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Russia (Sanctions) (EU Exit) (Amendment) (No. 11) Regulations 2022

Volume 824: debated on Wednesday 12 October 2022

Motion to Approve

Moved by

My Lords, I beg to move that the House considers the Russia (Sanctions) (EU Exit) (Amendment) (No. 11) Regulations 2022, and will also speak to the Russia (Sanctions) (EU Exit) (Amendment) (No. 12) Regulations 2022, the Russia (Sanctions) (EU Exit) (Amendment) (No. 13) Regulations 2022, and the Russia (Sanctions) (EU Exit) (Amendment) (No. 14) Regulations 2022.

The instruments before us were laid between 14 and 20 July, under powers provided by the Sanctions and Anti-Money Laundering Act 2018, and make amendments to the Russia (Sanctions) (EU Exit) Regulations 2019. In co-ordination with our allies, the United Kingdom continues to introduce the largest and most severe economic sanctions package that Russia has ever faced. Noble Lords will note that we continue to bring further pressure to bear on Mr Putin and his regime. Since these SIs were introduced, we have made further announcements on UK sanctions in response to Mr Putin’s illegal annexation of Ukrainian regions.

On 26 September, the UK sanctioned 29 individuals and organisations related to the temporarily controlled territories of Donetsk, Luhansk and Zaporizhzhia, Russian Government officials, four additional oligarchs and 55 state board executives. On 30 September, the Foreign Secretary announced a new set of sanctions related to services on which Russia depends. Building on previous action, the UK will prevent Russian access to advertising services, architectural services, auditing services, engineering services, IT consultancy and transactional legal advisory services linked to certain commercial activity.

The announcement also included a new ban on the export of nearly 700 goods that are crucial to Russia’s industrial and technological capabilities. The UK also sanctioned Elvira Nabiullina, the governor of the Central Bank of the Russian Federation. Nabiullina has been instrumental in the Russian economy throughout the Russian regime’s illegal war against Ukraine and in extending the rouble into the Ukrainian territories that are temporarily controlled by Russia. The measures we are debating today further isolate Russia’s economy and target key industries supporting Mr Putin’s illegal war in Ukraine.

I will first cover the No. 11 regulations, which ban the export of goods and technologies related to the defence, security and maritime sectors. They also prohibit the export of jet fuel, maritime goods and technology, certain energy-related goods, plus sterling and European Union banknotes. In addition, these regulations ban the import of goods such as fertiliser, metals, chemicals and wood, depriving Russia of a key export market. Together, these were worth £585 million last year. A further import ban covers ancillary services related to iron and steel imports.

I add one further point: the Joint Committee on Statutory Instruments observed that three provisions in the 10th amendment to the regulations went beyond the powers conferred by the sanctions Act. We resolved this by revoking the 10th amendment and replacing it with the 11th. I express my sincere thanks to the Joint Committee on Statutory Instruments for its continued engagement on these issues, as we introduce further secondary legislation at pace in response to Mr Putin’s abhorrent war. My thanks also go to the Opposition Benches—both the Labour and Liberal Democrat Benches—for their strong support during the process through Parliament of these SIs.

I now turn to the No. 12 regulations, which place fresh restrictions on investments and services in Russia. This will hit revenue streams of critical importance to the Russian economy. The new measures prohibit persons from being involved, directly or indirectly, in the following: acquiring land and entities with a place of business in Russia; establishing joint ventures with persons and entities connected with Russia; and opening representative offices or establishing branches or subsidiaries in Russia. The measures also restrict the provision of investment services related to these activities. There are some exceptions to the provisions to prevent overlap with existing regulations as well as licensing and enforcement powers. This measure implements commitments made in the April G7 leaders’ statement to ban new investments in Russia. We have designed this measure to have a similar effect to the equivalent US investment prohibition. This goes further than the equivalent EU prohibition, which prohibits new investments in the Russian energy sector specifically.

The No. 13 regulations widen the definition of scope of activities for which a person can now be designated. We have expanded our definition of destabilising, undermining or threatening Ukraine, and supporting or obtaining a benefit from the Russian regime. This brings into scope many individuals and entities in the Russian Government, their agencies and their armed forces.

