Russia (Sanctions) (EU Exit) (Amendment) (No. 7) Regulations 2022 Russia (Sanctions) (EU Exit) (Amendment) (No. 8) Regulations 2022

James Cleverly Excerpts

Monday 25th April 2022 General Committees

[The Minister for Europe and North America (James Cleverly)]

I beg to move,

That the Committee has considered the Russia (Sanctions) (EU Exit) (Amendment) (No. 7) Regulations 2022 (S.I. 2022, No. 395).

[The Chair]

With this it will be convenient to discuss the Russia (Sanctions) (EU Exit) (Amendment) (No. 8) Regulations 2022 (S.I. 2022, No. 452).

[James Cleverly]

It is a pleasure to serve with you in the Chair, Ms Elliott. The regulations were laid before the House on 30 March and 14 April 2022 respectively under powers provided by the Sanctions and Anti-Money Laundering Act 2018, and they came into effect under the “made affirmative” procedure.

The UK has sanctioned more than 1,500 individuals and entities under the Russia sanctions regime since the invasion of Ukraine. Together with our wider package of measures, these new powers ratchet up the pressure on Vladimir Putin, degrading his war machine and further isolating Russia. I will cover each set of regulations in turn.

The No. 7 regulations cover three separate areas. The first relates to the extension of the financial, trade and shipping sanctions imposed in Crimea to the non-Government controlled territories in Donetsk and Luhansk. These measures prevent British companies and individuals from investing in companies operating in non-Government controlled territories or purchasing land in those regions. They also prohibit the export of infrastructure-related goods and services, as well as the import of goods originating in non-Government controlled territories. The extension of these measures will constrain Russia’s ability to make these areas economically viable, as the equivalent measures in Crimea have done, and it will remain in place until Russia ceases its destabilising activities and withdraws its military from Ukraine.

The second area is designation by description. As the Government sharpen their measures against Putin and his regime, this power enables us to designate groups of individuals and entities. The Economic Crime (Transparency and Enforcement) Act 2022 removed some of the constraints around designation by description, which offers the Government maximum flexibility in designating members of political bodies as a group rather than individually, and this legislation implements those powers in respect of the Russia sanctions regime. That will help us to target our actions against members of defined political bodies, such as the Russian Duma and the Federation Council. This is the first time that a “designation by description” power has been included in a UK sanctions regime, and it underlines our commitment to exploring all options.

The third and final power relates to technical assistance in relation to shipping and aviation. We are targeting not only oligarchs’ businesses but their assets and international lifestyles. These new powers stop oligarchs accessing their luxury toys and deprive them of the benefits of the UK’s world-leading aviation and maritime industries and engineers. This new prohibition complements those already imposed on Russia’s shipping and aviation sectors. We are continuing to ramp up the pressure, working in tandem with our international partners and supported by commercial decisions taken by key industry players.

I must also note that, as part of the No. 7 regulations, we have corrected errors made in regulations Nos. 2, 5 and 6, in response to feedback from the Joint Committee on Statutory Instruments. Given the context of Russia’s invasion, legislation has been drafted quickly. However, we will continue to deliver further legislation at speed, while working to minimise further errors.

The Russia (Sanctions) (EU Exit) (Amendment) (No. 8) Regulations 2022 cover the trade measures that are designed to constrain the Russian Government by disrupting the oil industry and other advanced industries that are crucial in fuelling the Russian economy and Vladimir Putin’s regime. Through the measures, we have limited access to goods required by the Russian military-industrial complex to maintain and develop its capabilities. 

It is important that we demonstrate to those supporting Russia that the UK recognises the role they are playing and will hold them to account.  That is why, further to our previous sanctions against oligarchs close to Putin, we have introduced a ban on the export of luxury goods. 

These regulations, developed in close co-ordination with our allies, will cut off Russia’s access to strategic supplies critical to key export markets, including in the energy sector, while increasing the economic pressure on Putin’s regime. We will continue our co-ordinated action against Russia in partnership with our allies, and encourage more countries to do likewise.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

It is a pleasure to serve under your chairpersonship today, Ms Elliott. I thank the Minister and the civil servants at the Foreign, Commonwealth and Development Office who have worked to bring the sanctions into effect. I know that they are making substantial efforts at the moment, and I hope that they take my questions and criticisms in that spirit.

[James Cleverly]

Always.

