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10 Nov 2022

UK sanctions: Russian-owned customers? Beware extended payment terms


The UK has recently amended its sanctions regime against Russia, The Russia (Sanctions) (EU Exit) Regulations 2019 (the "Regulations"), for the 15th and 16th times this year. In this article, we look at the wide potential impact of the expansion of the ban on loans to certain companies connected with Russia (regulation 17 of the Regulations, as amended by The Russia (Sanctions) (EU Exit) (Amendment) (No. 15) Regulations 2022 (the "15th Amendment")). We will look in a separate article at the upcoming ban on the maritime transportation of certain Russian oil and oil products (inserted by The Russia (Sanctions) (EU Exit) (Amendment) (No. 16) Regulations 2022).

Regulation 17 relates to the granting of a "relevant loan". Prior to the recent amendment, the UK had limited the categories of "relevant loans" so as largely to exclude loans granted to non-Russian companies (other than in connection with the 11 Russian companies listed in Schedule 2 to the Regulations1).

The 15th Amendment has now significantly expanded the scope of regulation 17 so that it covers certain loans and credit granted to any non-Russian company "owned" by either:

  1. an individual located or ordinarily resident in Russia; or
  2. a Russian company unless that Russian company was, or is "owned" by another legal person that was, incorporated or constituted outside Russia on 29 October 2022.

In this context, "owned" means holding directly or indirectly more than 50% of the shares or voting rights.

To fall within this new category of loans covered by regulation 17, the loan or credit must have a maturity exceeding 30 days and been first made or granted on or after 29 October 2022.

Businesses outside the financial sector should note the wide potential impact of regulation 17. Guidance issued by the Office of Financial Sanctions Implementation ("OFSI")2 indicates that the provision of payment terms for any goods or services (i.e. delayed payment of more than 30 days) that are not in line with normal business practice or which have been substantially extended may constitute circumvention of regulation 17. Circumvention is itself a criminal offence and may be subject to a monetary penalty of up to £1 million (or, if greater, 50% of the estimated value). Businesses operating in the UK and UK businesses operating internationally should consider carefully their customer base and the payment terms agreed with any customers that may fall within the expanded regulation 17.

Those operating in the financial sector should also be aware that the OFSI guidance indicates that payment and settlement services, including through correspondent banking, regarding "relevant loans" are also caught by regulation 17.3 Combined with the risk of circumvention referred to above, the expanded regulation 17 could create additional compliance issues in relation to the processing of payments from any companies that may be Russian-owned.

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


1 Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB), Rosselkhozbank, OPK Oboronprom, United Aircraft Corporation, Uralvagonzavod, Rosneft, Transneft and Gazprom Neft, all of which were targeted prior to Brexit.

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