Representing Designated Persons: A UK Lawyer’s Perspective
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Lawyers advising on sanctions must not only navigate the risks their clients face, but also manage their own risks when providing legal services. Just as professionals must guard against the misuse of legal services in other contexts, sanctions lawyers must take care to understand who their clients are and why they are seeking legal advice. As a general rule, the provision of legal services would not breach sanctions. There are, however, increasing circumstances in which legal services could amount to prohibited or restricted activity and may require a prior licence.
Where legal services are sought for unlawful purposes, such as to commit, conceal or disguise a sanctions breach, it would clearly be improper for the lawyer to act. The general guidance on financial sanctions produced by the UK’s Office of Financial Sanctions Implementation (OFSI) warns lawyers to carefully consider whether their legal advice is properly helping a client to comply with sanctions or amounts to improper participation in, or facilitation of, a sanctions breach. To illustrate the point, OFSI distinguishes between permissible advice to a client on the effects on business of prohibitions against raising capital on financial markets and assistance in preparing documents to raise the capital; the latter may amount to an attempt to circumvent sanctions. OFSI’s separate enforcement guidance makes it clear that failure by regulated individuals to meet regulatory and professional standards may be considered an aggravating feature of a financial sanctions breach.
The need to combat the perceived involvement of lawyers and other professionals in sanctions evasion and circumvention has emerged as a political priority. In March 2022, a Russian Elites, Proxies and Oligarchs Task Force was set up by the G7 members, the European Union and Australia, to take action against the assets of key Russian elites and proxies and to act against their enablers and facilitators. In support of this initiative, the UK’s National Crime Agency has established a Combatting Kleptocracy Cell to investigate sanctions evasion, with a specific focus on professional enablers. The UK’s Economic Crime Plan for 2023-2026 identifies driving down sanctions evasion as a key priority, and commits to identifying and disrupting the enablers who are knowingly complicit in assisting elites to evade sanctions. Finally, there have been calls for lawyers to be designated as sanctions targets on account of their provision of legal advice to, and representation of, clients in connection with specific forms of legal proceedings. A number of lawyers have already been designated on account of their provision of legal services outside the UK in circumstances that have engaged designation criteria.
When coupled with public criticism of law firms and individual lawyers for acting for specified categories of clients, including sanctioned clients, these developments may discourage law firms and individual lawyers from representing designated persons or advising clients who are located in, or otherwise connected in some way with, sanctioned regimes. A further ‘chilling’ effect is likely to result from the increase in scrutiny of, and by, professional regulators and representative bodies in this connection. According to a paper published by the Legal Services Board in July 2022, regulators have been encouraged to be more ‘curious’ about the risks and challenges in their respective sectors, including by ‘making appropriate enquiries of those who have been or may be involved in supporting sanctioned individuals and their wider networks’.
In its guidance on the Russian sanctions regime, the Solicitors Regulation Authority (SRA) advises firms that they can decline instructions from clients they do not feel comfortable acting for, provided that the reason is not unlawful, whether under equalities legislation or otherwise. Whether a current retainer is terminated for ‘good reason’ is ultimately a question of common law for the courts to determine on a case-by-case basis. In the SRA’s separate guidance on compliance with UK sanctions, law firms are advised to include, in terms of business or equivalent, ‘becoming a designated person’ as a valid reason for ending the business relationship and ceasing to provide services. Firms that choose to work in the area of sanctions are warned to seriously consider the risks and how they will address them before offering any services. The guidance further advises firms acting for designated persons to check whether their bank and insurers will continue to provide their services, in addition to considering reputational and regulatory risk.
