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Russia (Sanctions) (EU Exit) (Amendment) (No. 15) Regulations 2022

Volume 825: debated on Monday 21 November 2022

Motion to Approve

Moved by

That the Regulations laid before the House on 28 October be approved.

Relevant document: 17th and 18th Report from the Secondary Legislation Scrutiny Committee

My Lords, I shall speak also to the Russia (Sanctions) (EU Exit) (Amendment) (No. 16) Regulations 2022.

The instruments before us were laid on 28 October and 2 November respectively under powers provided by the Sanctions and Anti-Money Laundering Act 2018. They make amendments to the Russia (Sanctions) (EU Exit) Regulations 2019. With these amendments, the UK continues to put immense pressure on Mr Putin and Russia with our international partners. This is part of the largest and most severe economic sanctions package that Russia has ever faced.

I will first talk about the No. 15 regulations. Through this legislation, we are banning exports of hundreds of items that are critical to the functioning of Russia’s economy, particularly in the manufacturing sector. This includes items such as machinery, electrical appliances, metalworking tools, precision instruments, and other products that are of critical importance to Russia’s industrial and technological capabilities. They will be added to an extended list of items that we have already sanctioned.

This legislation also bans further imports from Russia, including gold jewellery, and Russian gold processed in third countries. This strengthens the ban on Russian gold that we first introduced in July. The United Kingdom has received only one shipment of Russian liquefied natural gas since the Ukraine invasion. The legislation prohibits these imports to the UK entirely from 1 January 2023. The instrument also bans the import of other goods that generate revenue for Russia, including vodka, vinegar, beverages, and food waste products, and it prohibits the provision of services in the technical assistance, financial services and expertise, and brokering sectors.

In total, the United Kingdom has wholly or partially sanctioned £20 billion-worth of goods per year, which is 96% of the goods that we used to trade before the invasion took place. As with all our sanctions, this package has been developed in co-ordination with our international partners. I assure noble Lords that we will continue to work with them to identify further potential measures to bear down on Russia.

I will make one final point on SI 15. Owing to the unprecedented pace of our sanctions work, we identified a minor mistake which occurred during drafting and corrected associated documents to reflect this on 11 November. This correction means that the export prohibitions of the products in new Schedule 3I, “Russia’s vulnerable goods”, will now come into force on 1 January 2023, at the same time as the ban on the import of liquefied natural gas. We expect the change to have minimal impact on the effectiveness of the measure.

I turn to the No. 16 regulations. Again, working with our partners across the world, the UK has imposed a range of sanctions on Russia and continues to do so. This legislation is a further important step in undermining Mr Putin’s ability to fund his illegal war on Ukraine. We are now further targeting oil, one of his most significant sources of funding. This builds on bans already introduced on the import of oil into the United Kingdom.

Oil is a key sector for the Russian economy and plays a vital role in funding the Russian war effort in Ukraine. Crude oil and oil products are Russia’s most lucrative export, around 75% of which are transported by sea. They accounted for 10% of GDP in 2021. These new powers allow the UK to move in lockstep with our allies, limiting the revenues that Russia can derive from the sale of oil transported by sea.

It is important to protect vulnerable countries for which energy security is critical. While this measure targets Russia specifically, it also aims to maintain the flow of oil at a stable price in order to manage inflated global energy prices—prices that are a direct result of Mr Putin’s actions. This legislation implements a core part of the policy that will prevent countries using the UK’s services to transport seaborne Russian oil and refined oil products unless they are purchased at or below the oil price cap, set and agreed by the price cap coalition of the G7, the European Union and Australia.

Importantly, the UK and our coalition partners will not ourselves be purchasing Russian oil. We and our partners have introduced our own domestic import bans on Russian oil from 5 December. Instead, this is about ensuring that UK, European, and G7 services cannot be used to facilitate the trade of Russian oil.

The ban on services, including insurance, brokerage and shipping, implemented through this legislation, will be coupled with a general licence providing the basis for an oil price cap exception. This will allow third countries to continue accessing services only if they purchase Russian oil at or below the cap. This measure will restrict Mr Putin’s ability to fund his illegal war in Ukraine, while allowing oil to flow in a tight market that will enable all countries—particularly those with lower incomes—to purchase affordable oil.

