UK restrictions on Russia legal advice impacts in-house legal team

Editor's note 19/07/2023: The UK government has said it will issue a general licence to address the issues reported in this article.

The UK government, together with Western allies, including in the EU and US, has imposed a package of financial and trade sanctions targeting Russian individuals and entities following Russia’s invasion of Ukraine.

Until now, UK lawyers have been able to advise businesses on whether the activities they wish to carry out comply with the various sanctions on Russia in place globally. However, the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023 that took effect on Friday 30 June now restrict UK lawyers in what they can advise in that regard.

Under the new rules, UK lawyers are prohibited from providing legal advisory services to non-UK persons in relation to, or in connection with, any activity that is prohibited under the UK’s financial and trade sanctions on Russia if the activity in question was done by a UK person or taking place in the UK. The prohibition applies regardless of whether the legal advice is provided directly or indirectly.

“Legal advisory services” is broadly defined and includes legal advice on the application or interpretation of law, acting on behalf of a client, or providing advice on or in connection with, a commercial transaction, negotiation or any other dealing with a third party and the preparation, execution or verification of a legal document.

To allow everyone access to legal support and representation in contentious matters, these are specifically excluded from the definition of legal advisory service when undertaken as part of legal representation services provided in, or in anticipation of proceedings before administrative agencies, courts or official tribunals, or in arbitration or mediation proceedings.

A range of exceptions to the prohibition are set out in the regulations – including one which enables legal advice by UK lawyers to non-UK businesses to continue on whether an act, or proposed act, complies with “these Regulations”, meaning the UK Russian regulations. This exception is not extended to advice to non-UK persons as to whether acts or proposed acts comply with other sanctions regimes that may be relevant, for example the EU or US Russian sanctions in place.

In a statement, the UK government said: “Russia is highly dependent on Western countries for legal expertise, with the UK previously exporting £56 million in legal services to Russian businesses every year. [The new regulations] will further hold Putin’s government to account for the devastating atrocities being carried out in Ukraine.”

Sanctions expert Stacy Keen of Pinsent Masons said that while the purpose of the new legislation is clear, there is a risk of unintended consequences.

Keen said: “The press release issued with the new introduction of the refers to advice to Russian companies and wealthy individuals and big businesses linked to the Russian regime. However, the UK restriction – unlike the EU equivalent which targets advice to the government of Russia or Russian-established entities – extends to legal advice to any non-UK person, where the activity to which the advice applies would breach UK Russian restrictions. The carve out for compliance advice relates only to compliance with the UK Russian restrictions, and not any wider regimes.” 

“Many in-house legal teams in the UK, and external lawyers, are regularly asked to advise non-UK parts of the business / non-UK entities on whether proposed activities comply with sanctions regimes beyond the UK or on the exposure to risk under those regimes. The new regulations pose a risk in giving a holistic view on sanctions risk until UK sanctions risk has been assessed – even if those restrictions do not apply to relevant activity or UK specific advice has not been requested – if at all,” she said.

As the ban extends to the provision of such legal advisory services indirectly, it also appears UK in-house lawyers cannot engage external legal advisers from outside the UK to provide such advice to non-UK group entities without committing a criminal offence.

A wind down exception can be relied upon until 29 September 2023 for pre-existing contractual obligations to provide legal advisory services that were in place before 30 June 2023. Reliance on that exception requires a notification to the Secretary of State by 29 September 2023.

Keen said: “It is to be hoped that the government will issue guidance on the regulations to address the uncertainty and the potential unintended consequences that may now arise.”