The ability of a designated person to access legal representation is, however, a fundamental element of the rule of law. Access to legal advice is necessary to ensure that sanctions prohibitions and restrictions are understood and complied with. All asset freezes adopted by the UN, EU and UK to date are understood to have allowed licences or other forms of authorisation to be granted to permit frozen funds to be used by designated persons in payment of their legal fees. The Explanatory Notes to the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) confirm that licensing grounds for the purpose of the UK’s new autonomous sanctions may include reasonable professional fees and the reimbursement of reasonable and necessarily incurred expenses associated with the provision of legal services; and all regulations adopted under SAMLA have expressly included provisions to this effect. The types of legal services that can be licensed for this purpose are unrestricted under SAMLA, but OFSI’s general guidance states that legal fees and disbursements must relate specifically to the provision of legal advice or involvement in litigation or dispute resolution. A further, more recent, policy decision announced on 30 March 2023 now also restricts the types of contentious legal advice and representation available to persons designated as asset freeze targets. Following an internal review by HM Treasury, the UK government has concluded that in most cases, the use of frozen funds for payment of legal professional fees for defamation cases is not an appropriate use of funds, and in many cases will be against the public interest. While OFSI will continue to review individual applications on a case-by-case basis for both appropriateness and compliance with the right to a fair hearing, it will now apply a presumption that applications for legal fees licences relating to defamation and similar cases will be rejected. In accordance with this policy, OFSI’s general licence for the purposes of the Russia and Belarus sanctions regimes excludes fees and disbursements incurred in connection with the provision of legal advice or representation in court, anywhere in the world, in relation to a claim for defamation or malicious falsehood.
The legal services that designated persons are expected to seek fall into three broad categories. First, designated persons will seek legal advice for the same reasons as anyone: to exercise their legal rights and to protect their lawful interests, which may be unrelated to their status as designated persons. Second, designated persons would be expected to seek sanctions compliance advice to understand their obligations under the prohibitions and restrictions that apply to them, and to obtain assistance with licence applications. Finally, designated persons may seek legal advice and representation in order to request a variation to, or a revocation of, their designation.
This chapter identifies some of the main issues that are likely to arise in the legal representation of designated persons in the UK.
Legal services prohibition
Trade sanctions now directly target the provision of legal services under one of the SAMLA sanctions regimes, following the introduction of Regulation 54D to the Russia (Sanctions) (EU Exit) Regulations 2019. With effect from 30 June 2023, any person subject to UK sanctions jurisdiction is prohibited from directly or indirectly providing non-contentious legal services to any person who is not a UK person, which relates to activity that would breach any specified provisions of the Russia sanctions regime if carried out by a UK person or taking place in the UK (regardless of whether there is such a jurisdictional nexus to the activity). On 11 August 2023, a general trade licence was adopted by the Department of Business and Trade to clarify that the exception for compliance advice also applies where it relates to the sanctions laws and criminal laws imposed by any jurisdiction, including Russian counter-sanctions. Anyone seeking to rely on it must register via the online export licensing system, SPIRE, within 30 calendar days, and relevant records (other than privileged information) must be kept and made available on request for a period of four years. For prohibited legal advice falling outside the scope of the general trade licence, a standard individual export licence may be granted if licensing grounds would apply to the activity in relation to which the legal advice is being given. Applicants are advised to explain how the continued provision of otherwise prohibited legal services is consistent with the aims of the sanctions, and the impact or implications if the services could not be provided.
The legal services prohibition is not likely to be engaged in connection with work for designated persons because it does not apply to any representation, advice, preparation or verification of documents undertaken as part of legal representation services provided in, or in anticipation of, any proceedings before administrative agencies, courts or other duly constituted official tribunals or arbitral or mediation proceedings. Legal representation services are defined to include advice given in relation to a dispute or potential dispute, and on the settlement of a dispute, whether or not proceedings are commenced in relation to the dispute. The press release accompanying the introduction of the provision confirmed that legal representation of Russian nationals using UK legal expertise remains permitted, ensuring that allowing everyone to access legal support remains a core aspect of the rule of law across the UK. Nonetheless, the prohibition is likely to exert a further ‘chilling’ effect on the willingness of UK lawyers to act for designated persons. The stated objective of the prohibition reinforces the perception of lawyers as enablers of sanctions evasion and circumvention. When the government first announced its intention to restrict access to ‘transactional legal advisory services for certain commercial activity’ on 30 September 2022, the aim was described as hampering the ability of Russia’s businesses to operate internationally. When the prohibition was adopted nine months later, it was presented as plugging a perceived loophole that would otherwise potentially permit UK legal services providers to support commercial activity that advances the interests of Russia where those activities are not conducted in the UK or by UK persons. The statutory guidance on the Russia sanctions regime similarly describes the legal services prohibition as supplementary to the prohibitions on circumventing financial and trade sanctions, and the separate guidance on the professional and business services prohibitions also refers to the limitations on ancillary services more broadly.
