Ukraine in Crisis: What Do the UK Sanctions Against Russia and Russian Entities Mean for Your Business? – A Practical Guide

Client Alert
March 2, 2022

Where are we today?

With sanctions being imposed by the international community on an almost daily basis on Russia (and certain Russian banks and nationals) since its threatened destabilisation and subsequent invasion of Ukraine on 24 February 2022, keeping up with the ever-changing position is a challenge. Both here in the UK and across the globe, numerous financial and economic sanctions, as well as extensive and novel trade sanctions, have been imposed, with more waiting in the wings, all with the goal of limiting Russian access to the international markets, restrict the functioning of international contracts and stopping the flow of money to the Russian state, certain financial institutions and some businesses.

This client alert provides some suggestions on how to navigate the UK Government’s sanctions on Russia in the midst of the ongoing crisis in Ukraine, particularly as it relates to the trade and export finance sector.

A. Key sanctions from the UK

One of the key aims of the sanctions in the UK is to “exclude Russian banks from the UK financial system”.[1] This follows the sanctioning of five Russian banks on 22 February 2022 (Rossiya Bank, IS Bank, GenBank, Promsvyazbank and Black Sea Bank). Of the five targeted banks, only Promsvyazbank is on the Russian Central Bank's list of systemically important credit institutions. As of 24 February 2022, the UK imposed asset freezes on six Russian banks, including JSC Research and Production Corporation UralVagonZavod, United Aircraft Corporation, United Shipbuilding Corporation, Rostec, Tactical Missiles Corporation, VTB Bank, and five individuals. Russia’s President, Vladimir Vladimirovich Putin, and Russia’s Minister of Foreign Affairs, Sergei Viktorovich Lavrov, also became subject to an asset freeze in the UK on 25 February 2022. Further sanctions were announced on 28 February 2022, with VEB.RF, Bank Otkritie Financial Corporation PJSC and PJSC Sovcombank being added to the list. These sanctions prohibit any dealings with, or provision of, directly or indirectly, any funds or economic resources to or for the benefit of any of the entities and individuals listed here. On 1 March 2022, PJSC Sberbank (Public Joint-Stock Company Sberbank) was amended on the list of persons named in relation to financial and investment restrictions.[2]

A variety of trade and financial sanctions have been announced by the UK Government, which aim to cover a vast area of trade relating to energy, infrastructure, technology and transport, as well as financial services which support or fund specific areas of trade and technology.

How does this affect me and my business? Here are some key points to check.

  1. Are you, your business or any of your contracting parties a UK entity, British national, UK company or a branch of a UK company operating overseas? This includes any corporate entity incorporated or constituted in any part of the UK, and subject to the laws of any of the jurisdictions within the UK, so it will include Scottish companies and LLPs, as well as entities incorporated in Northern Ireland. If so, then these individuals and entities are bound by the UK sanctions, prohibitions and restrictions in the financial, trade and shipping sanctions being imposed by the UK Government. Failure to comply with these is a criminal offence under section 18 of the Sanctions and Anti-Money Laundering Act 2018 with penalties ranging from a fine to imprisonment of between two to ten years.
  2. Are you contracting with or currently negotiating with any person (including corporate entities) who is a sanctioned person under the UK sanctions regime[3]for the purposes of encouraging Russia to cease actions to destabilise Ukraine or undermine or threaten the territorial integrity, sovereignty or independence of Ukraine”? Such an entity is referred to as a “designated person” in the UK sanctions regulations. Look out for contracts for a direct or indirect grant of a new loan or credit exceeding 30 days to:

    (a) Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB), Rosselkhozbank, OPJ Oboronprom, United Aircraft Corporation, Uralvagonzavod, Rosneft, Transneft or Gazpromneft;[4]
    (b) any entity incorporated outside the UK which is owned by one or more of these entities;
    (c) any entity incorporated in the UK which is owned by one or more of these entities;
    (d) an entity acting on behalf of or at the direction of any of these entities in (a) or (c);
    (e) a person connected with Russia; and
    (f) the Government of Russia.

    UK persons and entities are prohibited from entering into contractual arrangements with the above listed parties from 1 March 2022.
  3. Are you a financial institution or correspondent bank? The UK Government Guidance was updated on 1 March 2022 to include the expanded prohibitions on UK financial institutions making certain money transfers and payments:

    The Regulations prohibit a UK credit or financial institution from establishing or continuing a correspondent banking relationship with a designated person if the UK credit or financial institution knows, or has reasonable cause to suspect, that the correspondent banking relationship is with a designated person.”

