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Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2023

Volume 831: debated on Wednesday 5 July 2023

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2023.

Relevant document: 45th Report from the Secondary Legislation Scrutiny Committee. Instrument not yet reported by the Joint Committee on Statutory Instruments.

My Lords, these regulations amend the Russia (Sanctions) (EU Exit) Regulations 2019. This instrument was laid on 19 June 2023, under powers provided by the Sanctions and Anti-Money Laundering Act 2018. It contains measures that increase the pressure on Mr Putin as we continue to support Ukraine and its people in their resistance to this illegal war.

I start by addressing the first part of this legislation. This amendment will enable us to keep sanctions in place until Russia pays for the damage it has caused to Ukraine. I know that this been of great importance to noble Lords. In March this year, the World Bank estimated that the reconstruction of Ukraine will cost more than $400 billion, a figure that, sadly and tragically, rises daily. On 21 and 22 June, as noble Lords will be aware, the United Kingdom cohosted the Ukraine recovery conference here in London, galvanising international support—including, importantly, from the private sector. International commitments topped more than $60 billion towards Ukraine’s recovery and reconstruction by the end of the conference.

My right honourable friend the Prime Minister’s message at the conference was clear: Russia must pay for the destruction it has wreaked. That is why we are keeping up the economic pressure on Russia, with an unprecedented package of sanctions targeting over 1,600 individuals and entities since the start of the invasion. This includes dozens of banks with global assets worth £1 trillion and more than 130 oligarchs, freezing £18 billion- worth of assets and costing Russia £20 billion-worth in trade. We have maximised the impact of these measures by co-ordinating with key international partners. Together, we are constraining the funding of Mr Putin’s war machine, inflicting a huge economic cost and demonstrating our direct support for Ukraine.

Russia’s economy posted a deficit of nearly $50 billion in 2022, the second highest of the post-Soviet era, and with our partners we are choking off Mr Putin’s access to key technologies that he needs on the battlefield. We have not stopped there. This legislation marks further progress in our battle against Mr Putin’s unwarranted aggression and more. Building on the commitment by G7 leaders in May that sovereign assets will remain immobilised until Russia pays up, the statutory instrument that we are debating enables us to keep sanctions in place until Russia does just that. I am proud to say that the United Kingdom is the first member of the sanctions coalition to make that commitment real.

We will continue to demonstrate international leadership as we look to increase the pressure on Mr Putin and those who support him. As my right honourable friend the Foreign Secretary said, in light of recent events, it is clear that cracks are emerging in Russian support for the war. As internal criticism of Mr Putin’s war grows, we will introduce a new route for those under sanction to request that their frozen funds are used for Ukrainian reconstruction. Let me be clear: there is no negotiation, no quid pro quo, no relief from sanctions, no access for those individuals to their assets while they remain under sanctions. But if they wish to do the right thing and use their frozen funds to help right the wrongs caused by Mr Putin’s invasion, there will be an approved route to allow them to do just that.

We will also tighten the net on those hiding assets in the United Kingdom. We will require individuals and entities in the UK, or UK persons overseas designated under the Russia sanctions regime, to disclose assets they hold in this country. Failure to do so could result in financial penalties or the confiscation of assets. We will legislate to require those holding assets in the UK on behalf of the central bank of Russia, the Russian Ministry of Finance or the Russian National Wealth Fund, to disclose them to the Treasury. Our action will increase transparency on where these assets are held, and limit opportunities for sanctions evasion. I am sure that noble Lords listened carefully to the discussion in the other place on 27 June. We continue to welcome parliamentary interest and support on this important matter.

Many noble Lords will be aware of the active debate with our international partners on the use of sanctioned assets to support Ukraine’s recovery. No country—as yet—has found a solution, but we are confident that we will work forward together. In that confidence, we must ensure that any solution is legally sustainable. We are also working very closely with our allies on the handling of seized Russian assets and will continue to do so. If progress is made by our international partners, we will learn from that. Nothing is off the table, and a cross-government task force is carefully considering all proposals—including those our partners may bring forward. 