Legal fees licences
A legal fees licence is not a prerequisite for legal advice or assistance to be provided to a designated person. The provision of legal services cannot directly or indirectly make economic resources available to a designated person in breach of an asset freeze if the designated person is not likely to exchange legal services for, or use legal services in exchange for, funds, goods or services. It is equally difficult to see how the provision of legal services, in itself, could be considered to make economic resources available for the benefit of a designated person, in the sense that the designated person thereby obtains (or is able to obtain) a significant financial benefit, including the discharge (or partial discharge) of a financial obligation for which they are wholly or partly responsible.
OFSI’s general guidance confirms that a licence is not required to provide legal advice to, and act for, a designated person; although lawyers are strongly encouraged to apply for a licence in advance of providing substantive legal services to have certainty as to the fees that will be recoverable while the designated person remains listed. The SRA’s compliance guidance similarly advises that unpaid work can be undertaken provided it does not circumvent the sanctions regime or provide financial advantage to the designated person.
The only exception to this general rule is where legal services are paid for and provided ‘on credit’, which in OFSI’s view would require a licence. In the absence of any explanation it is unclear what is meant by the provision of legal services on credit. OFSI’s guidance is clearly predicated on the assumption that licences will be sought and granted for legal services already rendered, and OFSI routinely grants legal fees licences to permit lawyers to issue bills on this basis.
A legal fees licence permits the use of frozen assets as payment for legal services or the use of unfrozen funds as payment for legal services rendered to a designated person. In other words, regardless of who pays, a licence is required to receive payment for any work on behalf of a designated person and any related disbursements. Interestingly, although court fees will ordinarily be considered a disbursement related to the provision of legal services, OFSI’s general guidance suggests that a licence is only required if court fees are ‘significant’, which is a question of fact. By contrast, OFSI expects a legal fees licence to be sought before any payment is made into court as security for costs. OFSI takes the view that some licensing ground other than legal fees needs to be identified to pay security for damages into court, and the ground that will apply depends on the specific circumstances of the case.
The issues that typically arise in practice include the considerable length of time it can take for legal fees licence applications to be processed, the amount of information that must be disclosed to OFSI as part of the application process and the ongoing compliance risks once the licence has been issued. Breaches of licence conditions are strict liability criminal offences and any ongoing reporting requirements imposed in a legal fees licence must be carefully monitored.
Further issues are likely to arise following a policy position adopted by OFSI on 12 July 2023 to no longer engage with applicants where it considers an application to contain insufficient details or evidence. Applications that do not demonstrate that the criteria of the licensing grounds have been met or provide sufficient evidence will be deemed incomplete and returned to the applicant for resubmission. OFSI’s blog post clarifies that applicants will be able to reapply, but this will be treated as a new application and will not be prioritised purely because it has been resubmitted. OFSI’s blog post further advises applicants to consider taking independent legal advice before applying, especially for complicated matters. A separate policy position adopted by OFSI on 26 July 2023 removes the option for applicants to request OFSI to review a decision to refuse a licence. The only remaining options for unsuccessful applicants are to apply to challenge OFSI’s decision in court under Section 38 of SAMLA or to reapply for a licence, with new or supplementary evidence and new supporting documents or on different licensing grounds.
General legal fees licences
There is likely to be a considerable amount of preliminary work involved in identifying the activities that would need to be licenced and preparing the corresponding application, in circumstances where there is no applicable general legal fees licence already in place. OFSI has been reluctant to grant general legal fees licences, and has, at the time of writing, done so on a few occasions only.
- Legal aid payments for representation of clients designated under antiterrorist sanctions: the first general licence issued by OFSI under SAMLA for legal services was limited to legally aided work for clients sanctioned under antiterrorist sanctions regimes. A general licence issued at the beginning of 2021 authorises the government agencies involved in administering legal aid to make payments to solicitors acting for clients designated under any of the specified regimes, and for the solicitors to receive these payments, provided that no funds are paid directly or indirectly to the designated person. It replaced a broader general licence, which extended to private third-party payments for the representation of persons designated under the UK’s domestic antiterrorism legislation, together with a parallel general licence for insurance (both now revoked).
- Payments by specified entities or their subsidiaries: in March 2022, OFSI, for the first time, issued a general licence authorising specific entities – UK subsidiaries of designated persons VTB Capital plc and Sberbank CIB (UK) Ltd – to make payments of reasonable professional fees for the provision of legal services or reasonable expenses associated with the provision of legal services. Notification must be provided to OFSI within seven days of any payments made in reliance on the licence, and supporting records must be kept for a minimum of six years.
