Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2024

Lord Collins of Highbury Excerpts

Tuesday 15th October 2024 Grand Committee

Moved by

[Lord Collins of Highbury]

That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2024.

Relevant document: Not yet reported by the Joint Committee on Statutory Instruments

[The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office (Lord Collins of Highbury) (Lab)]

My Lords, this instrument amends the Russia (Sanctions) (EU Exit) (Amendment) Regulations 2019. It was laid on 30 July using powers provided by the Sanctions and Anti-Money Laundering Act 2018. It entered into force on 31 July. For clarity, this instrument was first laid on 24 May under the previous Government. This Government support the aims of this instrument so we revoked and relaid it to provide additional time, post-election, for the required parliamentary scrutiny. There are no amendments to the policy in relation to Russian sanctions and the substance of this instrument is the same.

The United Kingdom’s commitment to Ukraine is ironclad. In July, the UK contributed £40 million to NATO’s comprehensive assistance package for Ukraine, which ensures that Ukraine will have access to vital assistance for counter-drone technology, demining of reclaimed land and the medical rehabilitation of injured Ukrainian personnel. Ukraine has placed new orders for ammunition worth £300 million through the International Fund for Ukraine, which is administered by the UK.

Sanctions, too, are a crucial tool to weaken Russia’s ability to attack Ukraine. In July, the UK hosted the European Political Community at Blenheim Palace, where over 40 countries signed a “call to action” to tackle Russia’s so-called shadow fleet, a fleet of ageing oil tankers which use deceptive shipping practices and substandard insurance to attempt to undermine sanctions on Russian oil. At the event, the UK spearheaded action against the shadow fleet when we sanctioned 11 oil tankers. We have since built upon this with a further 10 such sanctions in September. Through this action, we continue to demonstrate the UK’s steadfast commitment to Ukraine and to underline our leading role in eroding Russian oil revenues.

Targeted sanctions against oil tankers have had a material impact. The majority of UK-sanctioned tankers have been heavily disrupted and have struggled to re-enter the Russian oil trade. A good number of these tankers have even been left idling or at anchor since sanctions were imposed. This instrument provides the basis for those sanctions and has enhanced the UK’s ability to respond to Russia’s increasingly desperate and reckless attempts to undermine our and our partners’ sanctions. This instrument broadens the designation criteria under the Russia regime. It expands our powers to target those who provide financial or material support to Russia’s war machine. This could include, for example, foreign financial institutions that facilitate significant transactions on behalf of or in support of Russia’s military-industrial base. This is in line with steps taken by partners and the G7’s commitment to curtail Russia’s use of the international financial system to further its war in Ukraine.

I will now consider each measure in the instrument in a bit more detail. On ship specification, the instrument adds new relevant activities to the existing powers in the Russia sanctions regime under Regulation 57, which provides the criteria to sanction individual ships, called ship specification. The amendment provides that a ship may be specified by the Secretary of State where there are reasonable grounds to suspect that the ship is, has been or is likely to be

“used for any activity whose object or effect is … to destabilise Ukraine or undermine or threaten the territorial integrity, sovereignty or independence of Ukraine”

or

“to obtain a benefit from or support the Government of Russia”,

That includes where a ship is involved in carrying dual-use or military goods, oil or oil products that originated in Russia, or any other goods or technology that could contribute to destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine.

Where a ship is specified under Regulation 57F, it will be subject to measures in Regulations 57A to 57E called shipping sanctions. Where shipping sanctions apply, a specified ship is prohibited from entering a port in the United Kingdom, may be given a movement or port entry direction, can be detained, and will be refused permission to register on the UK Ship Register or have its existing registration terminated.

Additionally, United Kingdom persons and persons in the United Kingdom cannot provide funds and financial services, including maritime insurance or brokering services, in relation to specified ships that are transporting oil and certain oil products, and cannot use specified ships to supply or deliver Russian oil and oil products, regardless of the price of the oil on board. Once again, the United Kingdom has already specified ships using this enhanced power. The previous Government specified six vessels on 13 June to coincide with the G7 summit in Italy, and recently this Government have specified five tankers operating in the Russian LNG industry, as well as 11 vessels in July and a further 10 in September that were operating as part of Russia’s shadow fleet of oil tankers. This fleet attempts to undercut our sanctions, undermines the maritime rules-based order and presents an environmental and maritime security threat to coastal states.