These regulations make minor amendments to the definition of

“being involved in obtaining a benefit from or supporting the Government of Russia”.

They broaden the interpretation of being “associated with” a designated person to include immediate family members, who often hold assets on their behalf. They also provide an exception from trade sanctions for humanitarian assistance activity delivered in non-government controlled areas of the Donetsk and Luhansk oblasts. Finally, they expand the definition of ownership in relation to ships and aircraft and correct errors and omissions in previous regulations.

The fourth and final set is the No. 14 regulations, which introduce further trade sanctions. They prohibit the export, supply, delivery and making available of a comprehensive list of critical goods, energy-related goods and related ancillary services, for the supply of which Russia had relied on G7 nations. These goods had a combined market value to Russia of £365 million last year.

This instrument also bans the import, acquisition, supply and delivery of Russian coal, entering into force on 10 August. This is on top of prohibitions on the import, acquisition, supply and delivery of Russian oil, which will come into force before the end of this year, and on the import of gold that directly or indirectly originates in Russia, which entered into force on 21 July. Ancillary products and services on coal, oil and gold exported from Russia are also prohibited. A further ban covers the provision of business and management consulting services, public relations and accounting services to persons connected with Russia.

It is also worth noting that SIs 11 and 14 have been developed in alignment with the UK’s international partners, which I know is an important point for the noble Lords, Lord Collins and Lord Purvis. I assure them that we continue to work in concert with our allies to assess any potential gaps in our sanctions packages.

These hard-hitting new measures continue to ratchet up the pressure on Russia. I assure noble Lords that we will continue to do so and to work with our allies until Mr Putin ends his illegal, unjustified attack and war on Ukraine. I welcome this opportunity to hear views on these regulations. I beg to move.

My Lords, I hope the Minister will allow me briefly to mention the No. 11 regulations. I understand from what he said that they derive in part from discussions at the G7, and I presume that all G7 countries are in the process of putting similar ranges of sanctions in place in their own countries. Part 4 inserted by these very extensive regulations deals with chemicals and equipment—it is a very comprehensive list. Is this list the same as that being applied by other European countries? When I looked at it, I thought it might be derived from the former EU regulation on REACH, which is I think the biggest piece of legislation ever passed by the European Parliament. Are we co-operating on important measures such as this to have the effect that the Minister intends?

My Lords, the Minister knows that these measures are supported by the Liberal Democrat Benches. As when we have debated previous sanctions, I am grateful for the Minister maintaining contact and keeping us informed. He knows of our strong support for measures which aim to ratchet up the pressure on Vladimir Putin and, as is included in these elements, the wider circle of his support.

We would support moving beyond the regulations to include the United Russia party and wider elements of the Russian regime in this part of the sanctions regime. We support the Government in the extension on state entities but, as the Minister knows well enough, there has been considerable state capture of the Russian economy by the Putin regime over recent years. This means that we should include in our sanctions regime not just the political actors but, increasingly, those in the wider economy. Therefore, the banning of certain exports and the wider inclusion of some state entities is to be welcomed.

I also welcome the work of officials on the impact assessments. They are useful tools to look at what the impact could be on the wider Russian economy. This leads to my first question. We have debated many sanctions but are yet to receive what I have asked for previously: an overall assessment of the net impact of the UK sanctions on the Russian economy and regime. I understand entirely that that document will be sensitive, but we must understand what the impact has been; otherwise, we cannot judge what could well be a situation where, in the long run, we want to move away from the sanctions regime. However, that is premature, as we want to increase the pressure.

That leads to my second question, on implementation. I noted that we have seen the first prosecution in the UK of what is effectively sanctions-busting. Can the Minister indicate whether that is an isolated case or if he is aware of more areas where there are active prosecutions of UK citizens and residents who have been acting against the sanctions regime in the UK? We need to know that these sanctions are being actively policed and implemented. They are pointless unless they are implemented in full.