A key element of this measure is the UK’s world-class insurance sector. It provides key services that enable the movement of oil by sea, particularly protection and indemnity insurance. Here, our reach is significant: the United Kingdom is a global leader in the provision of third-party liability insurance, writing 60% of global cover provided by the 13 protection and indemnity clubs. Together with our G7 partners, we collectively write around 90% of this cover.

The potential impact of this measure, and the central role of the UK, cannot be overstated. The ban on providing services for Russian seaborne oil will come into force on 5 December. A further ban on providing services for Russian seaborne refined oil products comes into force on 5 February, in alignment with our international partners. This important measure will be enforced by the Office of Financial Sanctions Implementation, working closely with the industry. This robust enforcement regime will be backed up by prosecutions if necessary.

Together with the actions taken by our partners in the G7, the European Union and Australia, this measure represents one of the single biggest sanctions placed on Russia, one which targets their largest source of revenue. These new amendments demonstrate our continued determination and commitment to target those who participate in, or facilitate, Mr Putin’s illegal war of choice on Ukraine. I assure noble Lords that we will remain steadfast and will continue to bring forward further sanctions. I beg to move.

My Lords, will the Minister comment on a report in the Sunday Times yesterday about the export of oil from Russia in a Russian ship from the Black Sea? It tied up against another ship somewhere in the Mediterranean and that oil was transferred over several days; the oil subsequently was delivered to Immingham. That, to me, is importing Russian oil. Are these regulations going to stop this, and how are they going to check it?

My Lords, I have been in Ukraine in the winter, and that, combined with the indiscriminate barbarity of the Putin regime towards the people of Ukraine in what will be a very punishing season, means that we need to redouble our efforts to make sure that there is no impunity for the Russian regime. We therefore support these sanctions and, as the Minister knows, we have, from these Benches, been consistent supporters. However, with the news that was reported just last week by the Financial Times that Russia’s gross domestic product has fallen by only 4%—far less than had been anticipated—does the Minister agree that we need to consider further areas where there can be damage to the regime’s economy and how it operates it?

Notwithstanding the information that the Minister has provided in the past regarding the impact of these sanctions, the impact on the Russian economy is less than we had anticipated. One of the reasons for that is that Russia has been able to circumvent some of the sanctions, with trade increasing in energy especially. It is therefore welcome that there has been a shift of tone in the G20 from India and China, in addition to the other G20 countries, regarding their position on the Putin regime. Could the Minister outline areas where there are discussions on expanding the type of financial instruments that could be inflicted on the regime? If the Russian economy is falling by only 4%, which is only 1.5% more than the UK economy is anticipated to fall in this coming year, then this is not likely to bring about significant change in the type of aggression that Russia is waging on the people of Ukraine.

The Minister said that these regulations have been developed in co-ordination with our allies, but they come into effect after the EU sanctions. The Government themselves state that these have been brought forward

“to further align with the EU’s existing prohibitions


“oil refining technology and manufacturing products”.

On the expansion of the list of revenue-generating goods, which the Minister outlined, the Explanatory Memorandum says:

“The aim of this measure is to align with the EU to include two Russian product groups”.

Although we support the regulations, why has there been a delay in the UK bringing forward measures when they have already been put in place by the EU? If they are developed in co-ordination, surely it would be better to implement at the same time as our allies.

Have the Government assessed the effect of the prohibition on the import of gold with regard to trade with our allies in the Gulf? I have seen at first hand, on a visit to Africa, the illicit trade in gold, which is funnelled through our Gulf allies and then makes its way to Russia. What action are we taking with our allies and trading partners on the gold trade in the Gulf?

Could the Minister explain a minor point that is curious to me? Although we support the measures on those importing and acquiring gold jewellery that originates in Russia, the Explanatory Memorandum has, in brackets,

“(with an exception for personal use, which will also apply to the export of gold jewellery)”.

I cannot afford much gold jewellery but I think that quite a lot of gold jewellery is for personal use, so why are we putting in place measures to prohibit gold jewellery with an exception for “personal use”? That does not make much sense to me, so if the Minister could explain it, I would be grateful.

On the No. 16 regulations, I very much support prohibitions on the supply and delivery of certain ships, notwithstanding the very valid question asked of the Minister regarding circumventing these prohibitions. We also welcome the shift in tone from our friends in Delhi. But what further work is being done regarding the rupee-rouble swap arrangements for India’s purchasing of oil? I have raised this with the Minister on a number of occasions. He knows that there have been ways in which Russia has profited out of the sanctions on energy and oil. Can the Minister outline clearly that Russia is not profiting from our allies through its purchasing arrangements? What discussions are we having with India in particular regarding its purchase of Russian oil?