    Check if you have an existing correspondent banking relationship or are in the process of arranging one, as this is now prohibited and subject to UK sanctions:

    The Regulations also prohibit a UK credit or financial institution from processing a sterling payment to, from or via, a designated person, or a credit or financial institution (domiciled anywhere including the UK) owned or controlled by the designated person, if the UK credit or financial institution has reasonable cause to suspect that the sterling payment is to, from or via a designated person. This prohibition applies to payment chains or third party payments.”

    It is key to establish if the person or entity you are dealing with or making payment to or receiving payment from is a designated person, subject to UK sanctions. [5] If so, processing such payments is prohibited.
  4. Are you providing financial services or funds relating to goods and technology which could be restricted by the UK sanctions?[6]

    Check if the object or the effect of the import, export or provision of technology[7] or the indirect or direct supply or delivery of certain goods is prohibited by the UK sanctions. If so, then the provision of financial services supporting or facilitating the import, export or supply will be prohibited. Financial services include banking services, e.g. accepting deposits, lending, financial leases, payments and money transmissions, provision of guarantees, financial trading, participating in issuance of securities, and insurance services (direct insurance, direct life assurance, reinsurance and retrocession, insurance intermediation, brokerage and agency, consultancy, actuarial, risk assessment and claim settlement services).

    Making funds[8] available, directly or indirectly, to persons connected with Russia or Crimea is also prohibited. The definition of funds in this context relates to provision of import and export of goods and technology services[9] and includes “cash, cheques, claims on money, drafts, money orders and other payment instruments; deposits, balances on accounts, debts and debt obligations; publicly and privately traded securities and debt instruments, including stocks and shares, certificates representing securities, bonds, notes, warrants, debentures and derivative products; interest, dividends and other income on or value accruing from or generated by assets; credit, rights of set-off, guarantees, performance bonds and other financial commitments; letters of credit, bills of lading and bills of sale; documents providing evidence of an interest in funds or financial resources; and any other instrument of export financing.”[10]

    Clearly, for trade and export finance these items are the crux of everyday funding where parties use letters of credit by issuing and correspondent banks are used to facilitate payments between buyers and sellers worldwide to allow the trade of goods and services to flow. The prohibition in the UK sanctions regulations means financial institutions need to consider:

    the ultimate destination of the goods;
    the proposed use;
    whether the goods are subject to the UK sanctions or are going to a designated person subject to sanctions or connected with Russia or Crimea;
    whether the financial institution subject to UK sanctions is providing any financial services or banking services in relation to the import or export; and
    whether the financial institution is providing any letter of credit or other fund or insurance to support the export, import or provision of technology relating to the crisis in Ukraine.
  5. Are you dealing with any transferable security or money market instruments in relation to the entities listed in paragraph 2 above? Again, UK persons are prohibited from doing so.
  6. Where the export or import of goods (including military goods, ‘dual-use’ goods, infrastructure-related goods and energy-related goods and services) is concerned, the restrictions are issued using the UK Goods Classification Table for UK Tariffs. It is the ultimate use of goods which is key and whether they are bound for use in Russia or Crimea. The UK’s Export Control Joint Unit can assist. If you are in this situation, some limited licensing is permitted under the UK export control licensing legislation. For goods and technology transfer, the scope of the sanctions is wider, prohibiting making these items available (including by a sale, directly or indirectly): (i) for use in Russia; (ii) to a person connected with Russia; (iii) for use in Crimea; or (iv) to a person connected with Crimea.
  7. If you find that you or your counterparty is now a designated person, there are licensing requirements through the Office of Financial Sanctions Implementation (OFSI)[11], for some limited financial services, and through the Department of International Trade, for some specific import and export of certain goods. Each application will be looked at on an individual basis. OFSI also has helpful guidance[12] to assist with due diligence and how to search the various lists published by the UK Government on designated persons.

B. What to look out for in your transaction documents

  1. Parties should consider their transaction documents in light of UK’s Russia sanctions, particularly those featuring:

    a Russian entity or person involved either as lender, agent, borrower, guarantor or contract counterparty;
    any assets located in Russia,
    a contract governed by the law of Russia; or
    payment flows coming to or from Russia or certain Russian entities or persons.
  2. A lot of the answers about the effect of sanctions on contracts will turn on how sanctions have been defined and whether sanctions are referred to in the representations and ongoing undertakings. While there are some recognised market definitions in the Loan Market Association drafting, these are not included in all documents for all sectors. It is common to have sanctions language in some developing markets and export finance facility agreements, however some lenders acting in conjunction with their compliance departments are likely to have their own bespoke sanctions wording.
  3. In particular, look out for the following definitions:

    “Sanctions” – This would usually catch both economic and financial sanctions and will cover different ways they have been implemented, whether by law, regulation or other measures and trade embargoes.

