Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2022

Lord Ahmad of Wimbledon Excerpts

Thursday 3rd March 2022 Lords Chamber

Moved by

[Lord Ahmad of Wimbledon]

That the Regulations laid before the House on 28 February be approved.

Relevant documents: 31st Report from the Secondary Legislation Scrutiny Committee. Instrument not yet reported by the Joint Committee on Statutory Instruments.

[The Minister of State, Foreign, Commonwealth and Development Office (Lord Ahmad of Wimbledon) (Con)]

My Lords, these two statutory instruments were laid before the House on Monday 28 February 2022 under the powers provided by the Sanctions and Anti-Money Laundering Act 2018, also known as the sanctions Act, and came into effect on 1 March.

We have announced the largest and most severe package of economic sanctions ever in response to Putin’s premeditated and barbaric invasion. Working with our allies, we will continue to ratchet up the pressure. We have already imposed sanctions on President Putin, Foreign Minister Lavrov, five Russian banks, 120 businesses and a long list of oligarchs. Taken together, they target assets worth hundreds of billions of pounds. Importantly, we have also worked with our allies on this issue, agreeing to remove selected Russian banks from SWIFT and to target the Russian central bank, but we will go further.

We continue to stand with the Ukrainian people in their heroic efforts to face up to unbridled aggression. As I have said on a number of occasions, and as has been said by my right honourable friend the Foreign Secretary, nothing is off the table.

To update noble Lords on where we have got to on sanctions, overnight on 28 February we laid two new pieces of legislation on financial and trade measures. The first included a ban on Russian sovereign debt, a prohibition to limit access to sterling and a ban on any Russian company issuing securities or raising finance in the UK. These significantly strengthen our arsenal of sanctions against Russia. This is alongside increased trade measures, including a prohibition on sensitive dual-use items that could be used by the military and banning a further range of critical-industry goods, from high-tech to aircraft.

Sanctions announced by the United Kingdom and our allies are already having an important impact. Central bank interest rates have more than doubled, international businesses are quickly divesting, and the rouble is now trading at roughly a quarter of what it was when Mr Putin took power. That will impact the institutions that prop up Mr Putin and his cronies. We will continue to work with our allies to bring forward further sanctions and press for collective action to reduce western reliance on Russian energy. We will also continue to use every lever at our disposal to support the legitimate Government of Ukraine and, importantly, the Ukrainian people.

This legislation follows the “made affirmative” procedure set out in Section 55(3) of the Sanctions and Anti-Money Laundering Act 2018. These statutory instruments amend the Russia (Sanctions) (EU Exit) Regulations 2019. The powers in them will prevent Russian banks accessing sterling, which is a significant and new measure for the UK. Russian banks clear £146 billion of sterling payments through the UK financial system each year. Without the ability to make these payments in sterling, designated banks will not be able to pay for trade in sterling, invest in the United Kingdom or access UK financial markets. This matches the power the United States already has to prohibit access to the dollar, showing our joint resolve to remove Russia from the global financial and trade system. Around half of Russian trade is denominated in dollars and sterling. We have already used this power to designate Sberbank, the largest Russian bank.

The same statutory instrument prevents the Russian state raising debt here and isolates all Russian companies—of which there are over 3 million—from accessing UK capital markets. This measure goes further than those of our allies, banning all Russian companies from lucrative UK funding. Russian businesses listed in London have a combined market capitalisation of over £450 billion. This includes some of Russia’s largest state-owned enterprises, and the Kremlin is hugely reliant on their tax revenues. Banning them from raising debt in London will further increase the burden on the Russian state. Global giants such as Gazprom will no longer be able to issue debt or equity in London. In the last seven years, Russian companies have raised over $8 billion on the UK markets. We have put a stop to this.

The Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2022 ban exports to Russia across a range of items, including the dual-use list and other goods and technology critical to Russia’s military-industrial complex and its maritime and aviation sectors. The SI also bans a range of technical and financial services related to such items. With this legislation, enacted in alignment with the United States, the European Union and other partners, we will collectively cut off Russia’s high-tech imports. This includes critical, high-end technological equipment such as microelectronics, telecoms, sensors and marine and navigation equipment. It will blunt Russia’s military-industrial and technological capabilities, gradually degrade Russia’s commercial air fleet, and act as a drag on Russia’s economy for years to come. The Department for International Trade and the Treasury will offer advice and guidance to UK businesses that are affected.

In conclusion, Russia’s invasion of Ukraine is part of a long-term strategy. If we were to give ground now, Mr Putin’s strategy of aggression would never end. Instead, he would be emboldened, and his focus would simply move on to the next target. The United Kingdom has been at the forefront of this response. Importantly, we are acting in concert with our allies; collectively, our measures will deliver a devastating blow to Russia’s economy and military for years to come. The importance of co-ordinating with our partners will allow our sanctions to reverberate through Mr Putin’s regime.

