Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2023
(Limited Text - Ministerial Extracts only)
Read Full debate
Lord Benyon
That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2023.
Relevant document: 8th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Environment, Food and Rural Affairs, and Foreign, Commonwealth and Development Office (Lord Benyon) (Con)
My Lords, these regulations amend the Russia (Sanctions) (EU Exit) Regulations 2019. These instruments were laid on 14 December 2023 under powers provided by the Sanctions and Anti-Money Laundering Act 2018. They entered into force on 15 and 26 December 2023, and 1 January 2024. The instrument has been considered and not reported on by the Joint Committee on Statutory Instruments.
These instruments contain trade and financial measures, co-ordinated with our international partners, to increase the pressure on Putin over his brutal and illegal war against Ukraine. They ratchet up the pressure on Russia’s war machine and economy as part of the most severe package of economic sanctions that that country has ever faced.
The No. 4 regulations continue the UK Government’s commitment to ban the export of all items that have been used by Russia on the battlefields to date. Building on existing extensive prohibitions, these regulations ban the export of further products that could be used by the Russian military or industry, including electronics and machine parts. The legislation also delivers on commitments made by the Prime Minister at the G7 leaders’ summit last May to ban imports of Russian metals, including copper, aluminium and nickel, by the end of 2023. It extends the existing prohibition on luxury goods to include a ban on services ancillary to their movement and use. This means that those subject to UK sanctions can no longer provide financial services and funds, technical assistance and brokering services related to luxury goods.
There are also amendments to other product definitions and coding to ensure clarity and consistency with partners. On the financial side, this includes new obligations for persons designated under the Russia financial sanctions regime to report any assets that they own, hold or control in the UK or worldwide as a UK person to the relevant authorities. A further requirement has been placed on relevant firms to inform HM Treasury of any foreign exchange reserves and assets belonging to the central bank of Russia, the Russian Ministry of Finance or the Russian National Wealth Fund.
The regulations also amend existing regulations that prohibit UK credit and financial institutions processing sterling payments that have travelled to, from or via sanctioned credit and financial institutions, in order to expand this prohibition to include non-sterling payments. The prohibition adds a new exception to enable UK credit and financial institutions to transfer funds internally in certain circumstances for the purpose of compliance and regulation.
Finally, alongside the No. 4 regulations, we have introduced a new financial sanctions licensing ground to support UK entities in divesting their Russian interests. The licensing ground will also permit UK entities to buy out investments from designated persons and the Russian state, provided those funds go into a frozen account. We will proceed with a further prohibition on ancillary services related to metals when this can be done in concert with international partners.
The No. 5 regulations deliver the Prime Minister’s commitment, made at the G7 summit last May, to tackle the revenue that Russia generates from the export of diamonds. They prohibit the import, acquisition, supply and delivery of diamonds and diamond jewellery produced by Russia. A further G7-wide ban on the import of Russian diamonds processed in third countries is expected to come into force from 1 March this year.
I should add that the Joint Committee on Statutory Instruments has been informed of a minor drafting error in the Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations 2023. To remedy this, we have identified another instrument where this error can be corrected; we aim to lay it this later this year, with it coming into force as soon as possible. I wrote to the noble Lord, Lord Collins, with some detail on this; it is important that I put this part of my letter on the record. We consider that the Russian regulations can stand as they are in the meantime because, although the incorrect terminology was used, the exceptions set out in Regulation 60DC(2)(d) of the Russia regulations remain clear. The Government plan to lay a separate miscellaneous sanctions amendment statutory instrument later this year, as I said. I hope that, with that assurance, I can give the Committee the absolute understanding that this minor drafting mistake does not impact on the measure.
These latest measures demonstrate our determination to target those who participate in or facilitate Putin’s illegal war. Overall, the UK has sanctioned more than 1,900 individuals and entities, of which 1,700 individuals have been sanctioned since his full-scale invasion of Ukraine. More than £20 billion-worth of UK-Russia trade is now under sanction, resulting in a 94% fall in Russian imports into the UK—comparing one year pre invasion to one year post invasion—as well as a 74% fall in UK exports to Russia.
Sanctions are working. Russia is increasingly isolated, cut off from western markets, services and supply chains. Key sectors of the Russian economy have fallen off a cliff, and its economic outlook is bleak. The UK Government will continue to use sanctions to ratchet up the pressure until Putin ends his brutal invasion of Ukraine. We welcome the clear and continued cross-party support for this action. I beg to move.
Lord Collins of Highbury (Lab)
My Lords, I very much welcome these additional amendments on further sanctions. I certainly welcome the fact that we are focusing on trying to weaken the war machine that this illegal invasion of Ukraine is supporting. I certainty welcome Regulation 5, on luxury goods, too.
In the previous debate, the Minister mentioned the Office of Trade Sanctions Implementation, which aims to crack down on sanctions evasion. I very much welcome that because, as I mentioned, we have seen before evidence of companies circumventing the sanctions. He also mentioned the toolkit, which will, I hope, enable us to avoid repeating some mistakes made in the past. It would be good to better engage on how we will support this new office.
One thing that the noble Lord, Lord Purvis, has raised previously is this: how do we ensure that Britain’s offshore financial centres are properly able to implement the sanctions? Of course, we have been extremely concerned about transparency and the need to introduce public beneficial ownership registers speedily. Without them, we will not be able to see exactly what UK firms or individuals are up to. With opaque entities, sanctions will sometimes be evaded, though perhaps not deliberately. We need to address this properly.
