Sanctions: UK to introduce new sanctions targeting Russian connected trusts
Following the EU's introduction of sanctions against EU trust and company service providers ("TCSPs") in May 2022, the UK government has now announced that it will follow suit and will prevent Russian nationals from accessing UK trust services. These new rules are also likely to be implemented in the UK's Crown Dependencies and Overseas Territories, with far-reaching implications for TCSPs in those jurisdictions.
As a reminder, the EU sanctions restricted EU entities from providing management and fiduciary services to trusts and similar structures connected with Russian nationals (as explained further below). As a result, all TCSPs in the EU were required to terminate such services unless the settlor or beneficiary is a national of a member state or a natural person having a temporary or permanent residence permit in a member state or prior authorisation was granted (see our previous article regarding recently introduced derogations).
At present, the extent of the UK's proposed measures is uncertain, but it may be that they will largely follow the scope of Article 5m of EU Regulation (EU) No 833/2014 (the "Regulation"), which was intentionally broad to cover a number of circumstances. The Regulation applies to TCSPs in the member states, but extends worldwide to apply to all EU persons, including individuals and entities, so that the sanctions would apply to matters where an EU person was involved in restricted activity. We have assisted TCSPs to address some of the difficult issues raised by the Regulation.
Article 5m(1) of the Regulation (the "prohibition on the provision of management services") prohibits the registration of, provision of a registered office, business or administrative services as well as management services to, a trust or any similar legal arrangement having as a settlor or a beneficiary:
a) Russian nationals or natural persons residing in Russia;
b) legal persons, entities or bodies established in Russia;
c) legal persons, entities or bodies whose proprietary rights are directly or indirectly owned more than 50% by a natural or legal person, entity or body referred to in points (a) or (b);
d) legal persons, entities or bodies controlled by a natural or legal person, entity or body referred to in points (a), (b) or (c);
e) a natural or legal person, entity or body acting on behalf or at the direction of a natural or legal person, entity or body referred to in points (a), (b), (c) or (d) ("Russian trust or any similar legal arrangement")
Article 5m(2) prohibits persons from acting as, or arranging for another person to act as, a trustee, nominee shareholder, director, secretary or a similar position, for a Russian trust or any similar legal arrangement (the "prohibition on the provision of fiduciary services").
It is hoped the UK sanctions will provide a wind-down period on the prohibition on provision of management and fiduciary services, as was the case for the Regulation (we looked at the extension of this wind-down period in our previous article), as well as relief against the restriction on the exercise of the provision of management services under Article 5m(1) if such exercise was conducted to comply with meeting the requirements under Article 5m(2) to terminate involvement as to the provision of management and fiduciary services.
It is also hoped that the UK will provide similar exemptions for trusts where the settlor or beneficiary is also a national and/or lawful resident of the UK.
Analysis
These new sanctions could be very disruptive for TCSPs in the UK's Crown Dependencies and Overseas Territories, so urgent consideration should be given now as to how to prepare for them.
If the anticipated sanctions follow the Regulation, this will mean that TCSPs cannot continue to administer or provide management or fiduciary services to any trust (or similar legal structure) if there is a Russian settlor or beneficiary unless there is a derogation for Russians who are nationals of the UK or who hold a valid residency visa.
We recommend that TCSPs who have not been affected by the Regulation check their client bases to identify any potential connections to Russia among existing and new clients. We would also recommend performing enhanced due diligence to establish whether you are acting for Russian nationals, or their companies in the UK.
If TCSPs have Russian clients that may be caught by the upcoming UK sanctions, difficult questions can arise as to whether it is appropriate to take pre-emptive action bearing in mind fiduciary obligations and that the terms of any proposed UK regulations, including whether they will contain a wind-down period, are not yet known.
If you would like to discuss the impact of the sanctions, then please contact one of our team.