- A further general legal fees licence permits legal fees to be paid by an interim manager or a trustee when acting as receivers and managers in respect of the property and affairs of a charity. Records of any activity conducted in reliance on the licence must be kept for a minimum of six years.
- As from 28 October 2022, a general licence permits payments for legal fees and disbursements incurred in connection with the representation of persons designated under the Russian and Belarusian sanctions regimes. There are separate conditions for payment obligations that predate designation and those that post-date designation. Both categories are subject to a total cap on professional legal fees (including counsel’s fees) of £500,000 (inclusive of VAT) for the duration of the licence. Related expenses cannot exceed 5 per cent of the amount payable for professional legal fees or, if lower, £25,000. Reports (on forms provided for this purpose) must be made within seven days of completing the legal services or, if sooner, the licence coming to an end. Under the current version of this general licence, legal services are defined as legal services provided to a designated person, including legal advice and representation in court, whether provided within the UK or another jurisdiction, in relation to any matter except a claim for defamation or malicious falsehood.
Specific legal fees licences
Applications for specific legal fees licences are made using the general form for licence applications. The reason why these applications tend to be time consuming is the requirement to demonstrate the reasonableness of any amounts sought to be licensed. As explained by OFSI in a June 2021 blog post, OFSI is legally obliged under SAMLA to ensure that legal fees and expenses are ‘reasonable’. The requirement of reasonableness is in fact imposed in the regulations adopted under SAMLA rather than in SAMLA itself. However, neither SAMLA nor the regulations define what is to be considered reasonable for this purpose. Instead, OFSI’s general guidance explains that the burden of demonstrating reasonableness of legal fees and disbursements falls on the applicant and that OFSI will take as its benchmark or starting point the rates applied when costs orders are made in civil proceedings, as governed by the Supreme Court Cost Guidelines. The blog post expands further on this general guidance by warning that OFSI will require a significant level of evidence when scrutinising the reasonableness threshold, and will consider the following factors: (1) whether the work has already taken place or if it is anticipated; (2) what the work will involve or has involved; (3) which fee earners will be, or have been, involved in the work (and their positions or roles within the firm, including relevant experience); (4) the fee earners’ hourly rates; (5) how many hours each fee earner will be estimated to spend, or has already spent, on each work stream; (6) any supporting evidence as to why the involvement or the number of hours of the particular fee earner is reasonable or proportionate to the nature and complexity of the work; (7) any expenses that are expected and have been paid out; and (8) if any expenses are expected, why they are necessary. Applicants are also warned to not assume that OFSI understands the process and practice of the legal profession. The obvious difficulty for many applicants, however, will be to provide all the details sought by OFSI without disclosing information protected by legal professional privilege (LPP). The blog post pre-empts this issue by confirming that OFSI does not generally consider fee notes and narratives of work (in generic terms) to be privileged, as they do not constitute the giving or obtaining of legal advice, stressing that OFSI will be unable to undertake a reasonableness assessment without having a breakdown of the legal costs for each area of work. It is not clear why OFSI has chosen to publish its policy position in the form of a blog post or how it is compatible with judicial authorities on the circumstances in which fee notes can attract LPP. What is clear, however, is that OFSI will not issue a legal fees licence unless the specified details are disclosed. This potentially creates a conflict with the duty of regulated legal professionals to advise their clients on their entitlement to assert LPP, which is recognised under English law as a fundamental common law right as well as a human right.
Processing time for licence applications
The time taken by OFSI to process legal fees licence applications can be considerable. OFSI’s general guidance previously stated that it aimed to ‘engage’ on the substance of a completed application in four weeks, but now states that all new licensing applications are reviewed ‘as soon as practicable’. There are no publicly available statistics on the average processing times for licence applications, and ministerial responses to questions in Parliament have confirmed that no distinction is drawn by OFSI when processing applications between legal fees licences and other categories of licences. The current version of OFSI’s general guidance states that urgent and humanitarian cases (i.e., cases that involve a risk of harm or a threat to life) will be prioritised. At times of high demand, OFSI will also prioritise applications where there are issues of personal basic needs or wider humanitarian issues at stake that are of material impact or urgency. It is not, however, clear whether legal fees licence applications would be considered of material impact or urgency. A response to a Freedom of Information Act request reported by The Law Society Gazette in April 2022 revealed that OFSI had granted no legal fees licences between 1 January and 10 March 2022, despite having received 15 applications relating to Russian individuals and entities. The time taken for legal fees licence applications to be processed will clearly bear directly on access to justice, and specifically the designated person’s access to the courts as a fundamental right protected by the common law as well as under the Human Rights Act 1998 (HRA). The hurdles created for designated persons to access legal services are compounded by the limitations imposed by OFSI on the duration and amounts authorised by licences, which means that multiple consecutive licence applications may need to be submitted for the same legal proceedings or the performance of the same instructions, adding not just to the length of time spent on making applications but also to the costs of legal representation.