I now turn to the second part of this legislation. It amends the definition of non-government controlled Ukrainian territory—including Crimea and the non-government controlled areas of Donetsk and Luhansk Oblasts—to incorporate the non-government controlled areas of the Kherson and Zaporizhzhia Oblasts. This change reflects the dynamic situation on the ground and allows our sanctions to adjust to the developments as they unfold. Measures applying to non-government controlled Ukrainian territory in areas of finance, trade and shipping therefore now apply to all those areas not currently under the control of the Ukrainian Government. 

The United Kingdom is unwavering in its support for Ukraine’s independence, territorial integrity and sovereignty. These measures will restrict the ability of the so-called authorities in these regions to access UK goods and services, investment and finance. Exceptions are in place to cover the delivery of humanitarian assistance or the maintenance of medical facilities to ensure these sanctions are targeted to avoid affecting civilians. 

To conclude, these latest measures demonstrate our collective determination to target those who participate in, or facilitate, Mr Putin’s continuing illegal war on Ukraine. I assure noble Lords that we will continue to work in unison with Ukraine and our important international partners until Ukraine is restored and the region is secure. The United Kingdom Government will not stop the pressure on Mr Putin and his associates until they have withdrawn from Ukraine, and we welcome the clear and continued strong cross-party support for the actions we have taken. I beg to move.

My Lords, I start by picking up the point that the Minister made at the end of his contribution, which is that the Opposition remain absolutely at one with the Government in supporting Ukraine and to ensure that there is a full withdrawal of Russia after its illegal invasion. I also welcome these new regulations, particularly as they are designed to ensure that Russia pays for its actions and that certain assets remain frozen so that it pays proper compensation, as the Minister said.

The noble Lord referred to the World Bank estimate of $411 billion as the cost of rebuilding Ukraine; of course, that figure is likely to increase. However, we know that some $300 billion in foreign exchange reserves held by the Russian central bank are currently frozen. The noble Lord knows I am going to ask this question because I have asked it before. At what point will we consider bringing forward legislation to repurpose those frozen assets, so that we can deliver on the commitments made at the excellent reconstruction conference and see that there will be progress in this regard?

I do not know whether the Minister is in a position to update the Committee on the implementation of the 2022 UN General Assembly resolution to establish an international mechanism for Ukraine’s reconstruction, but it would be good to have regular updates on that so that we can follow through on the commitments made at the reconstruction conference. That deals with the first part of the regulations.

The second part extends these sanctions and regulations to non-government controlled areas, such as Crimea and Sevastopol, to reflect latest developments in the war. Of course, Crimea and Sevastopol have been affected by UK sanctions for almost a decade, since the Government implemented the Export Control (Russia, Crimea and Sevastopol Sanctions) Order 2014, in response to the illegal invasion—or taking over—of Crimea. Will the Minister explain why this extension is only now being considered, given that we have had those export controls since 2014? I certainly welcome the extension and the action, but it would be good to get an understanding about those original sanctions and where we are now.

The other point is that, of course, Ukraine aims to liberate these areas to which sanctions now apply, so can the Minister tell us how the department is preparing to ensure that, in the event that places such as Donetsk and others are liberated by Ukraine, we can respond quickly to relieve sanctions on those areas and make sure that the Ukrainian Government can focus on rebuilding them?

My final point is about the impact assessment. It estimates a net cost to business of £24 million a year. Will the Minister explain exactly the cause of that cost? Is it monitoring or additional administration, or does it imply that we had substantial business interests still trading in those areas?

I conclude by repeating that we welcome these regulations, and we certainly support the Government’s actions in supporting the Government of Ukraine in trying to repel the Russian invasion.

