Finance litigation update - July 2022

FINANCE LITIGATION UPDATE – JULY 2022 35 UK and EU sanctions: recent developments On 3 June 2022, the EU adopted its 'sixth package' of sanctions in response to Russia's invasion of Ukraine, primarily through Regulation (EU) 2022/879, which amended Regulation (EU) No 833/2014. We have previously discussed amendments to the sanctions targeting trusts and similar legal arrangements: EU sanctions: tweaking sanctions against trusts (shlegal.com). In this article, we look at some of the other elements of Regulation 2022/879, together with recent strengthening to the penalties for breach of sanctions in the UK and EU. Accountancy, management consulting and PR services Regulation 2022/879 introduced a prohibition on the provision of the following services to the Russian government or to legal persons, entities or bodies established in Russia: accounting, auditing, bookkeeping, tax consulting, business/management consulting and public relations services (Article 5n of Regulation 833/2014). Recital 26 to Regulation 2022/879 provides further detail on the services covered: Accounting, auditing, bookkeeping and tax consultancy services cover the recording of commercial transactions for businesses and others; examination services of accounting records and financial statements; business tax planning and consulting; and the preparation of tax documents. Business and management consulting and public relations services cover advisory, guidance and operational assistance services provided to businesses for business policy and strategy and the overall planning, structuring and control of an organisation. Management fees, management auditing; market management, human resources, production management and project management consulting; and advisory, guidance and operational services related to improving the image of the clients and their relations with the general public and other institutions are all included. The prohibition does not apply to the following services: 1. Services strictly necessary to enable a contract that does not comply with Article 5n to be terminated by 5 July 2022 (provided that such a contract was entered into prior to 4 June 2022) or of ancillary contracts necessary for the execution of such contracts. The term "ancillary contract" is referred to in a number of the exceptions to the prohibitions in Regulation 833/2014 but is not defined. The European Commission has recently issued guidance stating that it is "a contract necessary for the execution of another (principal) contract, that is, a contract without which the main contract cannot be executed, such as insurance, financing etc." 2. Services strictly necessary to enable the exercise of the right of defence in judicial proceedings and the right to an effective legal remedy. 3. Services intended for the exclusive use of legal persons, entities or bodies established in Russia that are owned by, or solely or jointly controlled by, a legal person, entity or body which is incorporated or constituted under the law of an EU Member State. Unlike some of the other measures in Regulation 833/2014, Article 5n does not expressly target subsidiaries of Russian entities or those acting on behalf or at the direction of Russian entities. However, service providers should be alive to the risk of circumvention (Article 12 of Regulation 833/2014). Addition of the UK and South Korea as partner countries Regulation 2022/879 also added the UK and South Korea to the list of 'partner countries' in Annex VIII of Regulation 833/2014, which previously included only the USA (from 25 February 2022) and Japan (from 8 April 2022). 'Partner countries' are those that are deemed to have in place a set of measures similar to those set out in Regulation 833/2014. The EU will exchange information with such countries with a view to supporting the effectiveness of the

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