The Government recently updated Parliament with another timeline for the expected delivery of public registers. However, I note that the British Virgin Islands will not have its appropriate frameworks in place as late as 2025. I hope that the Minister will express the same opinion as me: that this is too late and we really need to speed things up.
The noble Lord, Lord Purvis—I nearly called him Lord Putin then—mentioned frozen assets. We will certainly address them in our debate on Friday. Since we also raised this issue in Oral Questions, I note that the Foreign Secretary—the noble Lord, Lord Cameron—mentioned his belief at Davos that frozen assets are an issue that need international co-operation. Can the Minister give us a bit more detail on that?
The noble Lord, Lord Purvis, also referred to the stats that were mentioned by the Minister. I have here a letter dated 19 January from Anne-Marie Trevelyan. It repeats those figures but she says that we have
“sanctioned more than £20 billion of UK-Russia goods trade, contributing to a 99% drop in UK goods imports from Russia and a 82% drop in UK goods exports to Russia”.
I do not know why there is a difference there, especially as it is so recently put. I welcome that letter because it gives a lot of detailed information. One thing that Minister Trevelyan says, in referring to metals, diamonds, oil and stuff, is what we have addressed before: the leakage that seems to happen, particularly with luxury goods. Her letter says:
“The UK, EU and US have sent joint delegations to the UAE, Kazakhstan … Uzbekistan, Georgia, and Armenia, and we have delivered senior bilateral engagement with Turkey and Serbia, yielding positive results”.
I am not sure from the letter whether we have received positive results from all of these visits.
I was in Tbilisi late last year, and I noted that there was a big increase in the import of luxury cars into Georgia. It was also reported that, since the war, trade going from Georgia into Russia has increased, despite its public position. I welcome the fact that we have sent delegations and that the Minister is saying that there are positive results, but can he tell us exactly what they are? Even from my observations, it certainly looks as though there is an ability to evade sanctions.
With those brief comments, I reiterate the Opposition’s position: we are absolutely at one with the Government in supporting Ukraine and ensuring effective sanctions against Russia’s illegal invasion. We welcome these amendments to the sanctions regulations.
Lord Benyon (Con)
I again thank both noble Lords for their interest and support for these measures. I will seek to answer all the questions raised. I will ensure that future letters go to both Front Benches; I apologise to the noble Lord for missing him out in that exchange.
Gold is a sanctionable trade. Sometimes it is harder to detect, but it is certainly an element of trade that is within the sanctions regime.
I cannot give the noble Lord a breakdown of the sectors that create the 74%. I do not know why there is a discrepancy with the letter he received from my colleague Anne-Marie Trevelyan, but I will look into it. My understanding is that there has been a 96% reduction in trade from Russia and a 74% reduction in trade in the other direction. That will have caused hardship to some legitimate businesses, and we respect that, but this is an international incident which requires the strongest possible response, and our sanctions regime has had to take this decision.
I will write to both noble Lords about the buying of frozen assets and what impact that could have if those assets were then released, say, to Ukraine, to help pay for the war. We want to make sure that we are not diminishing the amount that that country should get to pay for the damage that has been done to it.
The G7 has repeatedly underscored that Russia’s obligations under international law are clear: it must pay for the damage it has caused to Ukraine. How we ensure that Russia does so is the subject of active and urgent discussions with G7 partners. Leaders have tasked the relevant G7 Ministers to report back on progress by the two-year mark of Russia’s invasion at the end of February. The UK remains fully committed to working with allies to pursue all lawful routes through which Russian assets can be used to support Ukraine.
While these G7 discussions continue, we have taken a number of steps domestically. We were the first to introduce legislation explicitly enabling us to keep sanctions in place until Russia pays for the damage it has caused; we have announced a route by which sanctioned individuals who want to do the right thing can donate frozen funds for Ukraine’s reconstruction; we introduced new powers to compel sanctioned individuals and entities to disclose assets they hold in the UK; and we are stepping up efforts to use funds from the sale of Chelsea Football Club to support humanitarian causes in Ukraine.
The noble Lord referred to the EU’s proposal to use the profits being incurred by funds trapped in Euroclear to support Ukraine. We are looking closely at that, but this situation is unique to the EU’s institutions. We and other G7 partners fully support the EU’s efforts but we do not believe that we can replicate them within our system. However, we are looking at any opportunities to increase the pressure. As I say, the EU’s proposal is unique to its institutions and we want to ensure that we use our frozen assets regime as effectively as possible.
Lord Collins of Highbury (Lab)
Can I just interrupt the Minister on this point? It is something that I picked up from Anne-Marie Trevelyan’s letter of 19 January, where she talks about these joint delegations “yielding positive results”. I agree with the Minister that this is not about attacking the Russian people but is about luxury goods, which are certainly leaking in. I wondered what the Minister meant in her letter about yielding positive results. Do we have figures on that? Has there been an impact on the trade, which seems to be leaking?
Lord Benyon (Con)
I am sure that we do have figures, although I do not have them here. I will write to the noble Lord setting out what successes we are having in those negotiations and bilateral discussions.
These measures are the latest addition to our package of sanctions, which is having a damaging effect on Putin’s war machine and regime. The UK Government are committed to using sanctions to keep up the pressure until Putin ends his brutal and senseless war. We in this Committee stand resolute with the people of Ukraine and will continue to support them until they prevail.