My Lords, first, I again put on record our thanks to His Majesty’s Official Opposition for their strong support of the Government’s actions when it comes to sanctions on Russia and, indeed, those supporting Russia. I acknowledge many noble Lords, across all parts of your Lordships’ House, in this regard. We very much send a consistent message.

The noble Lord raised frozen assets. As I said, we are working closely with our key partners to look at the assets that are now frozen and what the legal and sustainable routes will be to ensure that no challenge is brought forward on the funds we hold. Those apply to UK funds—previously we have discussed Chelsea FC and its proceeds—and I assure him that much work is being done, particularly by our colleagues in His Majesty’s Treasury, to ensure that, first and foremost, structures are set up appropriately and that the measures we take are sustainable and withstand any legal challenge we may face.

In the same way, as we work very closely with our partners in the US, Canada and the EU, they are equally seized of this issue. If good practice prevails in one area, we will look to see how we can replicate that. Of course, as we find solutions, we will share them with our colleagues in the EU.

The noble Lord asked specific questions about settling our CB assets. We continue to explore lawful fund routes, as I have said, and we focused on this at the Ukrainian reconstruction conference. To add to what I have already said, I point out that beyond the EU—including our G7 partners—there is no legally tested solution yet, but I assure him that we will continue to provide updates as we make further progress in this regard.

The noble Lord asked the pertinent question of why we are doing this now and not before, particularly as these regions were annexed months ago. He will be aware of the sanctions we have introduced; his party has strongly supported them. Since the start of the invasion, the UK has sanctioned over 1,600 individuals and entities, including 29 banks, with global assets worth £960 billion; over 130 oligarchs, with a combined net worth of £145 billion; and over £20 billion-worth of UK-Russia trade. Together with our international partners, we have unleashed the largest and most severe package of sanctions ever imposed on a major economy. On his specific point, we are monitoring a very fluid area, particularly those regions which have been illegally annexed. We need to ensure that the actions that we are taking are co-ordinated and have the desired effect.

In terms of what I have announced about the governance of these new sanctions, we are certainly ahead of our partners. We are ensuring that they are replicated; I am sure that our partners are looking at how they can replicate some of the steps we have taken.

The noble Lord made an equally valid point about how quickly the sanctions can be lifted if these territories are liberated. We are watching a very fluid situation, but we will seek to minimise any kind of disruption as Ukrainian forces liberate regions of their own country which are illegally occupied. Tragically, we are a fair bit off that at the moment, particularly where the liberation of certain key regions is concerned, but I will update him in this respect.

Could I trouble the noble Lord to expand on the specific point he raised at the end and the figure he cited? I will seek to answer that now; if I cannot, I will write to him.

I was just seeking an explanation in relation to the impact assessment estimating that these regulations will have a net cost to business of £24 million. Is this based on the assumption that UK businesses were continuing to be active and trading in these areas?

I thank the noble Lord for that clarification. Obviously there are assessments and forecasts made. I will take that back and write on those points.

As someone who many years ago worked with a chief economist, I think the other issue with forecasting is that you are looking at the situations as they stand. With the increasing levels of sanctions imposed, the increasing geographical implications and the increasing number of sectors and entities, there will of course be an increase in the overall cost to countries and businesses which were previously dealing with some of these entities or individuals. When I write to the noble Lord, it will be with a snapshot at a given moment in time, but I will certainly follow up on that.

In closing, I once again thank the noble Lord for his strong support and that of His Majesty’s Opposition. I know that he and his party are at one with the Government on this. Once again, this House has sent a consistent and unified message that we stand with the people of Ukraine. This can end now if Mr Putin withdraws, and we will repeat that message through every channel.

The noble Lord also asked about broader issues within the UN structure and the UN Security Council to see how we can take that forward. My right honourable friend the Foreign Secretary will travel to New York—it is currently the United Kingdom’s presidency—and he himself will chair the debate on Ukraine, which will include announcements about further developments and recovery.

Motion agreed.