Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2023

(Limited Text - Ministerial Extracts only)

Monday 10th July 2023 General Committees

[The Chair]

Before I call the Minister to move the motion, it is close in here, so if right hon. and hon. Members wish to take their jackets off, they should feel free so to do.

[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. 2) Regulations 2023 (S.I. 2023, No. 665).

The regulations amend the Russia (Sanctions) (EU Exit) Regulations 2019. This statutory instrument was laid on 19 June 2023 under powers provided by the Sanctions and Anti-Money Laundering Act 2018. The instrument was considered and not reported by both the Joint Committee on Statutory Instruments and the Secondary Legislation Scrutiny Committee. It was approved by the House of Lords on 5 July.

The regulations contain measures that increase the pressure on Mr Putin as we continue to support Ukraine and its people in their resistance to his illegal war. The first part of this legislation is an amendment to enable us to keep sanctions in place until Russia pays for damage it has caused to Ukraine. In March this year, the World Bank estimated that the reconstruction of Ukraine will cost more than $400 billion, a figure that rises daily. On 21 and 22 June, the UK co-hosted the Ukraine recovery conference here in London, galvanising international support. By the end of the conference, international commitments towards Ukraine’s recovery and reconstruction topped more than $60 billion.

The Prime Minister’s message at the conference was clear: Russia must pay for the destruction that it has wreaked. That is why we are keeping up economic pressure on Russia with an unprecedented package of sanctions targeting more than 1,600 individuals and entities since the start of the invasion. That includes dozens of banks with clearable assets worth £1 trillion and more than 130 oligarchs, freezing £18 billion in assets and costing Russia £20 billion in trade.

We have maximised the impact of those measures by co-ordinating with key international partners. Together, we constrain the funding for Mr Putin’s war machine, inflict huge economic cost and demonstrate our support for Ukraine. Russia’s economy faces a deficit of nearly $50 billion in 2022, the second highest of the post-Soviet era. With our partners, we are choking off Putin’s access to key technologies that he needs on the battlefield.

We have not stopped there. This legislation marks further progress in our battle against Putin’s unwanted aggression. Building on the commitment by G7 leaders in May that sovereign assets will remain immobilised until Russia pays up, this statutory instrument enables us to keep sanctions in place until Russia does that. I am proud that the United Kingdom is the first member of the sanctions coalition to make that commitment real. We will continue to demonstrate international leadership as we look to increase the pressure on Putin and those who support him.

As internal criticism of Mr Putin’s war grows, we will introduce a new route for those under sanctions to request that their frozen funds are used for Ukrainian reconstruction. Let me be clear: there is no negotiation, no quid pro quo, no relief from sanctions and no access for those individuals to their assets while they remain under sanction. However, if they wish to do the right thing and use their frozen funds to help right the wrongs caused by Putin’s invasion, there will be an approved route for them so to do.

We will also tighten the net on those hiding assets in the UK. We will require individuals and entities in the UK, or UK persons overseas designated under the Russia regime, to disclose assets they hold in this country. A failure to do so could result in financial penalties or the confiscation of assets. We will legislate to require those holding assets in the UK on behalf of the Central Bank of Russia, the Russian Ministry of Finance or the Russian national wealth fund to disclose them to the Treasury. Our action will increase transparency on where such assets are held and limit opportunities for sanctions evasion.

Several Committee members participated in the debate in the House of Commons on 27 June and will be aware of the active debate with our international partners on the use of sanctioned assets to support Ukraine’s recovery. No country has yet found a solution that we are confident is legally sustainable, but we are working closely with our allies on the handling of seized Russian assets and will continue to do so.

[John Howell (Henley) (Con)]

I do not want to detain the Committee; I will just say that I welcome the regulations. It was agreed at the Reykjavik summit that countries should put in place, through their own legislation, this sort of move to have a go at the Russians. Does the Minister see this as a good model that we can export to other countries to follow?

[Anne-Marie Trevelyan]

I thank my hon. Friend for his support and for that important question. As we are the first to introduce such legislation, we hope that it will act as a basis from which others might wish to build their programmes. Our partners are also working on solutions, and we are working very much hand in hand. If progress is made by international partners, we will learn from that, too. Importantly, nothing is off the table. We have a cross-Government taskforce carefully considering all proposals, including those that our partners might bring forward.