This leads on to my third question: no doubt the Minister will have noted, as I have when I have been travelling, that the number of Russian nationals who have been using other transport routes through the Gulf—and Istanbul in particular—to access the UK and the European Union seems to have markedly increased since the sanctions regime was put in place. Is the UK monitoring passenger levels of individuals who are coming to the UK? I know that there is live debate on visa access for Russian nationals, both to the UK and to the European Union, but I would like the Minister to reassure me that this is being actively monitored.

Turning to the particular measures, I hope the Minister will forgive me for reflecting on one of the elements in the Explanatory Notes on the No. 11 regulations, but it is connected with yesterday’s debate which he and I participated in. On Regulation 7, the Government say:

“Failure to join the international community would undermine the UK’s reputation as an upholder of international law, human rights, freedom of expression and democracy.”

The debate that we had yesterday is relevant to what we are arguing for here in relation to upholding international law, and I wanted to stress that point.

With regard to the No. 12 regulations, the Minister said that our regime is now going beyond that of the European Union. I wonder if he could say a little more, with regards to energy, on where we have departed from the European Union and have now got a stronger regime. I am not opposing this, of course, but it would be helpful to have a little more information.

With regard to the No. 13 regulations, it is helpful that there is now clarification on shipping; this was raised in previous debates, and I welcome it.

Finally, I have a broader point on which I would like the Minister’s reflections. As he will know, the noble Lord, Lord Collins, and I have asked how we are working with our allies to ensure that our sanctions regime is not circumvented by friends and colleagues around the world, especially with regard to Russia accessing the very technologies and goods that we are now banning. The Minister knows well enough that Russia is very active in the wider Gulf, in Africa and in India in sourcing some of the materials that we are now banning. I previously raised the issue of concern with regard to the Indian rupee/rouble swap for purchase of energy. When I raised that question, the Minister said it was premature, but that arrangement is now in place. We are apparently only a fortnight away from signing a free trade agreement with India. At the very same time that we are banning the selling of certain goods to Russia, India seems to be increasing the selling of those goods to Russia. Could the Minister say what work we are doing with our allies to ensure that, whilst we are seeking to limit the sourcing of some of these materials to Russia, our allies are not increasing them? If the Minister could respond to these points, I would be very grateful.

My Lords, I too would like to start by reiterating the backing of the Opposition for the Government’s support for the people of Ukraine, and of course these sanctions are a vital element of that support. I am pleased to see such a wide range of issues being covered in today’s measures, which the noble Lord, Lord Purvis, has mentioned. We support these sanctions and measures, but it is only right that this House can scrutinise and understand whether the Government are properly resourcing them. It is one thing having the law; it is another thing to be able to ensure full compliance. I think a lot of my questions will echo those of the noble Lord, Lord Purvis, regarding that question.

In the other place, the Minister Jesse Norman stressed —and I accept this—that

“the first instinct in a war situation is to get sanctions on the books as quickly as possible.”

I noticed what the noble Lord said regarding the Joint Committee, and of course we even had amendments to our Standing Orders to ensure that we could get these in place as quickly as possible. I reassure the Minister that the Opposition will do whatever they can to ensure speedy implementation and adoption of these sanctions.

Jesse Norman also argued that the sanctions

“have been effective because the Treasury Committee has reminded us of that, and we have plenty of other evidence that it is the case.”

I would echo the point made by the noble Lord, Lord Purvis, that it would be good to have that assessment in a more political context so that we can properly understand it.

Jesse Norman also acknowledged that

“as the situation evolves so we need to evolve the response, and as the concerns about the humanitarian impact and unfairness evolve, the sanctions picture inevitably becomes not merely more widespread and more expensive, but more complex”.—[Official Report, Commons, 22/9/22; col. 919]

But, as my honourable friend Stephen Doughty pointed out, Putin and his cronies will seek every single loophole, omission and error that we may make to try and circumvent the objectives of our sanctions. We must not allow him to do that. We have stressed in many previous sanctions debates—the Minister will recall my previous comments on this—that it is critical that we properly resource those units in the FCDO and elsewhere to ensure that they are able not only to draft the appropriate legislation properly but to ensure that we have a proper regime with proper compliance.

