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Russia (Sanctions) (EU Exit) (Amendment) Regulations 2024

Debated on Thursday 14 March 2024

The Committee consisted of the following Members:

Chair: Ian Paisley

† Aiken, Nickie (Cities of London and Westminster) (Con)

Barker, Paula (Liverpool, Wavertree) (Lab)

† Bell, Aaron (Newcastle-under-Lyme) (Con)

† Cruddas, Jon (Dagenham and Rainham) (Lab)

† Dixon, Samantha (City of Chester) (Lab)

† Gibson, Peter (Darlington) (Con)

† Harris, Rebecca (Comptroller of His Majesty’s Household)

Khan, Afzal (Manchester, Gorton) (Lab)

† McDonald, Stuart C. (Cumbernauld, Kilsyth and Kirkintilloch East) (SNP)

† Morris, Grahame (Easington) (Lab)

† Morrissey, Joy (Lord Commissioner of His Majesty’s Treasury)

† Pawsey, Mark (Rugby) (Con)

† Smith, Greg (Buckingham) (Con)

† Trevelyan, Anne-Marie (Minister of State, Foreign, Commonwealth and Development Office)

† Tuckwell, Steve (Uxbridge and South Ruislip) (Con)

† Webb, Suzanne (Stourbridge) (Con)

† West, Catherine (Hornsey and Wood Green) (Lab)

George James, Committee Clerk

† attended the Committee

The following also attended (Standing Order No. 118(2)):

Mackrory, Cherilyn (Truro and Falmouth) (Con)

Tenth Delegated Legislation Committee

Thursday 14 March

[Ian Paisley in the Chair]

Russia (Sanctions) (EU Exit) (Amendment) Regulations 2024

I beg to move,

That the Committee has considered the Russia (Sanctions) (EU Exit) (Amendment) Regulations 2024 (S.I., 2024, No. 218).

This statutory instrument contains measures to deter Russia from continuing its illegal invasion of Ukraine; specifically, it targets the key sources of revenue that Putin is using to execute the invasion. It was laid on 28 February 2024 under powers provided by the Sanctions and Anti-Money Laundering Act 2018, and entered into force on 1 March. It has been considered and not reported by the Joint Committee on Statutory Instruments. This regulations contain trade measures developed in close co-ordination with our G7 allies, and ratchet up the pressure on Russia’s war machine and economy as part of the most severe package of economic sanctions the country has ever faced.

In 2022, Russia earned an estimated $3.5 billion from the export of diamonds. The UK was among the first to address that income stream by sanctioning Alrosa, Russia’s largest state-owned diamond producer, which is estimated to hold a 30% share in the global diamond market, and its then chief executive officer, Sergey Ivanov. Following that, we placed an additional 35-percentage-point tariff on imports of Russian diamonds in April 2022. On 1 January this year, we acted to reduce that income stream to the Russian regime still further by completely banning the import to the UK of diamonds from Russia. On 24 February this year, among a package of 50 new sanctions to mark the second year of the invasion, we sanctioned two further Russian diamond companies and five individuals, including Pavel Alekseevich Marinychev, the new CEO of Alrosa.

Today we are going even further. As we announced in December, the G7 is acting together to curtail the flow of Russian diamonds into the world’s largest consumer market of diamonds. This legislation, prepared in close co-ordination with our G7 partners, bans the import of Russian diamonds that are processed in third countries. Previously, a rough Russian stone could be processed elsewhere, effectively transforming that stone’s origin; it will now remain banned, regardless of any intermediate destination. That will first apply to stones equal to or larger than 1 carat, or the equivalent to 0.2 grams or larger, from 1 March this year. From 1 September, it will drop to stones equal to or larger than 0.5 carats, or equivalent to 0.1 grams or larger. The legislation will also ban the provision of technical assistance and brokering and financial services in connection with the import of third-country-processed Russian diamonds.

