that he had in mind; I am sure they are only minor.
I do not want to detract at all from the scale of the sanctions that my noble friend has set out today, but given that most of the items that are the subject of the regulations before us, such as Russian ships, may have already been moved out of our area and that those who had finances in UK banks may have already moved them, how confident is my noble friend that we are sufficiently targeting sanctions to degrade the Russian economy in the way that my noble friend has set out, which I entirely support?
Each set of regulations sets out that there could be unintended consequences. In particular, paragraph 12.2 of the Explanatory Memorandum to the Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations sets out:
“There could also be unintended consequences, such as a negative impact on bilateral trade.”
I do not intend to criticise the Government at all for the sanctions we have imposed. We realise that there will be a quid pro quo, but I wonder to what extent my noble friend has had discussions with European Union countries and a wider international grouping, particularly as regards the assessment they have made of the inflationary impact and the potential shortage of food.
We have seen the cost of fertiliser, household fuel and diesel rise. I admit that I run a diesel car, and I have been staggered. I have seen the cost rise from £1.72 to £1.92 per litre, and I am told it will go higher. Properties off the grid in this country are dependent—as I am in the north of England—on oil-fired heating. I did not realise that we are dependent on additives and diesel from Russia. I wonder what other sources we might be looking at in that regard.
I am mindful of the fact that, since we left the European Union, we have been particularly dependent on Ukrainian workers, as we were told by my noble friend Lord Benyon in answer to a Question in the House recently. Ukrainian workers make up 75% to 80% of those who pick our local crops of fruit and vegetables. As we near the time of year when that happens, we will have to look at how we can work on the supply chains in this regard. Also, I know for a fact that DFDS carries a lot of supplies between continental Europe and the UK. It is a slightly separate issue, I know, but to what extent might the supply chain be impacted by the fact that we now have this little difficulty with P&O Ferries? I hope that it can be resolved.
Although I welcome the sanctions, I am concerned about whether we will be able to handle and deal with the impact of higher food prices, which we are seeing in the shops. Those of us who live in rural areas are seeing that impact on the cost of deliveries in the cost of diesel, the cost of heating fuel and the other measures that I referred to. However, I wish my noble friend the Minister and the department every speed in hopefully bringing the Russian invasion to a swift conclusion.
Lord Purvis of Tweed (LD)
My Lords, as always, it is a pleasure to follow the noble Baroness on these issues. As is customary, she asked some really practical questions in her contribution. I share them, living in a rural area and having formerly represented a constituency that, both for industry and for individual families, will operate under a similar set of new circumstances with new costs. It is inevitable that some of the consequences of this horrific aggression by the Putin regime mean that we must diversify part of our energy dependence in certain areas and that some of our trade in certain areas may have to be changed. This is not just in the UK; it is also with our wider trading partners, which I will touch on in a moment.
I thank the Minister for introducing these regulations. I support them. They address some of the issues that were raised in the Chamber when the Statement was repeated and the Government announced that sanctions would be forthcoming, particularly in maritime, insurance, financial services and aviation. I will touch on those briefly in a moment.
The Minister is absolutely right that the sanctions put in place against the regime and the state apparatus should be as tough as possible. I think that they can go further; I hope that we will be able to debate some areas in the coming days and weeks, with the Government taking the next step. It is welcome that more than 1,000 individuals have now been named but, regrettably, the Government have been slower than some of our partners in identifying individuals and putting in place the legislative regime.
As the Minister said, the conflict is now entering an even more horrific stage . As the Russian advance falters in many areas, it is resorting to tactics seen in grim fashion in Chechnya and Syria: systematically razing whole communities to the ground; terrorising populations; directly and indirectly targeting civilians; and knowingly targeting mothers and children. These are war crimes that are being seen clearly daily. Therefore, part of our sanctions regime must be complemented by further activity to ensure that there is no impunity for these crimes. We are not in the realm of prevention; we need to move over to the phase of punishment.
On the other hand, the ongoing resilience and bravery of the Ukrainian people, who are sacrificing their lives for the hopes and aspirations of liberty and the freedom to choose their partnerships and alliances—and, indeed, to join the European Union—is literally awesome and inspiring, even in such grim circumstances. We will have consensus in this Committee, but I want to put on the record that I share others’ general revulsion at the Prime Minister making a connection between the Brexit debate in this country and this horrible war. I hope that the Minister will distance himself from such remarks; I do not think I would hear the Minister say that in the Chamber, but it was a jarring moment.
Lord Collins of Highbury (Lab)
My Lords, one thing that I think we can be absolutely certain of is that this Parliament and this country are fully united in their condemnation of the actions of the Russian state, particularly Putin and his acolytes. We fully support the introduction of these regulations and the Government’s efforts to hold Putin to account.