In May, James Cleverly—then a Minister, now the Foreign Secretary—told Stephen Doughty that 150 individuals were working full-time in the sanctions taskforce in the FCDO and that the Office of Financial Sanctions Implementation had at least doubled in size. He tried to get further clarity about the resourcing going on, and how this is increasing, particularly with sanctions getting more complex. He was promised a written response, but sadly he did not get that—Jesse Norman did say in the other place that he will ensure that a letter is sent. Jesse Norman also talked about resourcing and referred to

“the increase in the size of OFSI, and that is matched by the seriousness with which this issue is taken across Government.”—[Official Report, Commons, 22/9/22; col. 920]

I hope that the Minister will tonight be able to perhaps put a bit more meat on this and give us a more detailed response about our capability and capacity. In fact, let me put that a different way. I have full support for the staff in the FCDO—I think we have got some of the best experts, and I certainly admire their commitment and dedication—but capacity is going to be a critical issue that we need to address. What extra financial resources have been given to those bodies? What conversations has the Minister had with the National Crime Agency to ensure the proper enforcement against those who breach the sanctions regime?

In the previous debate, as the noble Lord, Lord Purvis, has said, we have both focused on the circumvention of sanctions, and not only on those issues that the noble Lord, Lord Purvis, has mentioned in terms of India. We have also had in the debate in the Commons the question of steel and how that is being exported to one country and then potentially imported to here, so there are areas that we obviously need to consider.

Also, how much of those resources that were in this country have been able to leak or escape? What assessment have the Government made of where those oligarchs are moving their money to? When I was in a meeting in the City recently, I heard talk about how there was this sudden surge of movement into Istanbul—I do not think that it is just people who are moving there; other issues are occurring, and that was the impression I got from the City. Of course, the press reported today about how Hong Kong is now becoming a key area for resources, both physical and financial. What assessment have the Government made of that?

The noble Lord referred tonight to how we are addressing those gaps and working with our allies to do so. As my honourable friend Stephen Doughty said in the other place, it is crucial that we work with some of the best minds around the world to look at other areas where we can bring pressure to bear. My honourable friend mentioned McFaul, the former US ambassador to Russia, and others, including those from the Ukrainian Government, who have a working group looking at additional ways to expand sanctions and make them tougher. Jesse Norman did not answer my honourable friend’s question on this. Apparently, we have no representation on that working group and are not involved in it—perhaps the noble Lord can tell us why that is the case. I hope we will ensure that we have somebody on that group because we need to lead, along with the United States and others, to ensure that we have the toughest, broadest and deepest regime.

Obviously, in the last few weeks we have seen remarkable progress by the Ukrainian forces in the east and south of the country and an incredible counteroffensive. Indeed, the Ukrainians have shown extraordinary courage, strength and ingenuity in the face of Russian aggression, so it is even more important than ever to show our firm resolve to stand behind Ukraine in every way, not only militarily—which we discussed earlier this week—but politically, economically and, of course, diplomatically. One area I know the noble Lord takes really seriously is the crucial element of ensuring that Putin and his cronies face the consequences for their illegal and barbarous actions. The indiscriminate bombing we have seen over the last week is the strongest evidence of why we must do everything to end Putin’s aggression, violence and cruelty. Sadly, however, we saw earlier evidence of brutality, not only in the scenes of mass graves and torture but in stories of sexual violence. We have the conference on this coming up fairly shortly. I hope that the noble Lord will do whatever he can to ensure that those victims of sexual violence—those voices and that evidence—are also a feature of our conference on the prevention of sexual violence in conflict.

I will not go on much further; I echo the comments on some of the details of these sanctions. The thrust of our contribution tonight is that it is good that we have and are adapting the sanctions—but let us make sure that we are vigilant in enforcing them in the best way possible.

My Lords, I thank all three noble Lords for their contributions this evening. I say from the outset to the noble Lords, Lord Purvis and Lord Collins—both will appreciate this, as we are working at speed—on the effectiveness of comparisons with our international partners, that there is information readily available, but there is a sensitivity, if I may put it that way, in publicly sharing information. However, I will be happy to share certain information and briefings with both noble Lords and give them updates on where we are.