I move to the Government’s enforcement. As the Minister said, and as was reported by the Office of Financial Sanctions Implementation and the Treasury, assets worth £18 billion have been frozen, which is welcome. I read the annual review and what struck me was that the frozen assets of the Russian regime and individuals connected with it have grown from £44.5 million in September 2021 to more than £18 billion now. If any evidence was needed about how exposed London was to kleptocratic finance, this is surely it. How much of that is now actively being considered for seizure? We have £18 billion frozen at the same time as we are taking away the budget for developing countries to pay for the Ukrainian resettlement scheme at home. Would it not be better that we use seized money from the Russian regime to pay for the resettlement of Ukrainian refugees, rather than taking that money from developing nations, which is the Government’s policy?

Finally, will the Minister explain why, although the OFSI has reported that it has received 236 reports about those in the UK breaching sanctions, only two monetary penalties have been issued? How many warning letters have been issued? Why have there been so many breach reports but so few prosecutions? Ultimately we are to wait for the Economic Crime and Corporate Transparency Bill, which is slowly progressing through Parliament. When are we likely to see it in this House? When will we get an update on the resources for Companies House and others to make sure we can start seizing some of those assets and putting them to good use?

My Lords, these measures are admirable, but can we have an analysis of how we are helping other countries around the world follow the same standards of capping or prohibiting Russian fossil fuel imports? There is evidence that a great deal of Russian oil—possibly not gas—is simply going to other markets in Asia, perhaps at a discount but in some cases at full market price, and that Russian coal is still being fairly widely exported. We would like to hear more about the full diplomatic effort that we are deploying with other like-minded countries in Asia, Europe and across the Atlantic to ensure that Russian oil and gas sales really are minimised and that the heat is being felt in Russian finances. I know that that is our intention, but the facts and figures, some of which have been touched on, do not seem to reflect that very much impact has so far been made.

The noble Lord, Lord Purvis, referred to £18 billion-worth of assets that have been seized. The noble Lord will be well aware of the billions that have been frozen under a United Nations resolution with regard to Libya, which have been untouched and from which victims in this country have not received any support. Is it the case that we could be seeing a repeat of that performance and that those assets will have to be managed? Perhaps investment should be improved by people in our system and then given back again whenever the conflict ends.

I am just waiting to see whether anyone else wishes to comment—every time someone says something, it provokes a point. I hope I am not going to be too provocative. I want to start by being very clear that the Opposition are at one with the Government on these sanctions. We will do whatever we can to support their speedy reduction. If there is one message from this House, it is that this country is absolutely united against Putin’s illegal war and, in particular, as we have seen, the recent indiscriminate attacks on civilian infrastructure, designed to do one thing, which is to damage the homes and the heating of families and children. So I start by saying that we are absolutely at one with the Government.

The No. 15 regulations rightly extend the prohibitions on goods critical to Russian industries. I am particularly pleased about that instrument ending the importation of liquefied natural gas—LNG—originating from Russia. Western allies, including the EU, have made real progress this year, as the noble Lord, Lord Purvis, said, in obtaining liquefied natural gas from appropriate sources, such as the United States. Prohibiting this Russian source is a good step towards energy security.

There is one thing about the speed of the introduction. The Minister highlighted an error that occurred, but another thing that struck me was that the import ban will not come in until January 2023. He explained that the error would mean that certain prohibitions will not come in until January, but why will that ban not come into force until January 2023?

I want to pick up the point made by the noble Lord, Lord Howell, because he is absolutely right. It is not just about working with allies to impose sanctions. What are we doing to support countries which need these energy supplies? What are we doing to advise them on and provide help with alternative sources? It is not easy for countries to suddenly switch if they have become reliant over the years, so it is not just a question of offering sticks. It is also about encouragement and support, so I hope the Minister can tell us a bit about that.

The ban on liquefied natural gas also prohibits loans to firms that support Russian interests, even if they are based outside Russia. To what extent are the Government already monitoring which companies are providing finance for these purposes? The Minister has said on many occasions that whatever sanctions we may introduce, there will be someone trying to circumvent them. That means enforcement is critical—the noble Lord, Lord Purvis, made this point. The United States appears to have quite strong enforcement measures. Are we examining not just how we act in concert when introducing legislation, but exactly how we can more effectively act in concert on enforcement, which will ensure that people do not easily circumvent it?

