UK sanctions explored
What might the ramping up of financial sanctions mean for the superyacht industry?
Sanctions legislation has, of course, been around for some time here in the UK. Following Brexit the UK enacted its own sanctions legislation in the form of The Russia (Sanctions) (EU Exit) Regulations 2019. The Regulations were amended on 10 February this year and this recent amendment has significantly broadened their scope and given them more “teeth”.
We have seen the UK Government begin to exercise these new powers by sanctioning many more Russian entities and people following Russia’s invasion of Ukraine, with similar measures being taken by the EU.
How then do these sanctions work in practice and how might this impact the superyacht industry?
“The February 10th amendments to the UK’s sanctions legislation have provided the Secretary of State with extremely broad powers to sanction anyone who carries on a business of economic significance to the government of Russia or who carries on a business in a sector of strategic significance to the government of Russia,” starts Mark Needham, Partner at Superyacht law firm Hannaford Turner. “The definition of the latter, ‘business in a sector of strategic significance, is particularly broad.”
If one were to theorise about sectors that may constitute strategic or economic significance to the government of Russia, a good place to start would be those businesses that generate “superyacht levels” of wealth such as construction, defence, technology, financial services, oil, gas, commodities, communications, transport and so on.
“As English lawyers, we are thinking: Where do we sit right now? To whom might these broadened regulations potentially apply? Given the speed the situation is developing, we can expect changes to come thick and fast.” Continues Needham. “Currently, if you are on the list of sanctioned individuals and businesses, all your assets and finances in the UK will be frozen. The sanctions further prohibit third parties from dealing with sanctioned persons. Being on the list of sanctioned individuals will be significant, especially when you start considering the other major economies that have levied their own sanctions, such as the EU and US. Any such person is effectively shut out of the international financial system.”
While there is of course scope for the EU’s sanctions to differ in makeup and application, given that the UK has transposed the sanctions legislation enacted by the EU, it certainly seems like, at least on this particular issue, the two regions are singing from the same hymn sheet. What is certainly clear, is that the scope of the UK’s sanctions regulations has been significantly broadened, in a way that allows for rapid escalation if required. Will the sanctions only impact individuals and businesses with clear ties to the Kremlin, or will they be actioned more broadly as a means of “hobbling the Russian economy”, as Boris Johnson suggested?
“This is the million-dollar question at the moment. What evidential burden will the Government use to determine whether to add someone to the sanctions list? Who will get caught in the crossfire?” says Adam Ramlugon, also a Partner at Hannaford Turner. “Regardless, the new regulations seem to give the Government an effective carte blanche in this regard.”
At this juncture, it is hard to predict how far-reaching the impact of the new sanctions regime, both here and across Europe and the US will be and what individuals and businesses will be included and, therefore, it is difficult to predict how severe the impact will be on the superyacht market. If it is a case of targeting Russia's richest individuals and implementing blanket sanctions, the impact could be significant. If, however, the various powers at be choose a more nuanced and data-backed approach, the situation may not be as damaging as many might think.
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