Russian Assets: Seizure

Debate between Iain Duncan Smith and Siobhain McDonagh

Tuesday 14th March 2023 Commons Chamber

[Sir Iain Duncan Smith]

I do agree with the right hon. Lady. We have a lot of Russian assets that are currently frozen, while Ukraine is screaming out for money and support to help all those devastated areas. We can bring the two together, and that is what today’s debate is all about.

[Siobhain McDonagh (Mitcham and Morden) (Lab)]

I am sure the right hon. Member is also aware of allegations that a number of the people sanctioned have moved their money around into trusts to give to their children in order to avoid having their assets taken. Does he agree that the Economic Crime and Corporate Transparency Bill should be strengthened to require sanctioned individuals to disclose assets that were owned six months prior to their designation? That would prevent oligarchs such as Roman Abramovich from moving assets around and evading the sanctions.

[Sir Iain Duncan Smith]

I entirely agree. I was going to raise that point at the end of my speech, but never mind: this is a shared debate.

I fully back that proposal, which is one of the recommendations that we have to make so that the Government can jump ahead of this. Too often we have been slow and, in the six months that have elapsed, in some of those cases, people have shifted their money around into all sorts of areas. One particular individual—I was going to name him, but I will not do so now—has managed to buy flats through a Cyprus company. His name is not registered, but they own it and the money is lodged there. This sort of stuff is going on and we need to shut it down.

--- Later in debate ---

[Sir Iain Duncan Smith]

I am beginning to feel that I am making a collective speech, because the right hon. Lady’s point is down here in my notes. It is better made by her than me, but I fully agree with her as a result.

We could have got ahead of this—that is the point, as the example of Abramovich shows. Many others have drifted off, so the right hon. Lady is absolutely right: we needed to be quicker and more determined. Now, we have to sustain our determination to flush all this out while we have the opportunity. I always sense a little resistance. When we call it out, the Government say, “Ooh, we don’t know. We’ve got lots on our plate and we are doing lots of things,” but this is the time to act.

[Siobhain McDonagh]

The right hon. Gentleman was kind enough to participate in my Adjournment debate in Westminster Hall the other day. This is not just about oligarchs; it is about companies that are sanctions busting. I am aware of a Belarusian company that imports goods through Russia in order to undermine and take customers from a business in my constituency. Does he agree that, whether it is an oligarch or a business, the Office of Financial Sanctions Implementation and the Foreign Office should be adaptable and able to react to rogue actors, who will do everything possible to avoid the sanctions regime?

[Sir Iain Duncan Smith]

I must say, the hon. Lady’s debate was fascinating. She demonstrated that by our failure to follow this course, a UK company is essentially sanctioned because it is unable to get payment. The measures bounce back at us and honest, decent companies find themselves trapped by the failure to square the circle of the process and get everyone all along the chain. It was a brilliant debate, and I congratulate her on raising the subject on behalf of her constituents.

The Government should introduce new legislation to allow the seizure of already-frozen assets that are linked to criminality. The Russian Government have a huge amount of money of course, but many oligarchs are guilty of benefiting financially from war crimes and atrocities in Ukraine, so we should activate new legislation. Under such a mechanism, an enforcement authority such as the National Crime Agency could bring proceedings in a UK court to have property belonging to a sanctioned person involved in a gross violation of international human rights law or international humanitarian law confiscated without compensation, so that the frozen property can be used to fund reparations. That is the key.

Republic of Belarus and the Russian Federation: Sanctions and Tariffs

Debate between Iain Duncan Smith and Siobhain McDonagh

Wednesday 8th March 2023 Westminster Hall

[Siobhain McDonagh]

I agree with the hon. Member entirely.

This winter, the people of Ukraine carried on through the difficult war that they face, and we need to back their bravery by being brave and bold with sanctions and tariffs. However, the joint sentiments are worthless if things do not happen in practice, and sadly this is the case for a business group in my constituency. I recently met SGG Manufacturing Ltd, JDUK Ltd and Alunet Systems Ltd—a small group of wholly UK-owned businesses that I am glad to see represented here today. They are based in a number of MPs’ constituencies—particularly that of the hon. Member for Dewsbury (Mark Eastwood), who apologises that he is unable to attend, but he is absolutely on board with the case that I am about to raise.

Prior to the war, the businesses were, in part, the sole and exclusive distributors of a Belarusian manufacturer. They imported and distributed aluminium extrusions and products from Belarus. For example, they supplied components for roller garage doors—not the most glamorous of products, I agree, but over 10 years these British businesses had grown their revenue to £30 million per annum. Over 10 years, they had managed to supply 30% to 50% of roller garage doors in the UK using their components.

Then, the war in Ukraine happened. In response, the businesses did the right thing. They decided to abandon their exclusive contract with the Belarusian manufacturer and sourced their components from elsewhere in Europe—a decision that was expensive, risky and lengthy but nevertheless the right thing to do. The Government then introduced additional tariffs of 35% on Belarusian and Russian goods, which made it clear that the decision by those businesses was not just the moral thing to do but the right thing to do from a business perspective—that is, if the sanctions and tariffs were implemented effectively. Unfortunately, they were not.

The original Belarusian supplier is now managing to circumvent the sanctions and is continuing to import banned products. It is also able to pay the relatively low additional tariff of 35% with ease, so it can operate very competitively in the market. The British group, based in my constituency, has played by the rules and has had to find a more expensive manufacturer elsewhere in Europe.

[Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)]

I congratulate the hon. Lady on securing this debate. I am the co-chair of the all-party parliamentary group on Magnitsky sanctions, and we recently looked carefully at the implementation—the reality, as opposed to the Government’s rhetoric. We are discovering that there are big holes in what is actually happening, with far too little consideration given to the detailed implementation. We also sanction far fewer people who are guilty of transgressing our rules than the US does. The hon. Lady is on the right track, and I congratulate her on that, but perhaps she would like to press the Government further to increase the number of people and businesses they sanction and to make sure they do it properly.

[Siobhain McDonagh]

I thank the right hon. Gentleman and congratulate him on all the work he does on not only Russia but China. We often work together. This debate is not about the grand scope of the sanctions, but about the nuts, bolts and garage doors of how they are working on the ground for British businesses and Belarusian businesses.

The Belarusian company appears to be stealing the British company’s customer base by avoiding the sanctions, absorbing the additional tariff and undercutting the British company by supplying at a lower rate. Most people would call that dumping, and it has led to a loss of roughly £10 million in revenue for this British company based in my constituency.

As has been said many times in the Commons, Russia and Belarus are trying to get round sanctions on an industrial scale, and this seems to be a case in point. I have detailed evidence of how the Belarusian company is evading sanctions, and I would like to state it for Hansard so that it is in the public domain. I also note that, although the Office of Financial Sanctions Implementation at His Majesty’s Revenue and Customs is responsible for enforcing specific cases, the Foreign, Commonwealth and Development Office is responsible for drawing up the sanctions and tariffs legislation.

As I tried to explain to the Minister informally last night, the way the company is avoiding sanctions is unbelievable: it is starting some of its goods in Russia. There is a list of sanctioned products codes for Russia and one for Belarus, and in some instances, the two lists do not match. As a result, a product could be sanctioned in Belarus but not sanctioned if it comes from Russia. That is exactly what is happening. The tariffs apply to all iron and steel commodity codes starting 72 and 73 in Belarus, but they apply to only specific iron and steel products that begin with commodity codes 72 and 73 in Russia. That means that some of the goods that the Belarusian company supplies are sanctioned if they are imported from Belarus but not if they are imported from Russia.

The Belarusian company supposedly managed to move an entire factory’s worth to Russia so that it can still import the goods sanctioned from Belarus into the UK tariff free, all the while undercutting a British business. I have been able to get hold of an email from the Belarusian company to one of those customers to prove that. It stated:

“We would like to clarify the situation with regard to the current import of sectional doors and operators to the UK.”

The company says:

“Since the UK Government has introduced economic trade and transport sanctions on Belarus,”

it has

“imported garage doors from our Russian factory”.

It states that

“shipments fully comply with import restrictions by the Government of the United Kingdom in the last months.”

There we have it. Because of the way our sanctions list has been drawn up, Belarusian companies are avoiding sanctions. They are manufacturing and shipping products that were originally from Belarus, and are now supposedly from Russia, to avoid the sanctions. I am glad that the Foreign Office Minister is present today, and I hope that the sanctions list is updated, because it is costing a business in my constituency millions of pounds.

In other cases, this Belarusian company is assigning its products a new, intentionally incorrect but unsanctioned commodity code, enabling it to import to the UK sanction-free. I got hold of an email from this company to one of its customers to prove that. The measures are quite technical, so I hope hon. Members will forgive me if I go through them in a little detail. The company stated:

“We are looking for a way to supply you with roll tubes which are currently banned from entering the EU due to their commodity code 7308905900, and it seems like we have found an option. We can bundle the roll tubes with other items. This will have a different name and a commodity code which can be imported to the EU and the UK.”

The company can change the commodity code to one that is allowed to enter the UK from Belarus, and it can evade sanctions altogether. The most egregious part is that the Belarusian company is now approaching the former customers of the British business in my constituency and offering to supply them directly, profiting and expanding its business because of the war in Ukraine. It is just unbelievable. If that is happening in one company, surely it is happening in a number of businesses right across the UK.

It is important that President Zelensky comes to Parliament to speak, that our Opposition and Government leaders visit Kyiv and that we all get together to stress how strong our sanctions and tariffs need to be. However, it makes a difference only if the detail is correct. The sanctions are effective only if the product lists are drawn up effectively and we are able to target Belarusian and Russian businesses. Tariffs are effective only if they are high enough to make goods originating from a country uncompetitive. In the recent co-ordinated package of sanctions by the US, EU and UK, only the US increased tariffs on metals by up to 200%.

As we know, Putin and his cronies will be seeking every single loophole, omission and error to try to circumvent the sanctions. It is quite clear that Russia and Belarus are actively trying to get round sanctions and absorb tariffs on an industrial scale. Currently, companies are claiming that their goods originate in Russia to avoid sanctions. That is absurd. I hope that the Minister can provide more information about that and explain how we will close the loopholes that Russia and Belarus are using.

We can have the toughest regime on paper, but if Russia and Belarus are finding ways round it in practice and costing UK businesses, we have not done the right thing. I ask the Minister to address the detail and the consequences for British business. If he is in a position to do so, I would welcome it if he gave a few minutes after the debate to the businesses that are here today.