[Stephen Doughty]

From the beginning, Labour has wholeheartedly supported the Government in their efforts to sanction the Putin regime for the illegal, unprovoked and murderous attack on Ukraine and its people. That remains true, as we continue to bear witness to acts of heinous aggression and atrocities on a daily basis. The scenes that we have seen in recent days of mass graves, the reports of the atrocities committed north of Kyiv and in Mariupol, and, of course, the indiscriminate and brutal attacks on civilians in Odesa mean that we must act resolutely and in a unified way across the House. We must, therefore, as the Minister said, do all we can, alongside our allies and partners, to bring the Russian economy and its war machine grinding to a halt.

We must seek to match the courage shown by our friends in Ukraine with action. The way to do that is to implement the broadest and deepest regime of sanctions ever levelled at President Putin and those around him. The Government can be assured that, on expanding, deepening and broadening sanctions, they can continue to count on the official Opposition’s support. We will not seek to divide the Committee today.

However, I have a series of questions and concerns. The last time I stood opposite the Minister, when we debated the previous set of sanctions, I made it clear that we could not afford a sanctions gap. Although passing the economic crime Act will hopefully speed up bringing forward and imposing measures, I fear that we are still lagging behind what we could do. In the Minister’s response, will he set out the FCDO’s assessment of the total value of what has been frozen or impacted under the existing sanctions regime to date to give us an idea of the scope and scale of what we have done so far?

We are now at the stage where we need answers to essential questions. Where are we? What has the impact been? How much further do we need to go? The Government should be forthright with those figures here and, indeed, with the wider public, not least given the impact on their lives through energy prices, as well as the impact on many of our allies, some of whom are being hurt much more severely than us as a direct result of the sanctions. We are all united, but we need to understand the impact of the sanctions, that they are working and why they are necessary. As I said, we welcome the regulations and will not divide the Committee, but we have some significant questions.

On the No. 7 regulations, extending the existing sanctions relating to Crimea to the so-called people’s republics in the Donbas is integral to making sure that our sanctions target Russia’s economy effectively and dismantle the capacity to continue waging war. The occupation of non-Government controlled Ukrainian territory cannot become an economic enabler for Putin’s regime, and the Government are right to recognise that and to introduce these measures.

However, Putin took the illegal step of recognising the so-called republics in Donetsk and Luhansk over two months ago, and the shadow Foreign Secretary, my right hon. Friend the Member for Tottenham (Mr Lammy), called for specific measures to address these concerns on 22 February, yet they are being brought into effect only now. The Minister has given some reasons for the delay, but I hope he can say a little more about why we did not take this fairly obvious step more quickly. We need to be proactive and not just to react to things, particularly when what Putin was going to do could have been easily predicted, and given that these areas were invaded illegally as far back as 2014. We do not need to see further evidence of the brutality of the Putin regime or its willingness to break international law to justify introducing the very harshest of sanctions.

Similarly, the Opposition welcome the measures in the No. 8 regulations, particularly on a whole range of critical dual-use technologies, energy technologies, iron and steel products, and the luxury goods that the Minister referenced. As we have argued, limiting Russia’s exporting capability and denying oligarchs their luxuries are critical, but we must make sure that President Putin feels every wall closing in on himself and on those who continue to sustain his regime. Again, however, the shadow Foreign Secretary wrote to the Foreign Secretary on 27 February calling specifically for a luxury goods ban and the widening of export and trade controls. The Secretary of State for International Trade announced those measures on 15 March, but they are being implemented only now. There is a danger that the Government are spending time bringing these measures forward, when the people of Ukraine, who are suffering the brunt of this murderous war, do not have time. We are still plugging loopholes and papering over cracks that, frankly, should not exist.

The explanatory notes mention that the regulations have to correct a number of defects. The Minister said that regulations are being prepared at speed, but I have to ask some fundamental questions about resourcing. It is clear that officials are working hard, and I certainly do not want to undermine in any way the work they are doing, but I have asked a number of times for clarity on the resourcing of the FCDO sanctions unit and the implementation units. The latest figures I could find show that just 40 to 49 staff were working in the sanctions unit in December 2021. Has that now been expanded, and have additional resources been brought in so that we do not have to go back and retrospectively correct mistakes, and so that we can move much more quickly? I will make some points about the Office of Financial Sanctions Implementation in due course, but we have to have the necessary drafting and advisory resources in the FCDO, as well as the necessary advisory resources for those who will have to implement these sanctions. We cannot have a game of catch-up all the time, and the Government have the Opposition’s support in bringing that to an end, but we have to act with conviction and speed.