In January 2023, HM Treasury commissioned an internal review of its approach to specific and general licences, to see if any changes were required to OFSI’s licensing practice in relation to legal fees licence applications. On 30 March 2023, Parliament was informed that the review had confirmed that OFSI’s decision-making on legal fees licence applications:
must carefully balance between the right to legal representation – which is a fundamental one – with wider issues, including the aim and the purpose of the sanctions. While some legal claims may be unfounded, it is for the Courts to decide whether their claims should be permitted to succeed – not the Government.
Challenges to licensing decisions
It is, in theory, possible to judicially review OFSI’s refusal to process or grant a legal fees licence application or its failure to consider it within a reasonable period. However, a legal fees licence would be required to enable payment of lawyers for advising on and bringing the challenge. Unsurprisingly, the UK courts have heard very few challenges to licence determinations to date, even though these challenges would have been possible prior to the expiry of the Brexit transition period, as licensing decisions are always made by the national competent authorities rather than at EU level.
Instead, it has fallen to the EU court to clarify the obligations of the national licensing authorities. In Peftiev, the Court of Justice of the European Union (CJEU) identified the considerations that would arise if a legal fees licence were refused altogether by a national licensing authority, specifically on account of concerns that the frozen funds might represent the proceeds of crime. The court concluded that the licensing authority’s discretion was tempered by the obligation to respect the fundamental human rights of the applicant, which, in the case of a target of EU sanctions, included the indispensable nature of legal representation in bringing an action challenging their lawfulness. The court rejected the suggestion that a lawyer could be paid what they are owed once sanctions have been lifted, finding that it was not open to Member States to require a legal services professional to bear such a risk and financial burden. The court also rejected the suggestion that the designated person could be forced to resort to legal aid instead. As for the suggestion that the funds in question had been unlawfully acquired, the court stressed that the nature of an asset freeze is different in kind from seizure or confiscation and the purpose of sanctions is not to penalise the unlawful acquisition of funds. This is why there is no carve out from the right to apply for a legal fees licence, whether on account of the origin of the funds in question or their possible unlawful acquisition.
The position is the same for UK licensing bodies, even after the UK’s departure from the EU. As ‘public authorities’ for the purposes of Section 6 of the HRA, they are obliged to act compatibly with rights afforded under the European Convention on Human Rights (ECHR) when processing and determining legal fees licence applications.
Representing a designated person in applications for revocations of or variations to a UK designation
The legal work that a legal fees licence is typically sought for includes requests for a ministerial revocation or variation of a designation, or, for UN designations, a request that the Secretary of State use their best endeavours to request a reconsideration. The requirement to periodically review designations was repealed by the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) on 15 March 2022. However, Section 22 of SAMLA enables a minister to consider whether the required conditions of a designation are met; and Section 23 of SAMLA confers a right on a designated person to request variation or revocation at any time. The process for submitting representations to a minister for this purpose is governed by the Sanctions Review Procedure (EU Exit) Regulations 2018 and supported by guidance and a standard sanctions review request form published by the Foreign, Commonwealth and Development Office (FCDO). Section 40 of SAMLA confers a right to apply for a court review of ministerial decisions to refuse requests made under Sections 23 and 25 of SAMLA. The procedure is governed by the Civil Procedure Rules 1998 and related Practice Directions.
A preliminary issue that typically arises in connection with these challenges is whether legal advice and assistance is necessary in the first place. There is no procedural requirement for legal representation, whether at the ministerial review stage or at the court stage, and the standard form is clearly intended to enable designated persons to apply without recourse to legal advice and assistance. However, designated persons are typically located outside the UK and are unlikely to be familiar with the UK’s autonomous sanctions regime. While litigants in person can ordinarily represent themselves in any court and in any case, sanctions designation challenges will inevitably raise complex issues of public law. Article 6 of the ECHR confers a right to legal representation in the determination of civil rights and obligations, in circumstances where a lawyer is indispensable for effective access to a court. The ability of a designated person to obtain legal representation of their choosing is also key to the legitimacy of any sanctions regime. It is therefore important that this right is effective and available in practice.