    You would expect to see the countries or governmental body issuing the sanctions to be listed, e.g. the UN, EU, US and UK and possibly any other country or economic area relevant to the transaction. A statement by a government of intended sanctions to be imposed in a few days would not trigger sanctions provisions,[13] but sanctions actually imposed would.

    “Sanctioned Territory” – This relates to the geographic area on which sanctions are imposed. This can be a state or an area of a state. For our present purposes, this would be the Russian state.

    “Sanctions Authority” – Look for a named state or the arm of a state which can issue or announce sanctions. In the UK, this would be the HM Treasury, the UK Government, the Department of Trade and OFSI. In the US, this would be the Office of Foreign Assets Control (OFAC), the US Department of State or the US Department of Commerce. In the EU, this would be the EU Commission. You should be able to access information about the sanctions being imposed from these authorities’ websites.

    “Sanctions List” – There are various list for different regimes, e.g., in the UK, see the Consolidated List of Financial Sanctions Targets.

    Here, you should look for the name of: (i) any corporate entity or bank which could be affected by sanctions; and (ii) any oligarch or political person named as being subject to sanctions.

    In relation to a transaction, this again could mean that if a lender is a Russian entity and it is named as one which has its assets frozen, it would be prohibited from funding any utilisations. Any borrower could find that making payments of principal or interest to a lender that is a Russian entity named a designated person may become unlawful. These Sanctions Lists are being updated frequently.

    “Sanctions Restricted Person” – Political figures, oligarchs, banks and some strategic companies may be listed. It is prudent to carry out due diligence on the entities or persons involved at all stages of a transaction, including how the money flows, where bank accounts are held, and any personal guarantees or other collateral provided by such designated persons.

    Where sanctions are imposed and an obligor complies, then there will be no breach of a facility agreement or other financing document with similar provisions. However, there could still be a knock-on effect to the payment flows affecting lenders and obligors:

    An obligor’s revenue may be affected if it is expecting payments from a designated person which can no longer make payments.
    A Russian lender acting as an agent may not be able to process payments or make distributions of interest or principal to other banks, where it is a designated person or involved in activities subject to sanctions regulations.
    Where a Russian bank which is a designated entity or involved in activities subject to sanctions regulations is a lender in a syndicate, the agent may be restricted from remitting its share of interest or principal to it as a lender. It is also worth an agent checking who is in its syndicate as at 1 March 2022 to see if there is any provision for either: (i) a borrower to prepay the lender where it becomes unlawful for it to comply with its obligations to that lender; or (ii) a lender to lose its right to vote in any decisions where an all lender or majority lender quota is needed in circumstances where that lender becomes a designated entity or it otherwise becomes unlawful for it to act in its capacity as a lender.
  4. Check the ‘Representations’ and ‘Undertakings’ clauses. Where a document includes representations as to sanctions, then they likely provide that the obligor is complying with sanctions. This means that where sanctions are imposed during the life of the transaction, then an obligor will be expected by the agent or lenders to comply under the terms of the contract, as well as under the general law. If there is a Russian element, this could require a borrower not to make payments of principal, interest or other fees or to provide certain information. The specific restriction will depend on the wording of the trade or financial sanction imposed. If there is a breach of such a representation, then it could also act as a drawstop to prevent any further utilisations. A corresponding undertaking requiring an obligor to comply with sanctions is also likely to be included. The effect of any breach of a misrepresentation or undertaking may lead to an event of default. Any outstanding obligation of a borrower to a lender before that lender becomes a designated person can still be honoured.

