Russia (Sanctions) (EU Exit) (Amendment) Regulations 2024

Baroness Smith of Newnham Excerpts

Tuesday 19th March 2024 Grand Committee

The United Kingdom Government will continue to use sanctions to ramp up the pressure until Mr Putin ends his illegal invasion of Ukraine. Sanctions are working and the effects are cumulative; we must stay the course and keep up the strong work we have delivered over the last two years, working in tandem with our key partners and allies. We welcome the clear and continued cross-party support for this action, and I beg to move.

[Baroness Smith of Newnham (LD)]

My Lords, obviously, from these Benches—or this Bench; it is just me—we welcome any extension of sanctions. As the noble Lord pointed out, since the illegal invasion of Ukraine, it has been necessary and appropriate to implement a wide range of sanctions, against both individuals and companies.

However, the Minister has already alluded to the fact that there is a degree of complexity with these particular sanctions. I therefore have a range of questions that are about not just sanctions with our G7 partners but looking more broadly at our European neighbours and Commonwealth countries, as well as at the impact on British companies in terms of how they deal with importing diamonds. Clearly, a sanction that says, “We’re not importing diamonds directly from Russia” is straightforward, but when diamonds have been processed in third countries, as the Minister has already suggested, it will not always be clear where they have originated from.

There is a very clear point in the regulations that says, under “Technical assistance”:

“A person who contravenes a prohibition … commits an offence, but it is a defence for a person charged with an offence of contravening paragraph (1) to show that the person did not know and had no reasonable cause to suspect that the technical assistance related to an import described in that paragraph”,


and the same is replicated for financial services and brokering services. How do His Majesty’s Government think they will be able to monitor this in practice? To what extent have the G7 countries, in proposing such sanctions, also talked to third countries that might be processing diamonds? For third countries processing Russian diamonds, which Russia is trying to export as a way of circumventing the existing sanctions, it is clearly essential that it should be incumbent on businesses processing diamonds to give clarity and reassurance about where the source diamonds have come from. I am not sufficiently expert in the diamond industry to know where else they might go; I assume that Russian diamonds are not going to South Africa, for example, to be processed, but that is obviously another country that will be exporting diamonds.

What conversations have His Majesty’s Government had with countries that might need support in order that such sanctions will be effective? What conversations have they had with the jewellers’ sector? Clearly, there will be new onuses on businesses which, while understandable, could prove prohibitive. None of this is to say that we disagree with the regulations, but I ask for some clarity about how they can be implemented in practice.

Finally, the Minister mentioned a couple of times that these sanctions are in conjunction with our G7 partners. Do the EU 27 have similar proposals? What opportunities are there to work with large countries, such as China and India, which are neither G7 nor EU countries but could circumvent sanctions, rather as is done with unrefined oil?

[Lord Collins of Highbury (Lab)]

My Lords, I want to pick up a number of points made in the other place, to which Anne-Marie Trevelyan responded, starting with the point about oil raised by my honourable friend Catherine West. I know that we have discussed before the reimportation and exportation of Russian-sourced oil. Anne-Marie Trevelyan described

“the challenges around the shadow and dark fleets of oil that we now see moving around the world”.

She said the Government were

“working with colleagues and allies across the G7 and more widely to continue to try to get ahead of the issue”

and to encourage our allies

“not to find themselves participating in shadow fleet activity”.—[Official Report, Commons, Delegated Legislation Committee, 14/3/24; col. 6.]

Can the Minister give us a little more detail about how we are working? There have been suggestions about where this oil is going and where it is being reimported. We have talked about Commonwealth countries—the noble Baroness mentioned this—and it is really important that we get some idea of the specific discussions. Oil is the biggest element of funding Russia’s war machine, so it is really important that we get ahead of this issue and better understand what is going on.

I also have a small point to make about diamonds. Catherine West challenged the fact that we are starting with 1 carat and that the threshold will not drop until September, and Anne-Marie Trevelyan said that this was to ensure that it did not impact detrimentally on business. We have to get a better idea about the effectiveness of that and the timeframes. Again, the method of circumvention seems to be to hide this through a third country, which can then take ownership of these things, oil or diamonds, export them and raise funds that way. Anne-Marie Trevelyan was more concerned about non-Russian producer nations. Of course, we understand that, but the diamond trade is not huge in terms of the number of countries involved in it, so it would be good to have a better understanding about the timeframes.

The issue I really want to focus on—as the noble Lord knows, I have raised this before—is that it is one thing having sanctions, but it is their enforcement and the monitoring of their effectiveness that will deliver for us. Anne-Marie Trevelyan spoke about the additional funding going through, particularly in terms of the sanctions directorate in the FCDO, which produces the sanctions. Of course, we then have the Treasury with its enforcement arm and now we have the Department for Business, with the Office of Trade Sanctions Implementation, to ensure that the policy sets out clear guidance on this.

The last time we discussed sanctions, I asked the Minister how quickly the Office of Trade Sanctions Implementation would be set up, what the timeframe would be and when we would be satisfied—because this stems from reports we have had of the number of breaches to sanctions. I would appreciate a much clearer update on that, because it is a vital issue.

On Russian diamonds, the SI also bans the provision of technical assistance, brokering and financial services in connection with the import of third country-processed Russian diamonds. Perhaps I could ask the Minister, on monitoring and enforcement, whether he is satisfied that officials will have the resources and technical knowledge needed to identify breaches in relation to the service side of this issue.

The Explanatory Memorandum also notes that the SI builds on the commitments made by the G7 leaders in May and December: the noble Lord referred to that. Another theme that he regularly repeats is that sanctions are effective only if we work in concert with others, including and especially our allies. The important thing for us is to better understand how these are being implemented by all our allies. Does the Minister have an update about the implementation of the measures by other G7 nations? Where do we rank in terms of speed of implementation? I do not wish to be critical, but it is good to have a better understanding. I am aware that the US and Canada always seem to be ahead of us in announcing sanctions; I am not so confident about their ability to monitor them or to enforce them. It would be good to have an idea of where the Minister thinks we are.

Another issue that I picked up from Sky News, but which has appeared on other channels, is something I raised in terms of how people are circumventing sanctions, in particular by moving oil through third countries. There was a report on Sky News that car exports to Azerbaijan over the past few years have gone through the roof: there has been a dramatic increase. I understand that the Society of Motor Manufacturers and Traders has said that there is no connection to Russia here and that the country is a flourishing market in its own right. It would be good to hear from the Minister whether there has been any sort of checking. Are the Government satisfied with those claims? It does seem rather odd that it coincides with the implementation of sanctions.

I did mention that, when I was last in Georgia, people raised the issue with me of the number of luxury cars that were being exported from Georgia to Russia. So, again, if these things are happening, we should be aware of them and we should be challenging them and working with allies to stop this circumvention.