Both noble Lords raised the important issue of the effectiveness of co-ordination with our partners, and I know that this is of interest. While I mentioned the issue of energy vis-à-vis our European Union partners, I have always maintained that there will inevitably be a country leading—such as the US or ourselves, or the EU—in certain areas. The important element with respect to the granular detail—I do have the summaries available, which I reflect on quite regularly—is to ensure that where there is a gap, say, from our side, we ask the pointed question as to why that is the case so that we can address it, and vice versa. Actually, that is working very well. I can share some of that information and bring noble Lords up to date on that, specifically outside the Chamber.

I cannot speak for the noble Lord, Lord Collins, but I say on behalf of my noble friends Lady Kramer and Lord Fox, who take an interest in these issues, that if the Minister wanted to facilitate a private briefing with officials to give an update on the Government’s estimate of the impact on the Russian economy, we would be willing to take that. I wanted to make sure that was on the record.

I can certainly share some of these issues, on the wider and general impact, this evening. However, particularly as we are working in very close alignment with our partners, I shall be certain to provide updates and private briefings in that respect.

I again thank all noble Lords for their strong support. The noble Viscount, Lord Stansgate, raised a question on the reach of SI 11. I confirm to him that we are co-ordinating the lists of goods covered by our export prohibitions with our G7 allies, and we are working very closely on those lists. To summarise, SI 11 covers an export ban on defence and security goods and technology, including products for internal repression; an export ban on maritime goods and technology; an export ban on additional energy-related goods and oil refining; an export ban on sterling or EU-denominated bank notes; an export ban on jet fuel and fuel additives; an import ban on revenue-generating goods, including metals, wood and chemicals, among others; and a ban on technical assistance, financial services and funds. So the SI is pretty comprehensive.

On that specific point, Stephen Doughty asked at the other end about goods for internal repression and how we are introducing that ban now, when surely we should have adopted it much earlier, particularly with the invasion of Crimea. Have we been exporting equipment for internal repression before?

As I said in my opening remarks, there are areas where SIs are already present and there may be a degree of overlap in the application, but what we are seeking to do with all these SIs is to ensure that our regulations are fully comprehensive. It is not that we were in the market to suddenly start exporting items which add to the suppression of domestic populations—I think we have known for a long time the challenges that the people of Russia face. As we evolve, go forward and progress our sanctions, it is important that we are as detailed as we can be. Previous sanctions may have covered aspects of those limitations, but we want to make sure that we are covering every element that we can.

Both noble Lords highlighted how those who are having sanctions imposed on them are looking at innovative pathways to overcome them. We have to be dynamic in responding to that. The noble Lord, Lord Purvis, raised the issue of other partners beyond our key G7 partners, and that is important. I fully accept that there will be issues; different countries have different perspectives, as we can see from looking at votes taking place within multilateral fora, including the one on the sham referenda. It is noticeable—I am being very up front here—that some countries are now not as forward-leaning as they were previously, and it is important that they get a consistent and consolidated sense from both your Lordships’ House and the other place of unity and purpose. Of course questions are there, but I cannot emphasise how important it is for them to see this unanimity. There are partners who are looking at this as the war continues with regard to their own domestic challenges as well. Therefore, the more aligned we can be with those partners who have sanctions regimes, the more effective we will be. However, I fully accept that there will be ways and means in which those having sanctions imposed on them will look to circumvent them.

The noble Lord, Lord Collins, asked about the McFaul group. The working group is an independent group of sanctions experts. Government officials have regular contact and close exchanges with the group, but if there are specific points perhaps the noble Lord will raise them with me and I will seek to answer them more specifically.

The noble Lord, Lord Purvis, talked about circumvention, which I have already addressed in part. These regulations seek to close the gaps. I come back to the whole issue of how we work with key partners. I will seek to provide more detail on the specific examples that the noble Lord raised.

The noble Lord, Lord Purvis, asked about prosecutions that have taken place. Some are active and live. I do not have the exact figures with me today but I will certainly write to the noble Lord in that respect.

