Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022
(1 year, 3 months ago)
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The Minister of State, Foreign, Commonwealth and Development Office (Anne-Marie Trevelyan)
I beg to move,
That the Committee has considered the Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (SI, 2022, No.1331).
The instrument before us was laid on 15 December 2022 under powers provided by the Sanctions and Anti-Money Laundering Act 2018 and makes amendments to the Russia (Sanctions) (EU Exit) Regulations 2019. The instrument has been considered and not reported by the Joint Committee on Statutory Instruments.
With these amendments, the UK continues to put immense pressure on Putin and Russia, alongside our international partners. These new trade measures will further extend the largest and most severe package of economic sanctions that Russia has ever faced. I will begin by outlining the measures introduced through the instrument.
First, the SI tightens existing regulations on investments, loans, securities and money market instruments to further close off indirect finance and constrain the availability of international capital to Russia. Importantly, the measure now prohibits new investments in Russia through third countries.
Secondly, the legislation introduces new restrictions on the provision of trust services to persons connected with Russia. That will particularly affect high-net-worth individuals who use trust services to manage their assets. Through the instrument, the Government have suspended the Bank of England’s duty to recognise resolution action in respect of persons designated under the UK’s Russia sanctions regime—the process by which the failure of financial institutions is managed—stemming a potential income stream for Putin’s war machine. This amendment also prohibits the export of further goods across a range of sectors, including oil production and mining equipment, electronics and chemicals, and advanced materials and camouflage gear.
Finally, the instrument introduces additional prohibitions on the provision of professional services to persons connected with Russia. That encompasses advertising, architecture, audit, engineering, and IT consultancy and design services.
Kevin Brennan (Cardiff West) (Lab)
It has been interesting to read the instrument. Does it affect UK citizens who hold shares in companies that are operating in Russia and their ability to win dividends from those shares?
Anne-Marie Trevelyan
If I may, I will come back to the hon. Member’s question in my closing response and give him as full an answer as I can.
The prohibitions set out in the instrument encompass a range of goods and services where Russia is highly reliant on the UK and its allies for expertise. The amendment will severely debilitate the future growth of key Russian industries; we are already beginning to see that take hold in Russia. Prohibitions on services imposed by the UK, the US and the EU account for between 75% and 83% of Russia’s imports in the key sectors that I have outlined. For example, it is estimated that 77% of Russian architecture and engineering imports are from G7 economies.
Taken as a whole, the No.17 regulations cover more than £200 million of exports to Russia, according to 2021 export data. As with all our sanctions, the latest package has been developed in co-ordination with the UK’s international partners, and we will continue to work with our allies to identify any potential gaps or loopholes in our sanctions and address them accordingly.
The legislation further underlines that the UK is committed in its resolve to target those who participate in or facilitate Putin’s illegal invasion of Ukraine. Since February 2022, the UK has sanctioned more than 1,200 individuals, over 120 entities, including 20 banks with global assets worth £940 billion, and over 130 oligarchs with a combined net worth of over £140 billion. Crucially, our sanctions package is designed to increase the pressure on Putin in Russia over time and across multiple stress points. We continue to witness the impact that sanctions are having on Russia. The International Monetary Fund forecasts that Russia’s GDP will be 11% smaller in 2028 compared with pre-invasion forecasts and that it will not return to its pre-invasion level until 2027 at the earliest.
Russian imports have already plummeted by more than half, highlighting that even non-sanctioning countries are limiting what they export to Russia. UK sanctions serve as a stark reminder, we hope, of the cost of such a flagrant assault on sovereignty, democracy and freedom. We will continue to support Ukraine until it can secure peace on its terms. I welcome the continued cross-party support for that effort, and I commend the draft regulations to the Committee.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
It is a pleasure to serve under your chairpersonship, Dame Caroline. I thank the Minister for setting out to the Committee the details of the latest expansion of our sanctions regime.
Last week, it was a pleasure to speak on behalf of the Opposition in support of Ukraine in the debate on Russian strategy and to hear comments that I am sure will be reflected by all Members in Committee about how we as a Parliament and a country continue to affirm our solidarity with Ukraine, and how we want to ensure that it wins the war and Putin, his cronies and all those who abet his illegal and barbarous war in Ukraine feel the walls closing in. Our sanctions regime is one of the most critical weapons in that arsenal. As with the other sanctions measures that we have debated over many weeks and months, the Opposition will not oppose the regulations or seek to divide the Committee, because we support them.
