Since the Russian invasion of Ukraine on February 24 2022, The Office of Financial Sanctions Implementation (OFSI) has published numerous updates to the terms of its sanctions.
On December 15 2022, the UK Government passed The Russia (Sanctions) (EU Exit) (Amendment) (No.17) Regulations 2022 which came into effect (in the most part) from December 16 2022.
This most recent amendment introduces a ban on any UK company providing trust services to those ‘connected with Russia’ (unless there is an ongoing arrangement already in place) or to any designated person.
Furthermore, due to automatic extension or separate adoption the scope of the new regulations will also find their way into the regulatory regimes of British Overseas Territories and Crown Dependencies.
How the amendment defines ‘trust services’
Specifically, the amendment contains a new regulation 18C regarding “trust services”.
To clarify more precisely who this ban applies to, the OFSI has also expanded on its interpretation of the term ‘trust services’ and defines them as follows:
(a) The creation of a trust or similar arrangement
(b) The provision of a registered office, business address, correspondence address or administrative address for a trust or similar arrangement
(c) The operation or management of a trust or similar arrangement
(d) Acting or arranging for another person to act as trustee of a trust or similar arrangement, where “trustee”, in relation to an arrangement similar to a trust, means a person who holds an equivalent or similar position to a trustee of a trust.”
Defining what ‘connected to Russia’ means
A person considered to be ‘connected with Russia’ is defined at regulation 19(A)2.
It’s important to note that the UK definition of connected with Russia is different to that of the EU. The UK definition relates to residence or location, while the EU also relates to Russian nationals (but with exceptions for EU nationals or EU residents). As a result, the UK restriction would attach to non-Russians who are ordinarily resident in Russia.
Broadly speaking The UK definition covers:
(a) An individual who is, or an association or combination of individuals who are, ordinarily resident in Russia
(b) An individual who is, or an association or combination of individuals who are, located in Russia
(c) A person, other than an individual, which is incorporated or constituted under the law of Russia
(d) A person, other than an individual, which is domiciled in Russia
The OFSI will consider granting licences for trust work if it falls within one of the following categories:
- Extraordinary situations
- Humanitarian assistance activity
- Medical goods or services
- Diplomatic missions etc.
- Safety and soundness of a firm
- Financial regulation
- Financial stability
- Unauthorised unit trusts
Understanding the implications of the ban
This sanctions regime update will likely create a degree of confusion, especially for those trustees with designated persons listed as beneficiaries as their assets are already frozen. No individual or entity can access, move, or use these assets, including designated persons.
It will also warrant much closer due diligence, in order to ascertain whether potential beneficiaries are in any way connected with Russia, or are designated persons.
Furthermore, difficult questions may arise with respect to beneficiaries residing outside Russia who then travel to Russia for some reason. In which case, at what point in time are they regarded as being resident in Russia?
This is undoubtedly a complex situation. And while the OFSI is expected to provide further guidance in due course, it still leaves many unanswered questions.
As a result, anyone providing trust services should sign up to alerts from the OFSI in order to stay up to date with any developments.
Most importantly, firms must undertake appropriate checks on clients and potential clients to ensure they comply with the new regulations, as financial sanctions such as these are subject to strict liability if breached.
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