New UK sanctions: legal advisory services

In December 2022, the EU legislated to ban the provision of legal advisory services to Russia. The UK announced a similar intent as early as October 2022. Ten months later, the UK Government has now followed through introducing its own version by way of further amendments to the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Russia Regulations”). The prohibition came into force on 30 June 2023.

In summary, the new restrictions provide that a person must not directly or indirectly provide “legal advisory services” to any non UK person in relation to, or in connection with, any activity which would be prohibited by the Russia Regulations if done by a UK person or carried out within the UK.

That is strikingly different both to the detail of the Government’s announcement of the measure, which suggests its purpose is to “prevent UK lawyers from advising Russian companies in certain business deals”, and the approach taken by the EU which does in fact prohibit the provision of all legal advisory services (directly or indirectly) to the Government of Russia or legal persons, entities or bodies established in Russia. That is not what the new UK restrictions achieve. Rather, they apply to legal advisory services provided to any non-UK person (and are therefore much wider than just Russian companies) so long as the relevant activity is that which would be prohibited if there was a UK sanctions nexus.

The scope of the UK ban on legal advisory services therefore differs considerably from that in force in the EU. It will – still further – complicate the efforts of Western companies looking to comply with multiple international sanctions. Inhouse teams in particular (including those working for foreign branches of UK entities) should pay close attention to how it will affect their day-to-day compliance with the Russia Regulations.

The Intent

Based on the Explanatory Memorandum, the intended target of the ban appears to be circumvention type activity. Prior to this prohibition the provision of legal services was already partially restricted by various provisions of the Russia Regulations relating to circumvention, and the facilitation or enabling of sanctions breaches, as well as prohibitions on ancillary services related to trade in sanctioned goods and technologies.

These prohibitions prevented a person from intentionally providing legal advisory services where the object or effect of the legal advisory services, directly or indirectly, circumvents prohibitions imposed by the Regulations or enables or facilitates the contravention of those prohibitions. However, as a result of the territorial application of the Russia Regulations, this typically applied only to legal advisory services provided in relation to prohibited activity undertaken in the UK or by a UK person.

As such, a UK lawyer or compliance person could have been permitted to advise an affiliate company incorporated outside of the UK in relation to activity which, if it occurred in the UK, would amount to an offence.

The intended effect of the new prohibition appears to be to close that gap, such that no UK person or person in the UK can provide legal advisory services in relation to certain financial or trade activity which would be prohibited under the UK sanctions regime if the activity was done by a UK person or was taking place in the UK.

The Scope

The effect of the prohibition however appears to be considerably wider than activity that would typically be regarded as circumvention.

The new restrictions provide that a person must not directly or indirectly provide “legal advisory services” to any non UK person in relation to, or in connection with, any activity that would be prohibited by the Russia Regulations if done by a UK person or carried out within the UK. The scope of the ban is then limited by, variously, the definition of “legal advisory services” and certain exemptions.

In particular, legal advisory services are defined as “the provision of legal advice to a client in non-contentious matters, involving any of the following— (i) the application or interpretation of law; (ii) acting on behalf of a client, or providing advice on or in connection with, a commercial transaction, negotiation or any other dealing with a third party; (iii) the preparation, execution or verification of a legal document.”

The definition expressly excludes any representation, advice, preparation of documents or verification of documents undertaken as part of legal representation services provided in or in anticipation of any proceedings. In practice therefore, this ban should have a relatively limited impact on those advising in contentious scenarios.

There are exemptions that allow (i) acts that are necessary for the official purposes of a diplomatic mission or consular post in Russia, (ii) the discharge of or compliance with UK statutory or regulatory obligations, (iii) acts done prior to 29 September 2023 in satisfaction of an obligation under a contract concluded before 30 June, where notification is made to the Secretary of State, and (iv) advice as to whether an act or proposed act complies with the Regulations.

The difficulty

The drafting of that final exemption has caused considerable uncertainty: “The prohibitions in regulation 54D are not contravened by any act done by a person for the purpose of providing legal advice to any person as to whether an act or a proposed act complies with these Regulations.”

“Regulations” refers to the UK sanctions regulations. It does not include advising on foreign sanctions law. It therefore appears that, for instance, a French qualified lawyer working in London would not fall within the scope of this exemption were he or she to advise a French company on compliance with EU sanctions, where the relevant corporate activity amounts to a breach of UK sanctions. More strangely still, a French branch of a UK entity staffed by French employees in France may not be able to provide such advice.

It is difficult to believe this is the intent of the regime. It is likely to be unworkable in many multinational businesses providing centralised legal support from London. Our current working assumption is that it is an oversight and it is to be hoped that guidance or further amendments will be raised in due course to make the position clear.

In the meantime, some scant “air cover” is provided by the winddown exemption which applies to acts to be carried out in satisfaction of an obligation arising under a contract concluded before 30th June 2023, or an ancillary contract necessary for the satisfaction of such a contract. That is however unsatisfactory, and may for some be practically unworkable, as a stop gap as it requires (i) identification of a contract obliging the provision of the advice and (ii) notification of the Secretary of State in every case.

Engagement with Government has indicated that it is well understood that the existing exemption is deficient and that further statutory and industry guidance is expected and will, hopefully, make the position clear.

As such, it is hoped that the Government provides clarity on the intended scope of the exemption as soon as possible.

Practical compliance

Beyond immediate uncertainty prompted by the drafting of this exemption however, there are however serious practical issues that will not go away that inhouse lawyers will have to grapple with.

For instance, UK based (or UK nationals overseas) inhouse lawyers or compliance officers can advise on compliance with the Regulations. This provides some protection for those providing specialised compliance advice. However, most lawyers and compliance officers are required to provide practical guidance going far beyond matters of strict legal interpretation of the Russia Regulations.

Those persons cannot now be involved in any commercial negotiations or in drafting documents for non-UK entities within their groups if the particular transaction or contract would breach UK sanctions if it was carried out in the UK / the entity was a UK person. That inability is going to make it much harder for multinational businesses to manage and apply the increasing divergent scope seen in UK, EU, US and other sanctions regimes on Russia.

By both driving further divergence and complexity, and reducing companies’ ability to manage it, it arguably makes a “global” sanctions policy – applying the high water mark of the restrictions everywhere – even more attractive than previously.