I want to ask some specific questions about the instruments. Given that they relate to extending existing financial sanctions, what has been done to ensure that those linked to Putin’s regime are not able to transfer through proxies assets that would have been sanctioned? We have raised that issue regularly, not least because earlier this month the Financial Times reported that oligarch Alexei Mordashov had swiftly transferred billions of dollars of stock holdings out of his name, and Alisher Usmanov is reported to be avoiding sanctions through a variety of offshore companies and business associates. Until the Government get a proper grip on the use of proxies, with robust legislation to ensure enforcement, we will be issuing sanctions with one hand tied behind our backs. Could the Minister say what he will do about that issue?

--- Later in debate ---

[James Cleverly]

Once again, I am grateful for the tone taken by the hon. Member for Cardiff South and Penarth from the Opposition Front Bench and by Opposition Members. I can assure hon. Members that their questions are taken in the spirit in which they were asked. I know that Members are trying to ensure that the sanctions regime is as effective as possible as quickly as possible. Although I do not always agree with their interpretation of events, it is absolutely right that they push the Government to go as far and as fast as we can.

It is of course impossible to give a precise figure on the scale of the sanctions, but it is unprecedented; we are talking about values in the hundreds of billions of pounds. We have seen the effect on Russia’s economy. As I speak, the estimates are of approximately 60% of the value of its foreign currency reserves—something around £275 billion.

Each nation’s sanctions regime is defined by the legislative framework in that country, but we are acting in close co-ordination, and I have regular conversations with other deputy Foreign Ministers, particularly in the Quint—the US, France, Germany, the UK and Italy. More broadly, the co-ordinated value of our sanctions is making a significant difference to the situation in Russia and is applying genuine pressure. There is a reason why the UK is singled out for criticism by Vladimir Putin: our sanctions are hurting him.

I do not accept the criticism that others have gone further or faster than the UK. Each of us has worked differently—as I said, because of the legislative framework in which we operate—but when it came to financial services, in particular, the UK moved very effectively. We led the pack when it came to excluding Russia from the SWIFT banking payments information system, which has had a very significant effect.

As we now bring forward regulations such as these, and work in collaboration and co-ordination with international partners, it becomes increasingly hard for Russian oligarchs to use proxies to squirrel their money away in other forms. I am pleased that one thing that is demonstrably true is that, in response to Vladimir Putin’s unwarranted aggression against Ukraine, the international community has pulled more closely together, rather than being fragmented, as he had hoped.

On that point, I, the Foreign Secretary and other Ministers, including the Prime Minister, regularly encourage other countries to distance themselves from Russia, in part through votes at the United Nations. A number of countries have voted differently from previous voting patterns and have voted to criticise Russia at the United Nations. That includes India, and the Prime Minister did raise the issue of isolating Russia in his talks with Prime Minister Modi. I do not have the details, but I can confirm that it was raised.

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

On the question of India, we know that Russia has been buying up gold, and 22% of its assets are now held physically in gold. I read an article earlier that said:

“Moscow may need to look east to central banks in nations like India or China to sell gold or secure loans using it”.

The Minister has just mentioned India, and I wondered whether the issue of how Russia will use its gold reserves was raised during the Prime Minister’s visit to India.

[James Cleverly]

As I say, I do not have that level of detail. However, I can assure the hon. Lady that I have raised the isolation of Russia on the international stage with Indian representatives, and I did that on my last trip to the United Nations. As I said, on his trip the Prime Minister raised the importance of us acting in solidarity against Russia. The details of gold reserves, and where they are expended, is an important one. We will continue to press countries that are not currently sanctioning Russia to look carefully at what is going on and particularly, as the hon. Members for Cardiff South and Penarth and for City of Chester said, at the appalling images coming out of Bucha and the areas around Kyiv and at the artillery strikes in the south-eastern part of Ukraine. We will continue to push on those issues.

With regard to the loopholes, I do not recognise the scenario that the hon. Member for Cardiff South and Penarth put forward. The definition of which individuals and entities we are able to sanction has been broadened quite significantly—I would need to get the precise wording for, but “derived benefit from” gives us quite a significant degree of latitude, and also gives us an opportunity to look into the actions of proxies and individuals who are being used in an attempt to circumvent our sanctions.

[Stephen Doughty]

I thank the Minister for that clarification. Will he write to me to clarify that the specific scenario that I raised cannot be used, and will he point to the relevant legislation? As I say, we are trying to ensure that the regime is as robust as possible and that there are no gaps that anybody can slip through.