I hope I have alluded to the complex, technical nature of the ban and, importantly, its implementation and enforcement will remain a challenge due to the difficulties involved in determining the source of a processed stone. It has been many months in the making, and more time will be required to ensure that the implementation of the measures strikes the right balance between removing Russian diamonds from the G7 supply chain and avoiding unintended consequences to industry and producer nations. Nevertheless, we believe the measures stand as a testament to the continued appetite, not just here in the UK but among all our international partners and allies, to deny Putin funds for his illegal invasion.

To conclude, the latest measures demonstrate our determination to target those who participate in or facilitate Putin’s illegal war. Overall, the UK has sanctioned more than 2,000 individuals and entities, with 1,700 individuals having been sanctioned since the illegal invasion. More than £20 billion-worth of UK-Russian trade is now under sanction, resulting in a 99.64% fall in Russian imports to the UK. If we compare exports one year before and one year after the invasion, we see there has been a 77% fall in UK exports to Russia. This demonstrate that sanctions are working. Russia is increasingly isolated and cut off from western markets, services and supply chains. Key sectors of the Russian economy have fallen off a cliff, and its economic outlook is bleak.

The UK Government will continue to use our sanctions to ramp up the pressure until Putin ends his illegal invasion of Ukraine. Sanctions are working and the effects are cumulative; we must stay the course and keep up the strong work we have delivered over the last two years, and we welcome the clear and continued cross-party support for that action. I commend the regulations to the Committee.

It is a pleasure to serve under chairmanship, Mr Paisley. I thank the Minister for setting out the regulations.

Last month, we reached the two-year point since the initiation of this phase of President Putin’s egregious and unlawful war against the people of Ukraine. For more than two years, Ukraine has stood defiant against Putin’s warped imperial ambitions, and the price its people have been forced to pay has been immense. I reiterate Labour’s unwavering support for Ukraine and NATO, and our commitment to continue to support the UK Government. Despite the vast political difficulties currently facing our country, in supporting Ukraine we are wholly united.

We will continue to support measures such as the regulations, but we will also be candid and frank with the Minister when we believe that progress is not being made quickly enough, or where we see enduring oversights and gaps in the UK regime. Given the precarious global outlook, the prevalence of conflict elsewhere around the world and Putin’s growing tyranny at home, we must ensure that Ukraine’s victory remains a priority for the UK Government, as well as holding the criminal Russian regime to account, and our sanctions regime is integral to doing that.

Labour will support the regulations and will not seek to divide the Committee. The banning of the import of Russian diamonds processed in third countries is a common-sense measure, which represents a necessary additional step by the UK to cut off streams of finance that continue to flow into Russia’s war machine. Time and again, the shadow Europe Minister—my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty)—and others have made clear the challenge posed by third-country refinement as a means to illicitly import various Russian-origin goods and commodities into the UK, and it is welcome to see the Government finally taking our legitimate concern seriously.

I have some questions for the Minister. First, what steps are the Government now taking to seriously act on the alleged importation, via third countries, of Russian-origin oil to the UK? I am sure all Committee members agree that it would be absolutely unconscionable if Russian-origin oil refined elsewhere was still reaching UK shores. I hope the Minister can reassure us that the Government are taking our concerns seriously, and that commensurate action will be taken to address them.

Secondly, will the Minister elaborate on why the regulations will in the first instance apply only to stones equal to or larger than 1 carat from 1 March, and why that will not drop down to stones equal to or larger than 0.5 carats until 1 September? It seems like an unduly long time for the regulations to be expanded. I hope the Minister can account for why that is the case, and explain what assessment has been made of the delay in terms of the volume of imports and their value for the Russian Federation.

Thirdly, why has it taken so long for the measures to be devised and enacted? As I said, we are more than two years into this egregious war and obvious gaps in the regime are still being papered over. Will the Minister speak to the current resourcing levels at the Office of Financial Sanctions Implementation, and explain what recent assessment has been made pertaining to the speed at which we are acting?