The SI amends Regulation 6 in the Russia sanctions regime, which is the criteria for the designation of individuals or entities under the Russia regulations for the purposes of asset freezing and other relevant measures. Specifically, the instrument adds additional activities for which a person may be designated, including individuals or entities

“providing financial services, or making available funds, economic resources, goods or technology”

to persons involved in obtaining a benefit from or supporting the Government of Russia within the meaning of the regulations. In practice, that widens the set of actors and enablers who can be targeted for providing financial or material support to Russia and its war machine as Putin continues to prosecute his illegal war in Ukraine,

The instrument consolidates powers under the Russia regulations to designate individuals or entities involved in the destabilisation of Ukraine. Specifically, the additional activities that the instrument adds to the designation criteria make possible the designation of persons who own or control entities involved in destabilising Ukraine, as well as individuals who work as directors or managers of such entities.

European security is a key focus of this Government. Supporting Ukraine remains vital to that end, and the United Kingdom is committed to doing so. We will work with our international partners to ensure that the values of democracy, human rights and international law are maintained. This legislation and the subsequent sanctions made under it show our commitment to Ukraine as it defends its freedom in the face of Russian aggression. British support remains ironclad. I commend the regulations to the Grand Committee and beg to move.

[Lord Alton of Liverpool (CB)]

My Lords, the Minister introduced these regulations with great clarity. I doubt that there will be any hostility to the principles that he has outlined this afternoon. I wonder whether I could ask him a number of questions, though, about the way in which the regulations were made—that is, the procedures that were used—as well as clarification on some of the points he just made to the Committee.

For most of us, as parliamentarians, when we look at regulations that were made on 29 July, were laid before Parliament on 30 July and came into force on 31 July, that kind of pell-mell rush and retrospective approval is not normally something that we would want to countenance; the Minister would agree with that, I think. However, I accept that, in these circumstances, there is an inevitability about it. I am not being argumentative in raising this but, in future, if it is possible for us to know more about regulations such as these in advance, that would be well received.

I wish to ask the Minister about the general matter of sanctions. Given that we now have 2,000 entities and individuals from Russia who are sanctioned in the UK and, as I understand it, we hold five times as much money as we have given in total to Ukraine since the beginning of the war, it is not unreasonable for us to ask some questions about how that money is being used. Is it being released? How can we get it back into the system to support the Ukrainians in the way the Minister outlined to us in his remarks? My first point, then, is about retrospectivity and process.

My second point is about how we can have better oversight. For instance, could the Minister look at something such as regular reporting back to Parliament on the effectiveness of the sanctions and how they are being used? Could that be done through reports on a six-monthly basis, perhaps, or opportunities for us to ask questions in situations such as this, which do not arise very often?

His Majesty’s Government have taken important steps to address Russia’s war on Ukraine, including by way of imposing sanctions and freezing assets. I agree with what the Minister said about this being a crucial tool, but that raises some questions about how the sanctions can be used to provide compensation to victims and survivors and to rebuild Ukraine. So, my third point is about knowing more about how we are going to repurpose these sanctions.

Noble Lords may recall that, last year, I laid an amendment to the legislation on how we dealt with sanctions and criminal offences. It received cross-party support in the House and the noble Lord, Lord Sharpe of Epsom, who dealt with amendments at that time, was extremely helpful. Eventually, an agreement was reached with the Government that there would be secondary legislation to give effect to some of the ideas in my amendment. What progress has been made on that?

Again, that touches on how effective the sanctions have been. One good example of this, for instance, is an issue that both the noble Lord, Lord Collins, and I raised when we were in opposition: the sale of Chelsea Football Club. We are not talking small sums of money here; we are talking about £2.5 billion. That money could—indeed, should—be channelled back towards those who have suffered at the hands of Putin’s army. The destruction of Ukraine has been truly appalling; I think we are all agreed about that, so anything that we can do to get support to victims and for reconstruction, we should do.