There is still limited experience of ministerial reviews of UK autonomous designations or judicial challenges to ministerial decisions. While the UK was an EU Member State, requests for reconsideration would need to be addressed to the Council and applications to annul a designation directed to the General Court of the CJEU. Challenges to EU sanctions would not be heard by the UK courts unless they involved a decision by a UK public authority – such as a decision to request a person’s designation or a refusal to request the removal of a designation. In one of the earliest, unsuccessful, examples, a minister’s refusal to request a delisting was considered a matter of foreign policy and, as such, unsuitable for judicial review. A subsequent judicial authority concluded that it would be possible, albeit difficult, to challenge ministerial decisions to designate as well as to refuse to seek the removal of a designation.
The new regime created by SAMLA for challenging UK autonomous sanctions has not improved the prospect of judicial scrutiny of designation decisions, which is the only mechanism available to ensure that ministers exercise their powers to designate lawfully. Court applications are likely to remain infrequent for the following reasons.
- No variation or revocation can be made by a UK minister in relation to designations based on UN listings. An early challenge to the compatibility of this restriction with the designated person’s Convention rights was rejected by the High Court in Youssef, despite a precedent seemingly to the contrary from the European Court of Human Rights in Al-Dulimi. Instead, the only remedy available for UN designated persons is to request the Secretary of State to use their best endeavours to secure their removal from the UN list, and any refusal to do so can be challenged on judicial review principles.
- In accordance with a partial ‘ouster clause’ in SAMLA, no court can hear a delisting application until the ministerial review process has been exhausted. There are no time limits for ministerial decisions on revocation requests beyond a general requirement that they are to be made as soon as reasonably practicable on receipt of the information needed for making them. SAMLA also prohibits repeated requests, unless there is a significant matter that has not previously been considered by the minister.
- A prerequisite to challenging any public act is the ability to understand the case against the designated person. Yet, they may not know the basis for their designation. There is a duty on the minister to provide a statement of reasons for designating a person by name under the standard procedure, which would ordinarily be reproduced in the Consolidated List of Financial Sanctions Targets in the UK (the Consolidated List). This is not, however, a substitute for the evidence relied on in support of the designation, which must be sought separately from the FCDO. SAMLA does not require designated persons to be informed about the existence of the Sanctions Designation Form Evidence Pack (SDFE) or how to request access to it. There are no time limits governing the production of the SDFE or any means of understanding whether a disclosure is incomplete. Designated persons may invoke their rights as data subjects to obtain copies of their personal data, but this is an entirely separate process governed by data protection legislation. The FCDO routinely invokes exemptions in the UK General Data Protection Regulation and the Data Protection Act 2018 to resist disclosure of information over which it considers a claim to LPP could be maintained and to safeguard national security.
- The designated person may not always be in a position to understand why a revocation request has been refused by the minister. It is at the minister’s discretion whether to publish a decision and the reasons for it. Although the designated person must be given a reason for the refusal, the minister can exclude any matters in the interests of national security or international relations, for reasons connected with the prevention or detection of serious crime or in the interests of justice. The courts may similarly hear sensitive evidence not disclosed to the applicant, in a ‘closed material’ procedure imported from domestic antiterrorist legislation.
- Even where the designated person is in possession of the evidence relied on in support of their designation as well as the full reasons for the minister’s refusal of a revocation request, the grounds for challenge are limited. Although a minister may vary or revoke a designation at any time, there is only an obligation to do so if the necessary conditions cease to be met. Those necessary conditions have been further limited by amendments to SAMLA introduced by ECTEA, which enable ministers to conclude that any sanctions adopted for a discretionary purpose are appropriate without first satisfying themselves that there are good reasons to pursue the purpose for which the sanctions are to be adopted and that the imposition of sanctions is a reasonable course of action for that purpose.
- Court proceedings are expensive to bring. Following amendments to SAMLA by ECTEA, the ability of a court to order damages in the event of a successful challenge is now confined to circumstances where a designation is found to have been adopted in bad faith. Any damages award made may also not exceed any amount specified by a minister in regulations adopted for this purpose.