[James Cleverly]

As I say, I will check on that. My understanding—I am not a lawyer—is that it does not sound as though we are limited, but I will double-check that.

On staffing, sanctions law is of course an incredibly important but niche bit of law. Increasing the staffing levels in this area is not easy, but I can assure the hon. Member for Cardiff South and Penarth that we have tripled the number of people working in enforcement at the FCDO since January. I do not have the figures for other Government Departments, but this area is incredibly important, and the focus and ultimately our resourcing will be directed towards ensuring that our sanctions regime is robust.

[Stephen Doughty]

Again, I am heartened to hear what the Minister says. To be clear, will he, perhaps in writing, separate the resourcing for the drafting and development of the sanctions packages from the resourcing for the OFSI and other bodies involved in enforcement, because those are two separate things? They are both crucial and we want to see that resourcing has gone up in both.

[James Cleverly]

I will ensure that those figures, where we have access to them, are made available.

Asset seizures are an incredibly emotive area, and this comes to the broad point that the hon. Member for Cardiff South and Penarth made about the speed with which sanctions are brought forward. As I say we repaired some errors, and there is a balance to be had between drafting quickly—we are drafting these sanctions more quickly than ever before—and ensuring that they are absolutely robust and watertight. All our actions are put in place with two broad things in mind: first, the ability to ensure that Vladimir Putin does not win in Ukraine and to choke off his ability to fund his war machine, and secondly making sure that the sanctions are legally robust. When it comes to asset seizures, we have looked, and will continue to look, at what is doable, but in all instances we want to make sure that we do not do anything to undermine the legal strength of our sanctions regime. Asset seizures are an area that we have to make sure is legally watertight to ensure that we do not inadvertently create legal pressure that might undermine our sanctions work more broadly.

The hon. Member for City of Chester raised the issue of lifting sanctions. Obviously, our demands of Vladimir Putin are clear, and they are in support of the Ukrainian negotiating teams. However, I assure the hon. Gentleman that we will not be in any rush to lift those sanctions. As he says, given the images of what appears, prima facie, to be the direct targeting of civilians and civilian infrastructure, we will want to ensure that those who should be held to account are held to account, and we will ensure that our sanctions regime supports that wider move towards justice.

[Emma Hardy]

Just before the Minister concludes, will he address the point that has been raised about the repurposing of assets?

[James Cleverly]

Yes. It is important to remember that the primary aim of our sanctions regime is to choke off the financial supply to the Russian war machine. Our sanctions deny oligarchs access to money, assets and luxury goods. They apply pressure, as the hon. Member for City of Chester said, to the top end of the regime and prevent money from flowing around the Russian system.

Repurposing would take us towards an asset-seizure scenario, and we would need to ensure that, were we to pursue that, it did not in any way undermine the primary function of the sanctions regime, which is to choke off financing. Our regime is working by limiting the flow of capital to the Russian war machine.

[Stephen Doughty]

I thank the Minister for being generous in taking interventions. I also asked him some specific questions about shipping. I do not expect him to riff off his notes on the detail, but perhaps he could write to me. I am awaiting a letter, so perhaps an omnibus letter covering all the points he has promised to write to me about could be forthcoming. I asked more questions orally today because we are approaching Prorogation, when written questions will fall, so I hope the Minister will be generous in writing back to respond to my specific technical points.

[James Cleverly]

On that final point, the people in my private office will be pulling the faces that they pull when Ministers make promises. I assure the hon. Gentleman that I will not use Prorogation as a means of evading his legitimate questions. If they are in his mind, I suspect they are in the minds of others, and I want to ensure that all colleagues from both sides of the House can feel confident that our sanctions are doing what they should do—I will be told off by my team when I get back, I am sure.

Such matters are about working together across the House—I pay tribute to the tone taken by the hon. Gentleman and others—and in collaboration with our friends and partners around the world. Ultimately, this is about supporting the Ukrainian Government and people in their desire to eject Russia from their homeland and to get back to the peace they want and deserve.

Question put and agreed to.

Resolved,

That the Committee has considered the Russia (Sanctions) (EU Exit) (Amendment) (No. 7) Regulations 2022 (S.I. 2022, No. 395).

RUSSIA (SANCTIONS) (EU EXIT) (AMENDMENT) (NO. 8) REGULATIONS 2022 (S.I. 2022, NO. 452)

Resolved,

That the Committee has considered the Russia (Sanctions) (EU Exit) (Amendment) (No. 8) Regulations 2022 (S.I. 2022, No. 452).—(James Cleverly).