In addition to the targeted approach of repurposing assets that are, after all, a product of criminal activity—namely, sanctions evasion—what is the Government’s assessment of other ways in which frozen assets could be repurposed? This could include, for instance, following the much more transparent and open approaches of the United States and Canada. I am told that, because their approach is open, it has a much stronger effect on people who are likely to be sanctioned; it might, therefore, be in our interest to emulate that.

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[Lord Collins of Highbury (Lab)]

I start by thanking all noble Lords for their contributions. I totally accept that we are at one on ensuring that we are able to defeat the illegal efforts of the Putin regime, and that we show complete solidarity on support for Ukraine, so I welcome noble Lords’ comments.

The scope of this instrument strongly reflects the work we are doing on sanctions by consolidating and ensuring that we can react. Picking up on a couple of reflections from noble Lords, in particular the noble Lord, Lord Alton, before this debate, I thought that I had better see what I said as an Opposition spokesperson so that I remain consistent. I have just realised that, in March 2019, we debated this question in this very Room. In fact, it was a repeat of a question picked up from Anne-Marie Trevelyan, whom I was quoting, particularly on the challenges around shadow and dark fleets of oil that we were seeing move around the world. That was in 2019, so we know exactly what has been going on.

One of the things that we have to do is to be constantly fleet of foot. Wherever there are sanctions, people try to avoid them. Those who do so tend to be the most innovative people, so we have to be pretty sharp and quick in our response. Strengthening our enforcement capacity and making it harder for entities to circumvent these sanctions is absolutely key to implementing them; indeed, keeping our regimes under review and lifting them when they no longer serve the purpose that was intended when they were originally introduced is also key.

Let me respond to some of the specific points made. To pick up on a point raised by the noble Lords, Lord Alton and Lord Purvis, we have acted speedily and need to do so but there is a requirement under the Sanctions and Anti-Money Laundering Act 2018, which we took through together in the Chamber. We keep all aspects of that sanctions regime’s legislative framework, established under that Act, under review in order to ensure that it remains fit for purpose. Under that Act, there are a number of routes for parliamentary scrutiny and designation so that, at any time, a designated person can request a reassessment of their own.

Picking up on the legal representation point, we need to make sure that our regime is watertight and legally test-proofed. We will certainly continue to do that, but I hear what the noble Lord, Lord Alton, says. We will continue to ensure that we have a dialogue—not necessarily fully in the Chamber, but we all share the same objectives. We need to ensure that the regime is effective, so I welcome the comments from the noble Lord and will continue to engage.

We have raised the seizure of assets repeatedly. There is no doubt that Russia must be held responsible for its illegal war. This includes its obligations under international law to pay for the damages that it has caused in Ukraine. We will work with our allies to pursue all lawful ways to ensure that Russia is made to meet those obligations. Together with our G7 partners, we have agreed to make approximately £50 billion available to Ukraine by the end of the year by advancing the extraordinary profits generated by immobilised Russian sovereign assets in the EU and in other relevant jurisdictions. Our focus now is on working with our partners to implement the G7 leaders’ commitment as quickly as possible. It is an absolutely vital step to ensure that we continue to hold Russia to account and to make it pay.

All noble Lords have raised the sanctions’ effectiveness and impacts. They have deprived Russia of more than £400 billion since February 2022; that is equivalent to four more years of funding for the invasion. There is no doubt that we are having an impact. The impact of sanctions, alongside Russia’s military spending, has forced the Russian Government to undertake the first major tax hike in more than 20 years, with Russia having increased its profit tax from 20% to 25%. Putin thought that he could take Kyiv in three days but, two and a half years on, his military is turning to North Korea and Iran for supplies. Russia is no longer a major arms supplier. Its military exports have fallen to levels not seen since the collapse of the Soviet Union. So we are definitely having an impact.

[Lord Alton of Liverpool (CB)]

I am grateful to the Minister for giving way. He will have seen that President Zelensky’s spokesman said earlier this week that 60% of the components in the weaponry and missiles that are being so brutally used against Ukraine were made in the People’s Republic of China. He referred also to the presence of North Korean soldiers and munitions in Ukraine. What can we do to apply greater sanctions on those nations that, certainly in the case of China, still have many economic and financial links with the United Kingdom? Is there a way in which we can apply leverage through sanctions on them?