Finally, are our allies and partners implementing the same ban on third-party imports? There seems to be less utility in bringing in such a prohibition if our allies and partners are not doing so alongside us. Will the Minister set out how effectively the Government are co-ordinating with our allies to reach shared goals on the implementation of sanctions?

I hope the Minister can provide the Committee with some answers to those questions and assure us that these issues still have the Government’s focus, what with everything else going on. As I said, we will support the regulations and we will not seek to divide the Committee. Ukraine’s victory against Russian barbarism should remain a key foreign policy priority in an increasingly precarious global outlook, and we will continue to do our part to support the Government in taking the necessary steps to achieve that.

I thank the hon. Lady for her comments and for the positive support that we have in the room today.

The regulations are the latest addition to our package of sanctions. As all colleagues know, we continue to work on areas where we know we can make sanctions that will have bite and impact moving forwards. The sanctions we have brought in so far have taken away over $400 billion of resource that would otherwise have been available to Putin to fund his war; it would have been something like four years’ worth of funding. They are a really impactful set of sanctions to date but, as I say, we continue to keep all issues under review, as ever.

I will try to answer the hon. Lady’s questions, but if I miss anything, I will be happy to write to her. She raised issues relating to oil, which is one of the really difficult questions. Although the oil price cap has depressed the potential value of the oil that Putin can sell, we continue to have limitations. The hon. Lady raised an important point about the challenges around the shadow and dark fleets of oil that we now see moving around the world. By definition, they are more hidden, and intentionally so in order that both the oil price cap and those flows can be less visible. We are working with colleagues and allies across the G7 and more widely to continue to try to get ahead of the issue, and we are working with international friends to encourage them not to find themselves participating in shadow fleet activity. We are also impressing upon countries why we are bringing in sanctions and encouraging them to think in a similar way.

The hon. Lady raised the issues of diamonds—I never thought I would be discussing the size of carats of diamond in a Delegated Legislation Committee, I have to say; it is a strange conversation. On the challenge of the existing framework, we expect the impact on business to be around £10 million a year. There is a challenge around the different sizes; the hon. Lady mentioned the timeframe of bringing in the larger ones and then the smaller ones. The revenue levels for the smaller ones are much lower anyway. As we always do with sanctions, we are thinking about the wider impact on legitimate trades. With this statutory instrument we are balancing the needs of the market for smaller diamonds—those below half a carat—and of the legitimate, non-Russian producer nations, so that we can have the greatest impact on Russian supply lines while allowing the perfectly legitimate markets to continue as they are. It is a challenge with all our sanctions to balance those two things. Impact is important, but we must ensure that we do not cause undue harm to legitimate trade.

The hon. Lady mention the important issue of the continuing resourcing levels for the OFSI—the Treasury’s enforcement arm, if that is the right way to describe it. Through the £50 million of economic deterrence initiative funding that we got in last year’s Budget, we have been able both to grow our sanctions directorate in the Foreign, Commonwealth and Development Office and, importantly, to help the Treasury to grow its enforcement arm, OFSI. We have also enabled the Department for Business and Trade to set up its enforcement arm, the Office of Trade Sanctions Implementation, to ensure that we not only make policy that sets out the sanctions limitations but enforce against those who try to breach them. The teams are incredibly strong and are much larger than they were, but we obviously keep that under review—we sadly may have to keep doing this for some time—to ensure that we have both the skills and the numbers we need to support delivery.

I hope I have answered the hon. Lady’s questions. We will continue to commit to using sanctions to keep up the pressure until Putin ends his illegal war. The regulations are another step in helping to reduce important revenue that could be sourced for Putin’s regime, so we will continue to use the tools we have. We will continue to work in concert both with our G7 allies and more widely with friends around the world. We all want to do all that we can to restrict Russia’s ability to deliver its terrible war machine. We stand firm and resolute alongside the people of Ukraine, and we will continue to support them until they prevail.

Question put and agreed to.

Committee rose.