There are some other areas that I can share with noble Lords at this time. The noble Lords, Lord Collins and Lord Purvis, asked specifically about the impact of the sanctions regime on Russia itself. Russia’s GDP is expected to contract by 3.5% to 8.5% in 2022, compared with a previous pre-invasion forecast of 2.8%. The IMF predicts that the Russian economy will be 16% smaller than pre-invasion trends. More than 1,000 foreign businesses have either left, suspended or reduced operations in Russia since the operation began, and Russia’s manufacturing capability has been severely impacted; car production, for example, is down by 90% from pre-war levels. Another example is that Russia’s airlines are beginning to—I have an interesting word here—cannibalise aircraft. I think that means adapting from other places. It is a rather innovative and imaginative way of describing the challenges they are facing because of shortages of equipment.

The Ministry of Defence suggests that western sanctions on the export to Russia of components and technology are highly likely also to increase production costs. Mr Putin has already resorted to sending ancient Soviet Union equipment, such as decades-old T-62 tanks, into the conflict with Ukraine.

The noble Lord, Lord Collins, raised the issue of FCDO staffing. I will share some figures with him. In December 2021 there were 48 substantive roles in the sanctions unit, which has now become a directorate. We have doubled the number of officials focused on our response and now have over 100 permanent staff delivering it. This does not include those working across FCDO and its overseas network who cover sanctions as part of their wider role, so there are people who have specialist roles within the sanctions team and others who will be part-working on sanctions and other areas, especially in our network. The Office of Financial Sanctions Implementation has also doubled in size this financial year and continues to grow because it is evolving. I can assure noble Lords that the resourcing remains more than double the 44 full-time employees, so we are looking at 88 to 90 employees in that regard.

Both noble Lords raised the issue of alignment. Any differences, as I have alluded to, tend to be small and relate to specific items with larger categories of goods depending on the jurisdiction. The reason for the differences is largely to do with the differing but co-ordinating approaches by the UK, the EU and the US. In the early stages of the sanctions regime, as noble Lords will recall, we needed to adapt our own governance procedures. Again, I am grateful to noble Lords for the speed at which we were able to implement that.

To return to the issue of goods for internal repression, as I said earlier, many goods, even before the sanctions regime, were controlled through the export control licence regime, but there will always be areas where we need to act. I have alluded to the fact that we need to ensure that these issues are as watertight as possible.

The noble Lord, Lord Collins, raised the NCA. The former Prime Minister confirmed that we will set up a dedicated cell in the National Crime Agency for these purposes. I will get an update for the noble Lord on the specific operation of that unit. I know that is an issue that he has raised on number of occasions. There is undoubtedly a lot of work being done in this respect.

The noble Lord, Lord Collins, mentioned the upcoming PSVI conference and the importance of those survivor voices—those currently being suppressed but also those subjected to the worst kind of torture. Earlier this week I and my right honourable friend the Foreign Secretary met the ICC prosecutor, Karim Khan, who was in London, and we had a detailed discussion of his requirements and about how quickly we can start looking at ensuring that those perpetrators of these abhorrent crimes—sexual violence in particular but more broadly, too—can be brought to justice. We stand very closely with the ICC and are fully supportive of the prosecutor and his team on the ground.

In recent weeks, including during the UN General Assembly week, I met the new prosecutor-general from Ukraine, and we identified the specific requirements of the prosecutor-general in-country. I will update noble Lords appropriately on this, but we are working very closely on their exact requirements.

If there are any more specific elements to the questions raised by noble Lords then I will of course write, as I have indicated I will on one or two issues. I end by thanking all three noble Lords who have participated in today’s debate. It is important that we stay very much aligned. I remain available to noble Lords to discuss particular issues or areas in more detail.

It is clear that we have seen an escalation by Russia—desperation, if I may put it that way—in the response that we are currently seeing from Mr Putin and the recent attempted annexation of, in effect, three territories is reflective of that response. On the missiles that were recently sent into Kyiv, it is extremely worrying that that was arguably the biggest missile launch on the city of Kyiv since the conflict began. I know Melinda Simmons, our excellent ambassador on the ground. We are looking at standing very firmly with Ukraine in the diplomacy effort that we are making and the defence co-operation that we are extending. We are also ensuring that we are working with international partners when it comes to the economic cost that we can bring on Mr Putin and his friends in Russia itself. I am grateful for noble Lords’ strong support and I commend the regulations to the House.

Motion agreed.