We must remain firm and resolute in our response. We must rise to this moment and, importantly, continue to stand with Ukraine and its people. I am determined that we will continue to support them in that choice. I beg to move.

[Lord McDonald of Salford (CB)]

My Lords, I congratulate the Government on what they have done so far, but does the Minister agree that this package has already been overtaken? It is already inadequate against the developing need. For example, the Germans have been able to impound the yacht belonging to Mr Usmanov in Hamburg, yet he still has access to his stately home in Guildford. How can that be?

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[Lord Ahmad of Wimbledon (Con)]

My Lords, I thank all noble Lords for their strong support for the sanctions more broadly and specifically for the measures that we are debating today. I say from the outset that I agree totally with the noble Lord, Lord Fox. Existing laws and processes should be fully leveraged to ensure that those actions that have been taken can be fully applied rather than our just waiting for new legislation to pass. The noble Lord, Lord Austin, and others, pointed to the importance of resourcing. I assure him that it is at the forefront of our thinking, both in the context of the FCDO and across government, including the Home Office.

I am grateful to all noble Lords who have contributed on the specific sanctions before us, but as I expected—it is no surprise to anyone—our discussion this afternoon has gone much wider. I am sure that will be reflective of the upcoming debates both on the legislation and on specific issues relating to the unravelling of the situation in Ukraine.

The noble Lord, Lord McDonald—I nearly said “noble friend”; he was certainly a friend when he was a PUS—will know all too well that I cannot comment on specific designations. Nevertheless, I hear what he says. In this regard, I assure him and all in your Lordships’ House that we are aligning ourselves. Where there are designations which are reflective of partners who may have moved forward more quickly or broadly, we are working closely with them. Questions are often asked about our alignment particularly with the EU. Noble Lords may be aware that my right honourable friend the Foreign Secretary has been invited, along with representatives of the United States, to attend the European Union Foreign Affairs Council to ensure that we are fully aligned in how we move forward, both in the governance structures and in the specific designations. That underlines the challenge that we face but also, importantly, the collaboration and collective response from the Government of the United Kingdom and Governments of key partners, including those within the European Union. My right honourable friend the Foreign Secretary is visiting key partners today as I speak.

The measures that we have taken are already having a significant impact, but I assure noble Lords that I have listened carefully to and made note of their suggestions as to what more we can do in consultation with our allies. As we debate legislation which enables what action we can take, further announcements will be made. The noble Lord, Lord Collins, talked about Belarus. We will debate the specific application of those sanctions in the coming days. We will introduce further sanctions and prohibitions on financial services relating to foreign reserves exchange and asset management by the Russian central bank. These too will be before us in the coming days.

My noble friend Lady McIntosh rightly talked about ensuring humanitarian carve-outs from our sanctions. From our experience in Afghanistan, I have been very minded to ensure that this is part and parcel not just of our thinking but of our processes. My engagement earlier this week in Geneva with key partners working on the ground, including the various agencies of the UN but also the likes of the ICRC, was focused on the very issue that she highlighted.

The United Kingdom has also said that we will work with our allies in NATO. On Friday, NATO leaders reiterated their commitment to Article 5 in solidarity and support for Ukraine, which many noble Lords mentioned. We will also provide further humanitarian support, which has been announced by my right honourable friend the Prime Minister. The UK has also announced £100 million of new funding to aid efforts to build Ukraine’s resilience and reduce reliance on Russian energy supplies. I listened very carefully to the noble Lord, Lord Austin, about particular assets held and how they are best utilised. Past conflicts have also demonstrated the legal challenges that apply, depending on who owns what assets and the legitimacy of the Government of a given country to have a right to those assets. We can talk of conflicts past, on which we are still trying to unravel some of those issues. I am sure that noble Lords welcome the additional £100 million of new funding from the United Kingdom to build Ukraine’s resilience and reduce reliance on other areas, including energy and security.

My noble and learned friend Lord Garnier rightly highlighted the different groups. Again, that is very much part and parcel of our thinking on how we can target further work and co-ordination with our key partners. I am also minded very much to agree with him on the important issue of Russian disinformation. The Russian Government are conducting an aggressive set of information operations against Ukraine and NATO in a shameful attempt to justify action against Ukraine. I have to say to my noble and learned friend that I think we all take encouragement that the protests against Russia’s actions are not limited to countries outside Russia. We have certainly seen disgraceful scenes today of protests being again put down in St Petersburg by Russian military and security forces, but they show that the Russian people totally despise the actions being taken by President Putin, and we will work to see how we can strengthen our influence through soft power.

