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22 Jul 2022

UK sanctions: professional and business services to Russian clients

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On 4 May 2022, the UK Government announced a ban on services exports to Russia, stating: "The new measures will mean Russia’s businesses can no longer benefit from the UK’s world class accountancy, management consultancy, and PR services, which account for 10% of Russian imports in these sectors.".  Fast forward 11 weeks and that ban is now in force by virtue of regulation 54C of The Russia (Sanctions) (EU Exit) Regulations 2019 (as amended by The Russia (Sanctions) (EU Exit) (Amendment) (No. 14) Regulations 2022) (the "Regulations"). 

Regulation 54C prohibits the direct or indirect provision of the following services to any "person connected with Russia":

Accounting services. The scope of these services is set out below and is based on the Provisional Central Product Classification ("CPC") Codes 1991, namely CPC 86212 Accounting Review Services, CPC 86213 Compilation of Financial Statements services, CPC 86219 Other Accounting Services and CPC 86220 Bookkeeping Services, except tax returns:

  • accounting review services, which are services involving the review by a person of annual and interim financial statements and other accounting information, but excluding auditing services;
  • compilation of financial statements services, which are services involving the compilation by a person of financial statements from information provided by a client, including preparation services of business tax returns when provided together with the preparation of financial statements for a single fee, but excluding such preparation services of business tax returns when provided as a separate service;
  • other accounting services such as attestations, valuations, preparation services of pro forma statements; and
  • bookkeeping services, which are services consisting of classifying and recording business transactions in terms of money or some unit of measurement in the books of account, but excluding bookkeeping services related to tax returns.

Business and management consulting services, which means advisory, guidance and operational assistance services provided for business policy and strategy and the overall planning, structuring and control of an organisation, which includes (but is not limited to) management auditing; market management; human resources; production management and project management consulting.

Public relations services, which means services provided by a person related to improving the image of their clients and their relationship with the general public and other institutions, but excludes planning and creating services for advertising or public opinion polling services.1

A person will be regarded as connected with Russia if the person is:

  • an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia;
  • an individual who is, or an association or combination of individuals who are, located in Russia;
  • a person, other than an individual, which is incorporated or constituted under the law of Russia; or
  • a person, other than an individual, which is domiciled in Russia.

The new prohibitions apply to UK persons, which includes bodies incorporated or constituted under the law of any part of the UK, British citizens (including the Crown Dependencies) and British Overseas Territories citizens. We understand that the prohibitions are also automatically given effect in all British Overseas Territories. The updated Government guidance2 states that the prohibitions cover the provision of services via any or all of the four modes of supplying services set out in the WTO's General Agreement on Trade in Services: cross-border trade; consumption abroad; commercial presence; and presence of natural persons. 

The Regulations provide certain exceptions to the new prohibitions, including:

  • a wind down period to 20 August 2022 in which obligations arising under contracts concluded before 20 July 20223 (or an ancillary contract necessary for the satisfaction of such a contract) may be satisfied, provided that notification is given at least 10 working days before the day on which the act caught by regulation 54C is carried out; and
  • services provided in relation to the discharge or compliance with UK statutory or regulatory (but not contractual) obligations.

Alternatively, a licence may be sought from the Export Control Joint Unit ("ECJU", which sits within the Department for International Trade) to provide services that would otherwise be prohibited by regulation 54C.  The updated Government guidance indicates that a licence may be granted for:

  • the delivery of humanitarian assistance activity;
  • the production or distribution of food, or medical and pharmaceutical purposes, provided that this is for the benefit of the civilian population;
  • civil society activities that directly promote democracy, human rights or the rule of law in Russia;
  • services required by non-Russian business customers in order to divest from Russia, or to wind down other business operations in Russia; and
  • services to a person connected with Russia by a UK parent company or UK subsidiary of that parent company.

Comparison with EU sanctions

The scope of the new UK sanctions is similar but not identical to the EU sanctions adopted in early June 2022.4  There are some notable differences. 

  1. The UK sanctions cover the provision of services to natural persons whereas the EU sanctions only cover services provided to the Government of Russia or legal persons, entities or bodies established in Russia.

  2. The wind down provision in the UK sanctions is potentially much broader than the equivalent in the EU sanctions, which only allowed the provision of services "strictly necessary for the termination" of non-compliant contracts.

  3. The UK sanctions expressly carve out auditing services, the preparation of tax returns and services relating to compliance with UK statutory or regulatory obligations. The ICAEW had specifically called on the Government to consider excluding services required to meet statutory requirements. The EU sanctions, however, would appear to cover auditing services and the preparation of tax documents.5 It would also appear from the limited derogations set out in the EU sanctions that it is not possible to seek a licence from a Member State competent authority authorising such services.

  4. The provision of services for the exclusive use of Russian subsidiaries of EU, EEA and Swiss companies is excluded from the scope of the EU sanctions. In the UK, however, absent any other exception applying, a licence will be required to provide services to a Russian subsidiary of a UK company. The guidance indicates that a licence may be granted if the services are provided by the UK parent company or UK subsidiary of that parent company. It is not clear from the drafting whether this is intended to also include the provision of services by any UK person to a Russian subsidiary of a UK company. In any event, a licence will inevitably take time to obtain, particularly given the volume of work currently facing the ECJU.

  5. While legal services are not covered by the UK or the EU sanctions, the provision of services that are otherwise caught by the EU sanctions but that are strictly necessary for the exercise of the right of defence in judicial proceedings and the right to an effective legal remedy is expressly excluded from the scope of the EU sanctions. The UK guidance does not expressly cover this issue. However, given the fundamental rights issues that this engages, we anticipate that the CJEU would look favourably on a licence application in such a situation.

If you would like to discuss the impact of the sanctions, then please contact one of our team.



1 The definitions of business and management consulting and public relations services are based on Extended Balance of Payments Services classification ("EBOPS") 2010 and includes EBOPS 10.2.1.3.  Planning and creating services for advertising or public opinion polling services are included within EBOPS 10.2.2.  See paragraphs 3.241 and 3.242, Manual on Statistics of International Trade in Services 2010.

3 The updated Government guidance refers to contracts concluded before 21 July 2022.  This is the date on which regulation 54C came into force but the exception in regulation 60DA(1)(a)(ii) clearly refers to contracts concluded before 20 July 2022.  It may be that there was a slip in the drafting of the legislation that will be corrected in due course. 

4 Article 5n of Council Regulation (EU) No 833/2014 (as amended by Regulation (EU) 2022/879 of 3 June 2022)

5 Recital 26 to Regulation 2022/879 and the European Commission's FAQ's on Article 5n of Regulation 833/2014: https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/faqs-sanctions-russia-business-services_en.pdf

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