- Finally, there appears to be nothing in SAMLA to prevent a designation from being remade on different grounds, even after it has been revoked by the minister or declared unlawful by a court.
Concurrent designations in multiple jurisdictions create additional issues that need to be factored in when advising designated persons, particularly in connection with legal and administrative challenges to designation decisions. The proliferation of sanctions designations worldwide has increased the likelihood of the same person being designated in more than one jurisdiction. Indeed, the recently introduced ‘urgent’ procedure for temporary UK designations is predicated on a prior designation by one of the specified jurisdictions. Simultaneous designation challenges raise complex strategic considerations as well as practical coordination challenges, not least as legal fees licences may need to be sought from multiple authorities.
General considerations arising in all legal work for designated persons
Any legal work for designated persons will expose a lawyer to a heightened risk of committing financial sanctions breaches, including by participating in or facilitating circumvention offences. It may not always be clear, however, what activities could potentially amount to unlawful facilitation and circumvention. OFSI’s enforcement guidance explains that facilitation of a financial sanctions breach is a form of circumvention, and that individuals who act on behalf of or provide advice to others as part of their job may be considered professional facilitators. In OFSI’s view, simply discovering a potential sanctions breach when acting for a client does not automatically make a professional adviser party to it, but they may become so if their subsequent actions amount to collusion in the breach.
Lawyers are also exposed to criminal liability for failing to comply with their reporting obligations in connection with the representation of designated persons. In addition to any reporting obligations imposed under legal fees licences, firms and sole practitioners providing legal or notarial services to other persons, by way of business, are ‘relevant firms’ obliged under each SAMLA regulation, in accordance with information provision obligations adopted pursuant to Section 16 of SAMLA, to inform the Treasury as soon as practicable if they know, or have reasonable cause to suspect, that a person is a designated person or has committed a criminal breach of financial sanctions. Where a designated person is a client, relevant firms are also required to report on the nature and extent of any frozen assets held on that client’s behalf. OFSI has published a standard ‘compliance reporting form’ on its website for this purpose. Where the designated person is a client, the obligation to report knowledge that a person is a designated person and the obligation to report on the nature and extent of any frozen assets held would in any event be discharged when submitting a legal fees licence application or, where reliance is placed on a general licence, when complying with reporting conditions.
If there is no general licence in place, the SRA’s compliance guidance advises firms to also consider making the SRA aware that a client is a designated person regardless of whether this information relates to any reportable conduct to ensure that the SRA has a record of what has happened and why, in case of any future queries or concerns.
The SRA has separately and more recently confirmed that it expects firms to ‘screen’ not only their clients but also any counterparties against the Consolidated List at the outset of a matter, and to conduct more in-depth due diligence and regular ongoing monitoring for riskier counterparties and transactions. The SRA warns that reliance on another party’s screening systems is unlikely to provide a complete defence in the event of a breach of the sanctions regime.
Relevant firms are also separately obliged to provide information about frozen funds in response to OFSI’s annual frozen assets reviews. This is an exercise of the broad powers conferred by SAMLA on the Treasury to request any person to provide specified information or to produce specified documents, in any manner specified, for a specified purpose. A failure to comply with any information provision obligation, without reasonable excuse, is a criminal offence and the obligation may be enforced by court order.
There is a limited carve out from the information provision obligations in SAMLA regulations for information that is protected by LPP, when it is in the possession of a person who has acted or is acting as counsel or solicitor for any person. The identity of a client may, in certain circumstances, be protected by LPP. However, the requirement to report knowledge or reasonable cause to suspect that a person is a designated person is in any event understood to be confined to individuals and entities on the Consolidated List (as opposed to entities owned or controlled by designated persons) and directed at circumstances where the designated person in question is seeking to disguise their identity and designated status. It would present an obvious obstacle to access to justice if lawyers were required to report the fact that they had been approached by a designated person lawfully seeking legal assistance, in circumstances where they decline instructions or are not retained to act.
 Anna Bradshaw is a partner and Alistair Jones is a senior associate at Peters & Peters Solicitors LLP.
 Office for Financial Sanctions Implementation (OFSI), ‘UK financial sanctions: General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018’, August 2022, paragraph 6.6.1, available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1173762/UK_Financial_Sanctions_General_Guidance.pdf.