The second part of the legislation amends the definition of non-Government controlled Ukrainian territory, including Crimea and the non-Government controlled areas of the Donetsk and Luhansk oblasts, to incorporate all the non-Government controlled areas of the Kherson and Zaporizhzhia oblasts. The change reflects the dynamic situation that we see on the ground. The way the regulations are drafted will allow our sanctions to keep pace with the changing circumstances of the conflict and the shifting territorial control in the oblasts.

Measures applying to non-Government controlled Ukrainian territory in areas of finance, trade and shipping will therefore now apply to all the areas not currently under the control of the Ukrainian Government.

[Hilary Benn (Leeds Central) (Lab)]

I understand entirely that the regulations need to be changed because of the changing shape of the battlefield, as the Minister described it. However, does that mean that if the Russians were to gain further territory, heaven forbid, that went beyond the geographical confines set out in the regulations, we would have to come back and have new regulations to change the geographical coverage? Therefore, have the Government considered just defining this as non-Government controlled Ukrainian territory, which would cover any places that were not held by the Ukrainians at any given time, as the battle goes back and forth?

[Anne-Marie Trevelyan]

The right hon. Member raises an important question and I will ensure that he is given a full written answer on the legal position. However, I think he would agree—he has stated this himself—that we do not wish to consider that position at the moment. We will therefore bring in the statutory instrument as it stands, but in the meantime, I am happy to drop him a line setting out the legal proposition that he suggests.

The UK is unwavering in its support for Ukraine’s independence, territorial integrity and sovereignty. The measures will restrict the ability of the so-called “authorities” in these regions to access UK goods and services, investment and finance. Exceptions remain in place to cover the delivery of humanitarian assistance or the maintenance of medical facilities to ensure that the sanctions are targeted to avoid affecting civilians as much as we can.

To conclude, these latest measures demonstrate our determination to target those who participate in or facilitate Putin’s illegal war. We will continue to work in unison with Ukraine and our international partners until Ukraine is restored and the region is secure. The UK Government will not stop the pressure on Putin and his associates until they have withdrawn from Ukraine, and we welcome the clear and continued cross-party support for these actions. I commend the regulations to the Committee.

--- Later in debate ---

[Anne-Marie Trevelyan]

I thank all the Committee members who have contributed to the debate and for their continued support in this, sadly, ongoing and growing area of policy that we need to continue to deliver on.

I will try to answer the questions and if I miss anything, I will write to Members. On the question of seizure, the Government have made it clear in Parliament and through collective statements at the G7 that Russia absolutely must pay for the damage it has caused. The continued commitment to that objective is demonstrated by our laying this new legislation to enable us to keep assets frozen. We continue to work on that, and nothing is off the table. The UK will remain a robust partner, and we will ensure, before announcements, that the safety, robustness and legality of any asset seizure proposals will hold firm. That is as important as the demonstration of our determination. This must work.

I have a couple of examples. Canada has brought in initial legislation; it has not seized any assets through a legally tested mechanism, but we are working closely with the Canadians to see how their attempt progresses. The US has introduced bipartisan legislation that will give the Executive the power to seize Russian sovereign assets and transfer them to Kyiv, but that legislation is still in a state of debate, and no conclusion or certain outcome has as yet been reached. We all want to continue to work together to test and think how we can use the resources and legal frameworks available to get that in place.

If I may, I will write in response to the question of the oil cap breaches and the challenges of the oil sold through third parties. That is being monitored closely.

To reassure colleagues, I hope that the economic deterrence initiative—set out as part of the funding programme in the integrated review refresh—will provide funding of about £50 million over two years to improve sanctions implementation and enforcement, so that we can maximise the impact of the financial sanctions. That will support both the sanctions directorate in the FCDO and the Office of Financial Sanctions Implementation team, which has—to address the challenge from the hon. Member for Cardiff South and Penarth—the unenviable task of ensuring that we keep on top of the enforcement piece.

The measures are the latest addition to our package of sanctions, which are having an important and damaging impact on Putin’s war machine. Working together with allies, we will all stand firm and resolute with the people of Ukraine, and we will continue to support them until they prevail. I absolutely hear the comments of my right hon. Friend the Member for Chelmsford about other sanctions regimes. We must not forget that the sanctions directorate works 24/7, 365 days a year, to ensure that we put to maximum use the tools that we have in legislation. We will continue to do that where we sadly need to do so. In the meantime, I hope and trust that the Committee will support the regulations.

Question put and agreed to.