[Lord Collins of Highbury (Lab)]

The first point of call is to ensure that all our allies who support our efforts to try to defeat Putin’s aggression deliver on those sanctions. Along with all the other nations, we are working through the multilateral system—particularly at the United Nations; I did so last month—to ensure that our concerns are fully recognised and that we uphold international law. I hear what the noble Lord says but that is the effective route we have to address.

The noble Lord, Lord Alton, raised the question of Chelsea. I thought that he must be back-reading Hansard because he knew that I had focused on that issue when I was the shadow Minister. Let me be clear: this Government are working hard to ensure that the proceeds from the sale of Chelsea Football Club reach humanitarian causes in Ukraine as quickly as possible. The proceeds are currently frozen in a United Kingdom bank account while a new independent foundation is established to manage and distribute the money.

The United Kingdom’s unilateral declaration makes it clear that we will only issue a licence which ensures that the money from the sale is used for exclusively humanitarian purposes in Ukraine. This Government are fully committed to that position as part of our iron-clad support for Ukraine. UK officials continue to hold discussions with Abramovich’s representatives, experts and international partners, and we will double down on our efforts to reach a resolution. The fact that we want to ensure and guarantee where that money goes is key to delivering on that.

The noble Lord, Lord Purvis, and others asked how we are immobilising Russian sovereign assets, particularly regarding the actions of others such as the US and Canada. The fact is that the impact of that has not actually happened. The real impact is what we have been able to agree within the G7; it is working with G7 partners that guarantees that the amount of money we are determined to give to Ukraine will be delivered.

The noble Lord raised the question of insurers. Here, I have to repeat the script: with regard to insurance providers, we cannot comment on plans for future sanctions, not least because, as we know and as the noble Lord, Lord Ahmad, used to say, if we announce them, the people who want to evade them will have adequate notice, so I cannot comment. However, we have sanctioned Russian insurers such as Ingosstrakh. We believe that tackling tankers through insurance has been impactful, so we will continue to monitor that, but I have no doubt that we will have to keep it under effective review.

I will obviously follow up with a letter on the India trade agreement, having consulted with my colleagues in the Department for Business and Trade. I will also write on the broader issue of legal services, another point raised by the noble Lord, Lord Purvis.

I think it was the noble Lord, Lord Vaux, who raised the impact on the shadow fleet and Russian oil supply. Ship specifications, together with US and EU action, have disrupted Russia’s shadow fleet, which it spent over £8 billion on purchasing. We are determined that it will have and has had an impact. UK and partner sanctions have forced many of the sanctioned tankers to cease their irresponsible trade in Russian oil. We will closely monitor how sanctions impact specified ships and the wider impacts on Russian oil trade and oil markets. I do not want to keep repeating myself, but we have proved that this is a sharp tool that is exacting a price. Each specification must be robust and proportionate to our objectives.

The key element is enforcement, as I have raised. It is one thing to introduce regulations to say that we will sanction, and good to have a regime of laws and regulations, but those regulations are meaningful only if we are able to properly enforce them. We are committed to significantly strengthening our sanctions enforcement tools. For example, we have introduced new civil monetary penalties for transport and certain trade sanction breaches.

The new Office of Trade Sanctions Implementation, which was launched on 10 October—another issue that I raised with the previous Government was about the speed of that—is now in place, with enhanced civil enforcement powers to maximise the impact of our trade sanctions. Those new powers will include civil monetary penalties to make the details of breaches public. The Government are committed to doing whatever is necessary to clamp down on sanctions offenders. The introduction of additional capacity, which is a key element, and the powers are starting to pay off. We are seeing an increase in the reporting of suspected breaches, which we expect to result in further fines and referrals for prosecutions.