Before I come to specific questions on the detail set out by the Minister, I will ask a couple of related questions, particularly because she referred to the need to close loopholes in financial and money market instruments, investments and others, and to the potential evasion of sanctions regimes. These first questions are about cryptocurrencies, to which she did not refer. We have raised the matter in previous Committees that have discussed sanctions.
At the most recent such Committee sitting, my colleague, my hon. Friend the Member for Hornsey and Wood Green (Catherine West), stood in for me and, afterwards, a letter she received from the Minister said that
“the Government and UK authorities are actively monitoring the use of cryptoassets to detect potential instances of sanctions evasion and stand ready to act.”
I see no new measures on cryptocurrencies in the regulations, nor in the Economic Crime and Corporate Transparency Bill, which is also going through Parliament.
As I have relayed to other Ministers on many occasions, Tornado Cash and Blender—so-called cryptocurrency mixers—have both been sanctioned by the United States. The former has allegedly been used to launder more than $7 billion-worth of virtual currency since its creation, just in 2019. It has been used by a number of regimes around the world, including North Korea. It is believed that Russia is also using such measures to evade sanctions, particularly on financial transactions. Given that the US Treasury has imposed sanctions, that no new measure is in the statutory instrument today, and that both are still not on our sanctions list as of 17 January, why is that the case? It is really important—as we have heard in many debates on these issues—that the United States, the UK, the European Union and other allies supporting Ukraine make sure that there are no loopholes and gaps for Russian assets to escape the sanctions regime. I hope that the Minister will answer that.
Another issue that I have raised in every single one of these sanctions debates is the repurposing of frozen assets to support Ukraine. Last week, the Minister said in the Chamber that the Government would “look at all options”, and I had a similar comment in a letter that I received. Last week, I heard again and again at the Ukraine conference that I attended in Davos—I will draw attention to my declaration in due course on that visit—“Why are we not repurposing frozen assets?” Countries including the UK have done well at freezing, but we now have to turn that into support for Ukraine, given the huge costs of supporting its economy, of reconstruction and of continuing to defend itself against Russian aggression. Will the Minister set out where conversations on that are in Government and whether we might expect to hear announcements in due course?
The issue of Rosatom has also been raised with me, and whether individuals involved in Rosatom are covered by these regulations or by other existing sanctions. Perhaps the Minister can say a little about that or, if not, write to me, because although that is the Russian Atomic Energy Agency, individuals will, without doubt, have resources and assets in the UK and other countries across Europe.
Turning to the substance of what the Minister set out, Labour fully supports the steps being taken to limit further the access that designated persons have to key financial services. A prohibition on providing services related to trusts for the benefit of designated persons and closing loopholes pertaining to loans and money market instruments are prudent steps to take to sever every tether with which those designated under our regime might seek to exploit gaps to retain their wealth or obscure it.
The Opposition welcome the fact that the Government are closing further loopholes on oil production and mining equipment, as well as establishing further chemical restrictions. However, can the Minister set out the value of that kind of equipment that designated individuals have obtained since the invasion began, but prior to the loopholes being closed? I ask because although we welcome the sealing of any loopholes or gaps—and obviously, our sanctions regime is a work in progress—we are nearly a year into this terrible conflict. If we have identified that loophole, why has it taken until now to close it?
Finally, further limiting designated persons’ access to auditors, advertisers, engineers and architects is critical in inhibiting their capacity to run and manage lucrative businesses, and it is a welcome step to further prohibit access to information technology consultancy. By undermining designated persons’ access to such services, those aligned with Russia will hopefully and indelibly learn that waging war alongside Putin ends only one way: with Russia and them isolated, economically wounded and out in the cold.
As I said, we will not seek to oppose these measures. We broadly welcome all steps to increase and broaden sanctions on Russia for its barbarous war in Ukraine. We have to look only at some of the atrocities of recent weeks to see why those responsible—Putin, Russia and their allies, aiders and abetters—need to face the full force of our sanctions regime.