My noble friend’s question on circumvention was a good one. If this is being done so explicitly, I hope we can take more direct action on it. However, the regulations also have exceptions—I want the Minister to highlight some of these—which will allow oil products to be provided to third countries. Can he explain a little more about the circumstances where this would be permissible? In particular, we have heard about other countries’ roles in importing and then exporting. We need to be reassured that we are taking that into account.

The noble Lord, Lord Purvis, made the broader point about international co-operation and co-ordination on sanctions. In our consideration of each statutory instrument as it has come in, we have certainly raised with the Minister the fact that the United States and Canada seem able to introduce sanctions faster, or well before our own. There may be good reasons for that—it is an incremental build.

As we move into a longer period of these sanctions, I wonder whether the FCDO has done a general assessment of where and why there may be gaps, and how we can hit Russia with one big hit, rather than taking an incremental approach. It would be really good if Parliament could be given such an assessment. How are we building up allies and persuading others to join, even if they are unable to match our speed of implementation? Are they at least coming on board in some of the other areas?

In conclusion, I reiterate the Opposition’s full support for the Government’s actions here, and we look forward to further clarification.

I thank all noble Lords who participated in this short but important debate. I again put on record the Government’s thanks for the strong sense of co-operation that has been extended by all noble Lords. In particular, I acknowledge the role played by the Front Benches of His Majesty’s Opposition and the Liberal Democrats; I will continue to share information and work with noble Lords in this respect.

On the point raised by the noble Lord, Lord Berkeley, I will certainly look into it. On circumventing, referred to by the noble Lord, Lord Collins, there will always be ways and means of doing that, and this comes back to effective enforcement, a point made by all noble Lords. That is why we need co-ordination, and not just in the imposition of sanctions. I take on board the point made by the noble Lord, Lord Collins, about ensuring effective imposition, and what the noble Lord, Lord Purvis, said about the impact on the Russian economy. I say again—I know all noble Lords agree on this—that our intention, ultimately, is not to hit the Russian people; it is about ensuring that Mr Putin and his Government feel the full force of international action and collaboration. In this regard, I will certainly come back to the noble Lord, Lord Berkeley, if I have more detail specific to the issue he raised.

My noble friend Lord Howell raised the issues of implementation and circumvention, particularly in respect of oil, and the noble Lord, Lord Purvis, raised working with our international partners. We are strengthening our engagement in this respect and have done so particularly recently. This subject was discussed in the G20, not just the G7. The fact that we are now fully aligned with our partners in the US, Australia and, importantly, across the European Union, allows us to make those points consistently across the piece and in a unified fashion.

The noble Lord, Lord Collins, raised the issue of oil and vulnerable countries. We are not seeking totally to disable economies, particularly of vulnerable countries that are already feeling the real impact. Here, the test will be in the application. We have seen this with energy in Europe, and I have seen it directly in my visits to north Africa in the context of food security. We have implemented these sanctions—I come back to that crucial word, “co-ordination”—in a co-ordinated way, and we are aligned with our partners across the EU, Australia and the US. Coming back to the point made by the noble Lord, Lord Berkeley, there is the question of how we strengthen our maritime co-operation to ensure that any illicit practices can be stamped out.

As I have said, I have always been alive to any issue that has arisen, but particularly when it comes to the impact and application of sanctions, there will undoubtedly be organisations and individuals looking to circumvent them, and it is important that we stay aligned.

Turning to some of the specific questions raised, the noble Lord, Lord Purvis, referred to the delay in bringing measures into force when the EU has already done so. The SI represents the earliest opportunity to match the prohibitions in this area announced by the EU, and I assure noble Lords that we speak to our allies constantly. There are differences in application of the system but, as I said, I take on board the question of how we can close the gap.

I assure the noble Lord, Lord Collins, that there is an analysis. Again, I will check with officials and seek to share what I can. I have had analysis done across the UK, the EU, the United States, Canada and Japan. When it comes to individuals, we are marginally ahead of the EU. When it comes to oligarchs, again, we and Canada seem to be ahead. There are other areas—for example, on entities—where Canada and the United States are ahead. Where systems are fluid, such as here, we are aligned, but we have a running tally to ensure that the entities or individuals that we are sanctioning are fully aligned with our key partners. I will certainly seek to see how much of that I can share at headline level with noble Lords.