My main concern is whether the Government’s approach on sanctions is sufficiently broad and deep, and whether we can be certain that they are sustainable. It is a concern that we have shared before in these debates. I note that the Minister has confirmed over 1,000 designations, but it would be interesting to hear from him how many individuals have been specifically targeted, particularly when we know that London in the past has been a refuge for so many oligarchs.
On that point, it is also concerning that the Government’s approach seems to have left gaps that can be exploited for the purposes of asset flight. As the noble Lord, Lord Purvis, said, it should not really have taken 16 days to catch up with Europe on sanctioning Members of the Russian Parliament, for example. It has meant that oligarchs had, in effect, warnings to escape London. For example, Abramovich was able to fly his jet out of Stansted and sail his super-yacht to Montenegro. The BBC website this afternoon made reference to ex-Arsenal shareholder Usmanov’s £82 million London home and Surrey mansion, which were put into trusts linked to him. A spokesman for him said that
“most of the billionaire’s UK property, as well as his yacht, had already been ‘transferred into irrevocable trusts’. Those are trusts which cannot usually be amended, modified, or revoked after they’re created. When the assets were transferred, Mr Usmanov no longer owned them, his spokesman said.”
Has the Minister seen those reports today? What is the Government’s response to ensure that further flight of assets is stopped? It shows that we should do more to co-ordinate with our allies and partners to ensure that we are ready and prepared to implement sanctions together, which I know is a theme that we have repeatedly followed through with the noble Lord, Lord Ahmad. It is making the measures effective that is really important.
We also need to confront economic crime and finally end the use of London for laundering dirty money. Of course, the job is only half done with the introduction of the economic crime Act that we supported through this House and the other place. I know that further legislation will come in the next Session, but we need urgent reform of Companies House to crack down on the shell companies hiding cash. Sanctioning oligarchs will be effective only if we know where their wealth is hidden. There must also be sufficient resourcing to implement and monitor sanctions, including those that have been introduced today.
I hear what the noble Baroness, Lady McIntosh, is saying about the errors. It struck me that, at the moment, the Office of Financial Sanctions Implementation has the full-time equivalent of only 37 employees. I hope that the Minister can tell us how we are ramping up that resource to ensure that, when we make these regulations and laws, they are properly implemented as soon as possible.
On the regulations themselves, and on the No. 4 regulations dealing with shipping sanctions, I hope that the Minister can tell us what assessment the FCDO has made of the levels of Russia-bound cargo ships at major Russian ports since the invasion of Ukraine.
The No. 5 regulations deal with financial services, including banks and wealth funds. On the related issue of financial payments, I hope that the Minister can update us on the effectiveness of the partial exclusion of the Central Bank of Russia from SWIFT, and how that operation is working.
Lord Sharpe of Epsom (Con)
My Lords, I am grateful to the two noble Lords and the noble Baroness who spoke in this insightful and, if I may say so, timely discussion. I will do my very best to address the important questions that they asked. There were a lot of them; I am sure noble Lords will forgive me if I have to read Hansard carefully and come back to them on some of the specific points.
I will try to deal with the points in order, if I may, so I will start with the questions asked of me by my noble friend Lady McIntosh. I talked about the errors, so she was quite right to pick me up on them. All I can say at this precise moment is that, as noble Lords will be aware, all the recent sanctions legislation has involved policy and drafting work at significant pace. The team here looks quite bright-eyed and bushy-tailed relative to some of the officials I have seen involved in this legislation. So there are some minor drafting errors, as far as I know, but we are waiting for the JCSI to report; we will come back when we have more information, if that is acceptable.
With specific regard to supply chains and so on, obviously the Government have considered critical supply chains and continue to monitor the impact closely. Of course, we understand that there will be an impact; noble Lords were right to reference the imported inflation that we will suffer. However, as the noble Lord, Lord Collins, pointed out, we believe that the risk of not taking action against Russia would be far greater. The overall impact on the UK economy will be limited, and there is a package of measures in place to support UK businesses. The Government continue to monitor closely developments in the channels that may have an impact on the UK economy. The precise impact will depend on the size and persistence of any shocks to trade, the financial markets, energy markets and so on, which are of course highly uncertain. However, Russia is not among the UK’s critical trading partners, although it is the largest trading partner that we have ever sanctioned. So although some UK firms will be more exposed to the disruption in Russian trade and in the financial markets, these ties are not systemically important to the UK economy.
Russia’s role as a major oil and gas producer is, of course, the most likely channel through which an escalation in Ukraine could have an impact on the UK economy. None the less, we remain confident in the security of our supply, although the price is dependent on the world markets. I take very seriously the points made by my noble friend and noble Lords about imported inflation and its impact, particularly on rural fuel bills, but it would be foolish of me to pre-empt anything that the Chancellor may have to say on that subject in the not-too-distant future.