Kevin Brennan
I associate myself with everything that my constituency neighbour, my hon. Friend the Member for Cardiff South and Penarth, said about Russia, our support for the Government in their strong and robust response to Russia’s invasion of Ukraine, and what the Minister said on that subject.
The reason for my question—I am prepared to be contradicted on this if I am wrong—is that, the last time I checked, some operations were still being undertaken in Russia by companies such as Infosys. There is nothing personal about that point—in my view, this would apply to anybody who has shares—but it comes close to the Government in one respect. As we know, the Prime Minister’s spouse has a stake of 0.91% in that company—worth £691 million—and derives a very large amount of income from the dividends from the company. There is nothing wrong with that in and of itself. However, if companies continue to operate in Russia and profits are being generated through those operations, and individuals in the United Kingdom are earning income from dividends in relation to their shareholdings in companies that are operating in Russia, that is a matter of public interest, whoever holds them—let alone if that income benefits the Prime Minister’s family’s resources.
Let me ask the Minister this question: is there anything in the statutory instrument that we are debating—I know that it has already come into force, so our debate is fairly academic, as is often the case on these occasions—that would regulate the ability of UK residents and citizens to earn income through dividends on shares held in companies that continue to operate in Russia, despite our very robust and correct response to Russia’s aggression in Ukraine? If so, should not those individuals divest themselves of any shares that bring them income, because that is income earned off the backs and the suffering of the people of Ukraine? Is there anything in this statutory instrument that has any impact on income being earned from shareholdings held in companies operating in Russia?
Anne-Marie Trevelyan
I thank all the Committee members for their contributions, and I will do my best to answer their questions; if I cannot do so now, I will make sure that we write to them.
In response to the hon. Member for Cardiff West, the statutory instrument does affect UK citizens with shares in Russian companies. I hear his point about companies that continue to operate in Russia. Of course, many companies have stepped away or are stepping away, where they are able to do so. Clearly, that brings in another layer of services, particularly, that are no longer viable for export. I will take away the point about the company that he identified and get back to him more formally on that. We see a continuing move across the piece of British companies and others making decisions for themselves.
On the question from the hon. Member for Cardiff South and Penarth about cryptocurrencies, the UK’s financial sanctions cover funds and economic resources of every type, including crypto, so they are all-encompassing. The Office of Financial Sanctions Implementation has recently imposed monetary penalties against some fintech firms. I am happy to get more details for him.
Stephen Doughty
That is reassuring. However, the US Treasury took steps in August to sanction mixers, which effectively jumble up different cryptocurrency transactions to avoid transparency, whereas the UK, as yet, has not. Will the Minister write to me about what is happening and why that has still not happened?
Anne-Marie Trevelyan
I am happy to commit to do that. As the hon. Gentleman is aware, we do not comment on areas or individuals that we may be looking to sanction for obvious reasons, but I will happily get back to him on those specifics.
In relation to asset seizures, a big piece of work is ongoing. We are considering all the options around seizing Russian-linked assets and how they could be used to support the people of Ukraine, including funding humanitarian efforts and contributing to the reconstruction of the country.
Stephen Doughty
That is reassuring to hear as well. I hope that the Minister will, in discussion with her ministerial colleagues, look at the example of Canada, which has introduced new legislation recently. There is also a historical example: after the first Gulf war, we took a share of the profits of all companies there to help with the reconstruction of Kuwait.
Anne-Marie Trevelyan
The hon. Member is right: some international partners are looking to test both the freezing and the potential seizure of assets. None of those is fully tested for their lawfulness yet, and we are watching and supporting our allies, who are testing their own legal systems. We want to ensure that we work closely with Government Departments and our law enforcement agencies to identify all possible options and work that through.
On the hon. Member’s point about Kuwait, that decision was taken after the end of the war. We want to continue to work internationally to come up with options that will be viable as and when this terrible war ends, but, for now, we continue to work to see how we can pull together a package that we know would stand up in a court of law.
I hope that these measures give confidence that we are continuing our wave of sanctions, which are having real, damaging consequences to Putin’s regime, and we will commit to going further. We continue to watch where and how we might effectively continue to put on pressure to encourage Putin to end his appalling and aggressive war. We stand firm and resolute with the people of Ukraine. We will continue to support them and the Ukrainian Government until Putin and Russia withdraw from Ukraine. I hope that the Committee will support these regulations.
Question put and agreed to.