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[Lord Purvis of Tweed (LD)]

I am grateful, because the Minister is addressing a point of my ignorance. Might he feel able to write to us to outline what may then be necessary under UK law to allow us to have secondary sanctions—that is, can he tell us where the gaps are in extraterritorial jurisdiction over some of our sanctions? I think our debates may be heading towards that; it is a point that the noble Lord, Lord Vaux, mentioned. While I am on my feet, I do not expect the Minister to answer at the moment, but could he write to us regarding whether the overseas territories are within scope here? I would be happy if he wanted to write to us rather than address that today.

[Lord Collins of Highbury (Lab)]

I was going to come to that point. I am more than happy to sit down and write on the question of secondary sanctions, because this is not simply about how we extend our regime; it is a point of principle as well. As I and the noble Lord, Lord Ahmad, have said repeatedly, sanctions are effective only if we act as a collective with our allies, not by working in isolation. If we want sanctions to be more effective, we have to convince our allies and others to support those objectives. Anyway, I would be happy to try to pick up on those points in writing.

My next point, which I was going to come to, is precisely on the overseas territories. The noble Lord, Lord Purvis, has asked questions about them before; I have done so myself. At the time, the noble Lord, Lord Ahmad, answered that

“all UK sanctions regimes apply in all the UK Crown dependencies and overseas territories, either by Orders in Council or through each jurisdiction’s own legislation”.—[Official Report, 20/7/22; col. 2021.]

The UK, the Crown dependencies and the overseas territories all stand united in condemning Russia’s aggression and have been working in lockstep to enforce UK sanctions, including freezing £9 billion worth of assets. Each territory’s Government are responsible for the implementation and enforcement of sanctions within their territory. We and the OFSI already provide technical support, including through targeted use of programme funds, to build capacity and strengthen sanctions enforcements within those Governments’ jurisdictions. This Government will explore with the overseas territories’ Governments what more we can do to further strengthen their enforcement capability.

I think the question about India, separate from the trade agreement, is: is India undermining our sanctions by selling to Russia? We regularly raise Russia’s actions in Ukraine with India. The Foreign Secretary did so most recently during his opening conversation with the Indian Foreign Minister. The Foreign Secretary highlighted the importance of tackling Russia’s shadow fleet and the need for continued dialogue on this issue. India is a key partner for the United Kingdom and we are committed to working together across a range of issues, including on our commitment to tackle all forms of sanctions circumvention.

The final point was made by the noble Lord, Lord Callanan, about Eversheds Sutherland.

[Lord Vaux of Harrowden (CB)]

Before the Minister moves on to that, on India and, actually, the wider Turkey and China issue, he has not answered the question about how many Russian-originated oil products we are bringing into this country indirectly through India, China, Turkey and others, and what we are doing to try to prevent that. We are indirectly pushing money to Russia because of that process. There is also the unintended consequence of the sanctions on the shadow fleet: the ship-to-ship transfers, which are happening in various places. What environmental impact could that have and what can we do about it?

[Lord Collins of Highbury (Lab)]

We are working on that latter point and, obviously, taking safeguards. The point is that when people conduct illegal activity, you need to be able to police it. Again, that is something that we will work with our allies on.

I am happy to write to the noble Lord on the specific point about quantity, but it is extremely difficult to quantify how much processing is done. We talk about it being simply a refining process, but the refining is more complicated for the products that might be imported into the UK. There might be other products that are coming in.

[Lord Vaux of Harrowden (CB)]

It seems to be particularly aviation that is a problem.

[Lord Collins of Highbury (Lab)]

Yes, I know. I will write to the noble Lord and see what we are able to estimate.

I come to the final point, on the law firm Eversheds Sutherland. I am afraid I will have to write to the noble Lord, Lord Callanan, on that as well.

I have spoken for some considerable time on this, but it has been an extremely useful debate. I thought we would broaden out the discussion to the more general question about how our regime can be strengthened. I reassure noble Lords that we have transformed the use of sanctions. The measures in the regulations show our commitment to continuing to strengthen our sanctions regimes and their implementation and enforcement, and, more importantly, to review their ongoing appropriateness and changing foreign policy contexts.

Once again, I thank all noble Lords for their insightful contributions and continued cross-party support and co-operation, which are vital in sending a strong message to Putin and his regime. I hope the Grand Committee will support the regulations.

Motion agreed.