UK extends Russian sanctions to trust services

A guidance note for trustees and trust companies providing an overview of the latest UK sanctions on providing trust services to persons connected with Russia

23 December 2022

The EU trust sanctions introduced earlier this year have been much discussed and debated. They are widely drafted and have had a significant impact on the global trust industry, and not just on EU trust service providers. The UK Government announced its intention to introduce trust sanctions some time ago but the UK trust sanctions have only recently come into force. There are a number of differences between the EU trust sanctions and the UK trust sanctions and it appears that some lessons have been learned from the EU trust sanctions with the UK trust sanctions being less far reaching, in certain respects.

Among other restrictions, the sanctions now include a ban on providing trust services to or for the benefit of a person connected with Russia or to a ‘designated person’ (unless the services were provided immediately prior to the regulations coming into force).

What do the latest sanctions mean?

The Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 came into force on 16 December 2022, and amend the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855) (the “Regulations”). 

The amended Regulations define “trust services” (Regulation 18C) as:

  • the creation of a trust or similar arrangement,
  • the provision of a registered office, business address, correspondence address or administrative address for a trust or similar arrangement,
  • the operation or management of a trust or similar arrangement,
  • acting or arranging for another person to act as trustee of a trust or similar arrangement, where “trustee”, in relation to an arrangement similar to a trust, means a person who holds an equivalent or similar position to a trustee of a trust.

A person is broadly considered “connected with Russia” (Regulation 19A) if they are located or resident in Russia, or (if a corporate entity) if it was incorporated or constituted under the law of Russia or is domiciled in Russia. There are some important differences with the EU’s sanctions, which focus on the nationality or residence of a trust’s settlor or beneficiary. It is important to note that, under the UK’s rules, a private individual who is a Russian national but is resident elsewhere will not automatically be considered connected with Russia for these purposes. That said, where a Russian national visits Russia for any period of time, there is some uncertainty about whether or after how long they would be considered to be “located in” Russia and therefore connected with Russia.

Finally, the amended Regulations provide helpful guidance about when trust services are “for the benefit” of a person (Regulation 18C) which includes where services are provided to a person who is a beneficiary; or is referred to as a potential beneficiary in a document from the settlor (such as a letter of wishes); or is otherwise expected to obtain or be able to obtain a significant financial benefit from the trust.

Are there exceptions?

The sanctions will not apply to trust services provided under an existing relationship immediately prior to the Regulations coming into force on 16 December 2022. In this sense the UK trust sanctions are forward looking and hence differ to the EU trust sanctions. However, there is some doubt as to whether providing new or additional trust services in relation to an existing trust structure would fall under the “ongoing arrangement” and be protected in the same way, or whether new work would be considered a separate instruction. Trust service providers will need to consider this risk and decide on the facts of each case.

The Office of Financial Sanctions Implementation (OFSI) which operates the UK’s sanctions regime has confirmed that it will consider granting licences for trust work if that work falls within certain exceptions, including certain charitable endeavours such as the provision of medical goods or services, food, diplomatic missions and other extraordinary situations. Further information on those exceptions can be found in OFSI’s guidance (https://www.gov.uk/government/publications/financial-sanctions-faqs).

What next?

The latest amendments bring an additional set of considerations for trust and corporate service providers both in the UK, in British Overseas Territories and in the Crown Dependencies. Trust service providers will need to give careful consideration to navigating the new prohibitions, as contravening them will be an offence, as will intentionally participating in activities which are intended to directly or indirectly circumvent the prohibitions (Regulation 19).

Burges Salmon has extensive expertise in advising trust companies, and would be happy to consider specific issues and concerns based on the precise factual matrix of any particular trust structure.

Further Information

If you would like any further information, please speak to your usual contact at Burges Salmon, Catherine de Maid or Alice Bailhache.

Key contact

catherine-de-maid

Catherine de Maid Partner

  • Head of Philanthropy
  • International Tax
  • Succession Planning and Wills

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