C. Other key areas to consider – payment flows, letters of credit and accounts

  1. Payment flow is another key area to consider when dealing with receivables purchase agreements or master participation agreements. Check if there are debtors who may be restricted from making payments, or any banks or other entities which are or may become subject to sanctions preventing or restricting payment flows. This may affect financial covenants or financial projections.
  2. Letters of credit fall within the definition of funds under section 60 of the Sanctions and Anti-Money Laundering Act 2018, which means that the obligation to honour a letter of credit will depend on whether: (i) the financial institution is a UK person caught by the sanctions; and (ii) the party benefitting or receiving payments is a designated person under the UK regulations. Not all letters of credit to all persons in Russia are currently affected by the sanctions. The UK sanctions affecting letters of credit are linked to the specific sanctions on trade of goods and services and technology transfer set out in paragraph A 6. What is clear is that there has to be some due diligence and analysis applied before a financial institution can refuse to pay out on a letter of credit or continue to provide the other party banking and financial services or funds as explained above.
  3. If, as a financial institution, you are holding the account of any designated person in any currency (not just Sterling or Roubles), then these accounts have been frozen. Dealing with these in any way or permitting payments in and out of the account is no longer permitted and subject to the UK sanctions.
  4. SWIFT – Although there have been differing views on whether to restrict Russian entities’ access to the SWIFT messaging system, in a joint statement[14] issued on 26 February 2022 by the European Commission, France, Germany, Italy, the UK, Canada and the US, further restrictive economic measures were announced, including the removal of selected Russian banks from SWIFT, thereby disconnecting these banks from the international financial system and effectively blocking Russian exports and imports. This means that, in practice, whether a party wishes to make a payment or not, and notwithstanding any applicable contractual term, it will not be possible for the selected banks to make payments using SWIFT. This may, to some extent, trigger frustration of contract if payments have to be suspended during the exclusion of Russia and certain Russian financial institutions from SWIFT.[15]

D. Economic Crime and expected sanctions from the UK

As of 1 March 2022, the UK Government has brought forward the Economic Crime (Transparency and Enforcement) Bill to help the National Crime Agency prevent foreign owners from laundering their money in the UK real estate market and ensure that corrupt oligarchs can be handed an Unexplained Wealth Order (UWO). The new register will require “beneficial owners” of UK property to reveal their real identities to ensure criminals cannot hide behind secretive chains and structures of shell companies. Entities who do not comply will be subject to restrictions over selling their property, and those who break the rules could face up to five years in prison.

Under the reforms being brought in on UWOs, those who hold property in the UK in a trust will be brought within scope and the definition of an asset’s ‘holder’ will also be expanded to ensure individuals cannot hide behind shell companies and foundations. The reforms will also remove key barriers to the use of UWOs by increasing time limits to law enforcement and reforming cost rules to protect law enforcement agencies from incurring substantial legal costs if they bring a reasonable case that is ultimately unsuccessful.

The Register of Overseas Entities, introduced in the legislation, will apply retrospectively to real estate property bought by overseas owners up to 20 years ago in England and Wales, and since December 2014 in Scotland. It will be held by Companies House, with support from the UK’s Land Registries.[16]

The reforms will also intensify sanctions enforcement by introducing a more wide-ranging ‘strict civil liability test’ for monetary penalties, rather than the current one which requires firms to have knowledge or a ‘reasonable cause to suspect’ sanctions are being breached. This will make it easier for law enforcement to impose significant fines. A further change will mean that organisations that have breached financial sanctions but have not received a fine could be publicly named.[17]

What next?

The UK Government’s announcements and guidance are available through the websites of Gov.uk, OFSI[18] and the Department of International Trade.[19] The BBC news is also helpful. OFAC in the US and the EU are issuing sanctions.[20] Clearly, this is a very fast-moving area of regulation in light of the crisis in Ukraine at the moment, and we will be keeping an eye on how things develop.

Jacqueline Cook, Of Counsel and Senior Knowledge Development Lawyer, Trade & Export Finance team, Sullivan & Worcester UK LLP, London office.


[1] Boris Johnson, Prime Minister.
[2] Gov.uk
[3] This is the Sanctions and Anti-Money Laundering Act 2018 and related statutory instruments issued under it.
[4] Gov.uk Russia Sanctions: Guidance, 28 February 2022 and updated 1 March 2022.
[5] Gov.uk Russia Sanctions: Guidance, 1 March 2022.
[6] Sanctions and Anti-Money Laundering Act 2018, s 61.
[7] See the following paragraphs for more details.
[8] Sanctions and Anti-Money Laundering Act 2018, s 60.
[9] See the following paragraphs.
[10] Emphasis added.
[11] https://www.gov.uk/government/organisations/office-of-financial-sanctions-implementation
[12] Updated on 1 March 2022.
[13] See announcement of Liz Truss, Foreign Secretary, on 28 February 2022 that sanctions to be imposed “in a few days” will not trigger the provisions under LMA type facility agreements, unless drafting covers this specifically.
[14] https://ec.europa.eu/commission/presscorner/detail/en/statement_22_1423
[15] Information from Europa.
[16] This section contains extracts from gov.uk announcement about the Bill.
[17] Gov.uk
[18] https://www.gov.uk/government/organisations/office-of-financial-sanctions-implementation
[19] https://www.gov.uk/government/collections/uk-sanctions-on-russia
[20] This note does not cover EU and US sanctions.


The material on this site is for general information only and is not legal advice. No liability is accepted for any loss or damage which may result from reliance on it. Always consult a qualified lawyer about a specific legal problem.

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