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

Lord Vaux of Harrowden Excerpts

Tuesday 15th October 2024 Grand Committee

I said I would be brief. I have been fairly brief—by my own standards. I see relief on the Government Front Bench that I do not intend to pursue these points any further. I am grateful to the Minister for all he does on so many fronts. I look forward to his reply.

[Lord Vaux of Harrowden (CB)]

My Lords, I too welcome this SI, as far as it goes—in particular, the expansion of the sanctions regime against ships that are used to facilitate Russian oil exports, the so-called shadow tankers to which the noble Lord referred.

Could the Minister perhaps explain in a bit more detail what actual real-world impact that this will have on the number of shadow tankers that Russia uses and the amount of oil that Russia is currently able to export? I am slightly dubious as to how much real difference this will make, so I would be interested to know how it will work in reality. In particular, will this have any impact on the very dangerous ship-to-ship transfers that seem to be taking place off the coast of Greece, which are obviously an environmental disaster waiting to happen? The size of the shadow fleet is continuing to grow. I gather it is 70% bigger this year than it was last year. What other actions are we taking to deal with this problem?

There would not actually be a problem with the shadow tankers, if there were not countries ready and willing to take the Russian oil. That brings me to another loophole that Russia is using to keep its oil exports running and under which this country is still importing oil products that originate in Russia. The loophole is that, if Russian oil is refined in another country, it is no longer considered to have originated in Russia. As a result, third countries—in particular, China, India and Turkey—are buying large quantities of Russian crude, processing it and selling it on. India is now importing 13 times as much crude from Russia as it was before the war started.

Since Russia’s invasion of Ukraine, direct imports of Russian oil into the UK have fallen from about £4.5 billion a year to pretty much zero, which is a good result. But UK imports of refined oil products from India, China and Turkey have all risen quite significantly, to around £2.2 billion in 2023. A significant proportion of those will have originated in Russia. There is an estimate of 5.2 million barrels of Russian-originated oil having been imported into the UK in 2023, mostly for the aviation industry. Apparently, about one in 20 UK flights has used Russian-originated oil.

This laundering of oil through China, India and Turkey means that the UK is continuing to contribute, albeit indirectly, to Russia’s war coffers. Does the Minister recognise those figures and this problem? If he does not recognise those figures, how many Russian-originated oil products does he believe the UK is currently importing? What plans do the Government have to close the loophole? Given that a very big chunk of this comes through India, is this matter being taken into account in the trade agreement discussions with India?

[Lord Purvis of Tweed (LD)]

My Lords, following the very valid points made by noble Lords in this short but important debate, I offer the Government support for this. The Government were caught by a timetabling aspect, with the Summer Recess and then the conference break, so it is positive that they have ensured that there will be some parliamentary scrutiny and the ability for Members to ask questions on these matters. We have just seen the value of raising these pertinent points.

The Minister will not be surprised that I support these measures. He and I have been in many debates—in fact, all the debates on the Russian sanctions when the noble Lord, Lord Ahmad, was the Minister—and there was consensus across the Committee. I will ask a few further questions that have not been asked so far, and will perhaps emphasise some of the points that have been made.

First, I return to the issue of enforcement. Not for the first time, the noble Lord, Lord Alton, asked questions that I was going to ask. I would be grateful if the Minister could give an update on the securing of frozen assets that could be put to good use by Ukraine in this conflict. The Minister was a doughty campaigner on Chelsea when he and I were asking the noble Lord, Lord Cameron, about this in the Chamber. An update would be very useful. Is it still the case that we need to change any of the legislative or administrative processes in the UK so that we can carry out the repurposing of frozen assets into secured assets that can be put to use, around which consensus was sought in the G7? Or is it the Government’s position that we look purely at the EU proposals on the interest of assets—or, if assets are sold, that we use some of that? An update would be useful.

I periodically monitor the website of the Office of Financial Sanctions Implementation, which is tasked with ensuring that the sanctions regimes we put in place in the UK are properly enforced and policed. It is interesting that only one enforcement for circumventing UK sanctions has been carried out this year, to the tune of £15,000; since 2022 and the full invasion of Ukraine, there have been only four, totalling £60,000. Given the scale of the impact of the sanctions regime that the previous and current Governments have indicated, is it the Minister’s view that this is an accurate reflection of how the sanctions are being enforced?

We could look at it in two ways: either there is circumvention and the enforcement is not effective; or the UK is remarkably good at getting all our businesses to adhere to all of the sanctions. There may be an element of truth in both, but what is the Government’s assessment? That speaks to the valid point made by the noble Lord, Lord Alton, about the opportunity for a fundamental review not just of the overall impact of the sanctions—including an assessment of the impact of the sanctions, given the fact that they are in place until we rescind them—but of their enforcement.

The second aspect I wish to ask about is the services provided, either those in the shadow fleets or those that can now be determined under the sanctions regimes. I strongly support the Government with regard to not only persons who are directly or indirectly in the enterprises or linked with the fleets but those providing financial services to them. Why have the Government taken the view that legal services are not included in that? We all know that London in particular is the home of many legal services that have been part of the grey area of advice when it comes to these sanctions. I would be grateful to hear whether the Minister has any comments on that. We would certainly be supportive of ensuring that there is no loophole when it comes to financial services that can be masked as legal services; we need to ensure that there is no loophole for that.

I also wish to pick up on the point about our support for those in the fleets as far as the oil or dual-use goods on the shipping are concerned, as well as with regard to our position on the countries where they are landed. The point was made eloquently that many of those are our trading allies. I know that the Government have previously had frank—I hope—conversations, but surely we are now beyond the point of having frank conversations; we need to be considering actions.

In that regard, I would be grateful if the Minister could comment on the news from the end of August that the United States is moving towards secondary sanctions on those operating on financial services in jurisdictions where it believes that the sanctions regimes are being circumvented. I believe that secondary sanctions on financial institutions would be effective; I would be grateful if the UK were part of that. Indeed, what is the Government’s current position on considering secondary sanctions? This is obviously a sensitive diplomatic area, but I believe that it is important.

Can the Minister address a question that I asked his predecessor on jurisdiction? I acknowledge that these measures are UK-wide but I asked previously about the overseas territories when it comes to shipping and potential licences that are exemptions to them. We know that, when certain tankers land in overseas territories, they can operate under a different regime. I would be grateful for clarification that they are also covered by these sanctions.

I wish to ask a minor question regarding limited exemptions. Obviously, we know that there should be the capacity for some kind of exceptions in the regulations, but, to prevent an exception becoming a loophole, can the Minister confirm that the exceptions in these sanctions are defined across the G7 and our partners, so that there is no distinction between exceptions under these sanctions and those in the United States or the European Union? If the Minister could respond to these points, I would be grateful.

My final point is that the Government have our full support in ensuring that there is as much consequence for the Russian war economy as possible. No UK entities, whether in the City of London, finance, shipping or insurance, should have any part in supporting the Russian war regime. We continuously support the Government to ensure that there are no limits to what we can do to ensure Ukraine’s support.

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[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.