I am grateful for that. One area that the EU is looking at is effectively a punitive exit tax: those who have assets in one area and seek to dispose of them in another will be penalised through taxation. Effectively, if the sanction does not get them at the start, it will get them at the end. That would be an absolutely critical area where there must be no difference across our allies. Will the Minister please consider that? It is an area where there cannot be any difference at all.

My Lords, I certainly take that on board. On this issue we are absolutely at one, and the real benefit of your Lordships’ House is that, where there are areas that are identified, I of course welcome practical suggestions for how we can target quite specifically—and, as I said, we will certainly take those forward with the EU and our other allies.

I turn very briefly to asset seizures. My noble friend Lord Empey raised the issue of previous situations that arose on Libyan assets. I assure the noble Lords, Lord Purvis and Lord Empey, that we are considering all options for seizing Russian-linked assets that could be used to support the people of Ukraine, including to fund humanitarian efforts and reconstruction. Law enforcement agencies are currently able to seize UK-based foreign assets with links to criminality or unlawful conduct by making use of powers under the Proceeds of Crime Act 2002. My department is working closely with other government departments and law enforcement agencies to identify all possible options for seizing Russian-linked assets in the UK that could also be used to pay for reconstruction in Ukraine. Our international partners that we are co-ordinating with have also frozen a significant volume of assets but, like the UK, are yet to fully test the lawfulness of the asset-seizure regime. I assure noble Lords that we will continue to explore all possible options for seizing Russian-linked assets to pay for reconstruction costs in Ukraine. Of course, we have to respect our legal obligations and responsibilities. As the details emerge, I will of course be happy to share them with noble Lords.

The noble Lord, Lord Collins, raised the important issue of export bans coming into force from January 2023. That is when the import ban on Russian liquefied natural gas takes effect, and the legislation will mean that the export bans take place at the same time. That is purely to ensure that we get everything in place so that the application of those sanctions can have full impact. As I said in my opening remarks, we believe that the delay caused by that will not have a major impact in any shape or form. I might add that, earlier this year, the Government pledged to ban Russian oil this year, and liquefied natural gas as soon as possible thereafter. That is why we set the date on 1 January.

The noble Lord, Lord Purvis, raised the issue of gold. He mentioned that it is not something that he is normally adorned with. As someone with heritage from south Asia, I assure him that gold is a significant area of interest to many people across the world, particularly in the heritage that I have. Our intention is to look at organisations but not necessarily to penalise individuals with the impact of this measure. We have imported minimal gold jewellery from Russia, and Russian gold imports to the UK have already been prohibited by the initial measure. This measure seeks to reinforce the existing ban, aligns its scope with the bans that our allies have also imposed and prevents a potential loophole from being exploited. I will look further into the specifics of what the noble Lord raised, but I will share with him the statistic that in 2021 imports of Russian gold to the UK were worth £11.1 billion and accounted for 61% of our total exports from Russia. As a result of the Government’s actions and the decision of the London Bullion Market Association, that trade has already ceased, depriving Russia of that specific amount of export revenue.

Also on the issue of gold, we are trying to target Russian businesses trading in gold, as I said earlier, not individuals who possess gold. I will take away the noble Lord’s earlier point about selling an asset in another area or sector, but, on this aspect, I come back to the earlier point I made; we are seeking to target businesses while minimising the impact on ordinary Russian citizens.

The noble Lord, Lord Purvis, also raised the issue of Russian revenues. I assure noble Lords that, while I am not going to go into specific figures, within the G7 and in the G20 recently we have been working through solutions that can apply universally with partners and also to lessen the impact on particular vulnerable countries and economies. That is the right way to approach our sanctions policy, beyond just the immediate area we have looked at on ensuring that humanitarian causes, and channels, remain open.

These measures continue our wave of sanctions that is having damaging consequences on Mr Putin’s regime. I assure noble Lords that we are committed to going further. I welcome practical suggestions and insights that can be brought to this debate and discussion. In doing so, we work very much with our key allies. We stand firm and resolute with the people of Ukraine, and we will continue to support them and the Ukrainian Government until, ultimately, we see Russia withdraw from Ukraine. The sanctions are but one example of the UK’s continued support. Therefore, I am proud to say that we continue in a very unified sense in ensuring, ultimately, that Ukraine can prevail.

Motion agreed.