My noble friend Lady McIntosh asked about unintended consequences and EU engagement. The Government seek to ensure that the sanctions measures are carefully targeted to avoid unintended consequences. Our sanctions are part of a concerted strike against the Putin regime and discussions with all partners are ongoing. This aligns with what others are doing; as I say, our sanctions are strategically co-ordinated with those of our allies, including the EU, the US, Australia, Canada and so on. We will continue to go further.
I come to the questions from the noble Lord, Lord Purvis, who raised a point about why we were a bit slow in certain areas—but we were also faster in certain areas than the EU, in particular. We imposed measures on aircraft and shipping before the EU moved. I accept that these things are complex, but there are genuine reasons for that. I hope that he will understand that it is not a game of relative speed—it is not a game at all.
The noble Lord also asked me about the war crimes situation. I can only repeat what I have heard my noble friend Lord Ahmad say. He has spoken to the rapporteur—I think that is the right description—on war crimes in The Hague about what is happening. I have no further information, but I am sure that my noble friend Lord Ahmad will come back to the House on that as soon as he possibly can.
The noble Lord, Lord Purvis, made some excellent points about hybrid warfare. We are engaged in a hybrid war, and of course it is an article of Russian military doctrine to fight this sort of thing. Hybrid warfare is not just about sanctions, of course. It is also about a wide variety of other actions that destabilise, and we should be very aware of those.
I come to the noble Lord’s specific questions about Belarus. Yes, the sanctions will be replicated. I can update noble Lords a little on what sanctions have been applied. On 1 March we announced a first tranche of sanctions against Belarusian individuals and organisations in response to the role the country is playing in Russia’s invasion of Ukraine. Four senior defence officials and two military enterprises have been sanctioned with immediate effect under the UK sanctions regime. Individuals will be unable to travel to the UK, and any UK-based assets will be frozen. These designations are in addition to the wide-ranging measures we have already imposed on Belarus under our Belarus sanctions regime, which include sanctions on President Lukashenko and 117 other individuals and entities, as well as trade, financial and aviation sanctions. The Foreign Secretary has committed to going further. As I have just said, our intention is to extend recent Russia sanctions to Belarus in due course. I cannot be more specific on time than that. The Lukashenko regime will be made to feel the economic consequences of its support for Putin.
On 9 March, the EU announced that three Belarusian banks—I will not even attempt to pronounce them—will be removed from the global SWIFT network; I will come back to SWIFT in a second. From 20 March, those three banks are no longer able to use SWIFT to transact with banks domestically or in any country, regardless of whether that country has imposed sanctions on Belarus.
The noble Lord, Lord Purvis, also asked about the general licence in regard to the central bank of Russia and whether this will in effect weaken the sanctions. I will go into this in some detail, because it is incredibly relevant and a very good question. General licences simply allow for transactions, in this case mostly repos and derivatives, and allow relevant parties to undertake specified activities that would otherwise be prohibited by sanctions for a specific period. Similarly to the Biden Administration and OFAC, through GL 10, we think it is appropriate to allow the orderly wind-down of contracts.
The next question ought to be: will this wind-down financially benefit the CBR? These transactions are unlikely to be of any particular value to the CBR. In fact, they are likely to be value-neutral. The transactions that this licence covers are those in which UK banks and the CBR lent each other assets secured against each other. However, were these transactions not to terminate in an orderly way or the UK counterparty be forced to default because it could not return assets, the CBR would be able to take a cut or turn a profit. Therefore, by our not issuing a licence the CBR could stand to benefit. This would be not only bad for global markets but contrary to the intentions of the sanctions. Obviously, any transition period is related to the duration of the assets and the contracts in question. The wind-down period is in the interests of the UK and its allies. Without it, UK firms would need to resort to challenging workarounds, with potential for disruption to the UK financial sector. I hope that answers the question. I have probably provoked far more questions that I cannot answer, and I will live to regret it.
The noble Lord also brought up the subject of cryptocurrencies. UK financial sanctions cover funds and economic resources of every type, including crypto assets, as set out in OFSI’s general guidance. As such, they are captured by UK sanctions regulations and attempting to circumvent sanctions through crypto assets is still prohibited in the same way that it would be for traditional fiat currency, and enforcement action by OFSI can still be taken. The Treasury’s latest monetary penalties for financial sanctions breaches were levied against firms from the fintech sector, showing that compliance with financial sanctions is for every UK entity and not just traditional financial institutions. I will take the suggestion of a meeting before the next Bill is presented, as I think it is a very sensible one.
The noble Lord also illustrated the problem with some travel restrictions by explaining his experience in Doha. I obviously cannot comment on that; I do not know what is happening with regards to Doha, but I will look into it. If I can find out anything particularly pertinent or useful, I will definitely come back to the noble Lord,
Regarding the visa scheme, again, the noble Lord will not be surprised to know that I cannot answer or account for the 71 questions. But I heard my noble friend Lord Harrington point out last week that he is working very hard on simplifying this issue and making it more straightforward. I respectfully suggest that I address that question to my noble friend Lord Harrington on his behalf and ask him to update the House in due course on changes made.