Whoever we target under designation criteria will remain subject to a test of appropriateness, as set out under the sanctions Act. I have made this point before: our values and our system acknowledges that we have a robust legal framework to our sanctions, and we will need to consider carefully how sanctioning individuals helps to achieve the purposes of the regime. The whole essence—and I say this as the UK’s Human Rights Minister—is very important to me in the fairness that we apply when we look at such issues. However, equally, we are very much committed as a champion of freedom and democracy to tackle corruption and illicit finance that directly undermine security and democracy. The UK will use our autonomous sanctions and other tools to send the clearest possible message that the UK is not a safe haven for illicit wealth or financial flows, including those from Russia.

The noble Baroness, Lady Kramer, rightly raised the issue of cryptocurrencies, which are not so specific to the current instrument, but crypto-assets are economic resources and are therefore covered by the UK’s financial sanctions. I believe that with the economic crime Bill and other measures that will be taken there will be broader discussions about that issue. The noble Baroness is totally right that where we identify the so-called loopholes that have been used creatively, to put it that way, by those seeking to avoid particular rules, regulations and sanctions, we need to close them down as quickly as possible, but in conjunction with our partners and allies.

My noble friend Lady Wheatcroft raised the issue of property. My understanding is that properties subject to asset freezes are not directly seized, but they cannot be sold and employees cannot work in those properties. She raised the issue of the 18-month figure, which I think is very much within the provisions of the economic crime Bill that has been introduced. If I may, I shall write detailing the specifics. There are qualifications within that, but she is right to raise the issue. As I say, I am sure that it will come up in the debates we have on the Bill.

My noble and learned friend Lord Garnier also raised the issue of EU comparisons. As I have already said, we are working together closely. Where we are perhaps ahead or behind any of our key partners we are looking to align as quickly as possible on specific steps that we are taking.

On the issue raised by my noble and learned friend Lord Clarke, he may not remember, but I remember as a much younger man listening to one of his speeches in a think tank. We were discussing Iraq at that time. My noble and learned friend articulated very clearly—and his views have come to pass—that an intervention in Iraq would not resolve the conflict, as some of it was embedded in religious differences based on 1,500 years of different perspectives. I agree with him that this is about the long haul. I assure my noble and learned friend that we are absolutely determined that the actions we are taking today will remain robust. The United Kingdom has been playing a leading role in ensuring that as we work with our international partners, particularly those in the European Union, we recognise their challenges and where there are issues, for example with Germany and energy, we make the case powerfully and constructively while recognising that we need to move together.

I say to my noble and learned friend that it will not just be about the resolve of the United Kingdom. This resolve will need to be reflected within the wider international community to ensure we are fully aligned. That is why, in terms of our ministerial engagement, we are speaking extensively with our key partners, not just on a daily basis but on an hourly one. My right honourable friend the Prime Minister, the Foreign Secretary, other Ministers and I are travelling quite extensively. We are taking action, as was shown by the United Nations vote yesterday. We are working with the US, the EU, the G7 and the OSCE. It is good to see how we are working with other key partners and perhaps even with those partners or other countries where we do not see eye to eye and with countries where we have big differences, including China. The fact that China abstained not once but twice—once at the Security Council and then yesterday at the General Assembly—shows that diplomacy and diplomatic efforts are also vital in our response.

I have sought to cover the specifics—

[Lord Purvis of Tweed (LD)]

With regard to China and the position of the UK, as the Minister will know, the UK is a global hub, not only for oil trading but also for shipping and for insurance of that global shipping. Especially with Russia and China, insurance—I think the noble Lord, Lord Collins, referenced insurance, but I did not pick up what the Minister had said about that—for shipping is one of the key elements in doing real harm to the Russian oil and gas sector. A lot of it is brokered through London. Can the Government please outline what they intend to do about this sector?

[Lord Ahmad of Wimbledon (Con)]

My Lords, the specifics of shipping—the noble Lord had also raised wider issues such as bullion—are very much part of our thinking. On shipping specifically, the noble Lord will know that we have already taken the lead. My right honourable friend the Transport Secretary introduced certain measures that restrict the movement of Russian vessels and their landing in UK ports. The noble Lord is right to raise the broader issue of insurance and the hub and the role that the United Kingdom plays. We will be taking further measures in this respect and the details of them will follow.

As I have said throughout this whole process, as these measures are coming in, it is a very fluid situation. We are working as quickly as we can. There is the legislation in front of us that we are approving today—I hope that will be the case—and other measures already under way, some announced and some not. I do not want to pre-empt them. However, the noble Lord is quite right to raise the shipping sector. I hope that the steps specific to that sector that we have already taken indicate the Government’s route in terms of our intention to work further to limit, as the noble Lord says, the effectiveness of Russian activity in that sector.