I also thank the noble Lord for his suggestions regarding other organisations and other types of legislation that might be used. I have read a good deal about some of the groups he mentioned—the Wagner Group in particular—and I am pretty sure that some of the sanctioned individuals have connections to that group. The noble Lord makes a very good point about wider application, and these people need to be looked at very carefully. Some of their activities do not make for very pleasant reading, as the noble Lord knows.
I will move to the questions asked by the noble Lord, Lord Collins. He asked how many are individuals, but I do not have an answer at the moment—I am sorry.
The noble Lord asked about Usmanov and trusts and whether I had seen the stories. To be honest, I had not seen those stories this morning. I do not have information to hand on the details of the actions that we can take against trusts; obviously, they are complex legal contracts as well. If I may, I will come back to him on that subject—hopefully with a much better answer.
On why we would not sanction the whole of Putin’s inner circle, which is another question that was asked in relation to what the EU did, I reassure the noble Lord that we will be continuing to sanction individuals close to Putin. There will be nowhere left to hide.
Lord Sharpe of Epsom (Con)
I was asked why we should not sanction the whole of Putin’s inner circle and the security council. I can give a slightly better answer. On 11 March, the Foreign Secretary sanctioned 386 members of the Duma, the lower house of the Russian Parliament. On 10 March, the Government announced that they were sanctioning seven more oligarchs, with a collective net worth of around £15 billion. I will of course update that number in due course.
As I was saying, we will continue to sanction individuals close to Putin. There will be nowhere left to hide for the super-rich linked to Putin’s regime who have used City law firms to threaten the Government. In answer to the questions from both noble Lords, this coming week, the Government will launch a transatlantic task force committed to employing sanctions and other financial enforcement measures on additional Russian officials and elites close to the Russian Government, as well as their families and enablers, to identify and freeze the assets they hold in our jurisdictions. We will also continue to engage with other Governments, work to detect and disrupt the movement of ill-gotten gains, and deny these individuals the ability to hide their assets in jurisdictions across the world. In summary, this is a very fast-moving situation and the numbers are obviously changing, so I will come back on that.
The noble Lord, Lord Collins, rightly asked about enforcement. He will remember from the passage of the then economic crime Bill that we are launching a register of overseas entities’ beneficial ownership of UK property to tackle foreign criminals using UK property to launder money. We are reforming the unexplained wealth orders regime, removing barriers faced by law enforcement and helping to target more corrupt elites, as well as strengthening the Treasury’s ability to take action against financial sanctions breaches. We have also published further details of upcoming legislation, which will include fundamental reform of Companies House—the noble Lord makes a good point —enhanced information-sharing powers and new powers to seize crypto assets, which are designed to clamp down on money laundering and illicit finance. It is a live debate and I urge noble Lords to engage in it.
The Prime Minster has also confirmed that we are setting up a new, dedicated kleptocracy cell in the National Crime Agency to target sanctions evasion and corrupt Russian assets hidden in the UK. Again, this will obviously mean that oligarchs in London have nowhere to hide. These measures are very good news for the UK and our allies. They will enhance our already strong reputation as a good place to do business.
I have two more things to address. First, the EU announced on 2 March that seven Russian banks would be removed from SWIFT on 12 March. The targeted Russian banks are no longer able to use SWIFT, as I explained earlier with the Belarusian banks, to transact with banks domestically and in any country, regardless of whether that country has imposed sanctions on Russia. On 9 March, the European Union announced that the three Belarusian banks would also be removed from the SWIFT network from 20 March. I cannot analyse the scale of the damage that this is inflicting on Russia but I think we have all seen reports of what is happening to the rouble and to stranded Russians overseas who are unable to access credit cards and so on. It would appear that the disruption from this and the other measures that have been taken is fairly material but, if I can get more detailed analysis on the precise impact, I will certainly share it; if the analysis exists, I will do that.
I think the last question I was asked concerned the number of ships. The answer is that 10 have been turned away from British ports since the SI was laid.
I have lost the form of words that I am now supposed to use in concluding, which is mildly embarrassing—please bear with me. I hope I have answered noble Lords’ questions and I commend the regulations to the Committee.
Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations
Lord Sharpe of Epsom
That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations.
Relevant document: 32nd Report from the Secondary Legislation Scrutiny Committee
Russia (Sanctions) (EU Exit) (Amendment) (No. 6) Regulations
Lord Sharpe of Epsom
That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) (No. 6) Regulations.
Relevant document: 33rd Report from the Secondary Legislation Scrutiny Committee. Instrument not yet reported by the Joint Committee on Statutory Instruments.