 OFSI, ‘OFSI enforcement and monetary penalties for breaches of financial sanctions: Guidance’ (31 August 2023), paragraph 3.21, available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1181296/Monetary_Penalty_and_Enforcement_Guidance__Aug_2023_.pdf.
 ‘Russian Elites, Proxies, and Oligarchs Task Force ministerial joint statement’, 16 March 2022, available at: https://home.treasury.gov/news/press-releases/jy0663.
 National Crime Agency, SARs In Action, Issue 15, March 2022, p. 8, available at: https://nationalcrimeagency.gov.uk/who-we-are/publications/591-sars-in-action-march-2022/file.
 HM Government, ‘Economic Crime Plan 2: 2023–2026’, paragraph 3.10, available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1147515/6.8300_HO_Economic_Crime_Plan_2_v6_Web.pdf.
 Jonathan Ames, ‘Deny visas to oligarchs’ British lawyers’, The Times, 19 April 2022, available at: www.thetimes.co.uk/article/deny-visas-to-oligarchs-british-lawyers-tg5g6dkjj; Stephanie Kirchgaessner and Julian Borger, ‘Calls for US to issue visa bans for UK lawyers enabling Russian oligarchs’, The Guardian, 16 April 2022, available at: www.theguardian.com/us-news/2022/apr/16/calls-for-us-to-issue-visa-bans-for-uk-lawyers-enabling-russian-oligarchs.
 e.g., Russian lawyers Yulia Mikhailovna Maiorova (UK Sanctions List Ref: GAC0014) and Andrei Alekseevich Pavlov (UK Sanctions List Ref: GAC0007) were both designated on 26 April 2021 as asset freeze targets under the Global Anti-Corruption Sanctions Regulations 2021 for facilitating or providing support for serious corruption, described in the Statement of Reasons as having participated in a fraud through their involvement, in particular, in court processes based on fraudulent claims for damages.
 Legal Services Board, ‘Financial sanctions and legal services’, Paper (22) 39, 19 July 2022, available at: https://legalservicesboard.org.uk/wp-content/uploads/2022/07/04.-Paper-22-39-Sanctions-update-.pdf.
 Solicitors Regulation Authority (SRA), News Release, ‘Russian Conflict and Sanctions’, 4 March 2022, as updated 15 March 2022, available at: www.sra.org.uk/sra/news/russian-conflict-and-sanctions/.
 SRA, Guidance, ‘Complying with the UK Sanctions Regime’, 28 November 2022, available at: www.sra.org.uk/solicitors/guidance/financial-sanctions-regime/.
 See, e.g., the Council of the European Union, ‘Guidelines on Implementation and Evaluation of Restrictive Measures (Sanctions) in the Framework of the EU Common Foreign and Security Policy’, as updated 8 December 2017, at paragraph 25.
 id., Paragraph 6.5.
 UK Parliament, Written questions, answers and statements, ‘[OFSI] update: Statement made on 30 March 2023’, Statement UIN HLWS686, available at: https://questions-statements.parliament.uk/written-statements/detail/2023-03-30/hlws686.
 Letter from Baroness Penn to Alicia Kearns MP, chair of the Foreign Affairs Committee, House of Commons, 18 April 2023, available at: https://committees.parliament.uk/publications/39307/documents/192902/default/.
 OFSI General Licence under the Russia Regulations and the Belarus Regulations, INT/2023/2954852, available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1153971/Legal_Services_GL_INT20232954852.pdf.
 Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023, S.I. 2023/713.
 Department of Business and Trade (DBT), ‘Guidance: Complying with professional and business services sanctions related to Russia’, updated 30 June 2023, available at: www.gov.uk/government/publications/professional-and-business-services-to-a-person-connected-with-russia/professional-and-business-services-to-a-person-connected-with-russia.
 Russia (Sanctions) (EU Exit) Regulations 2019, Paragraph 8A of Schedule 3J.
 Press Release, HM Government, ‘New law imposes fresh sanctions on Russia using UK legal expertise’, 29 June 2023, available at: www.gov.uk/government/news/new-law-imposes-fresh-sanctions-on-russia-accessing-uk-legal-expertise.
 Press Release, HM Government, ‘Sanctions in response to Putin’s illegal annexation of Ukrainian regions’, 30 September 2022, available at: www.gov.uk/government/news/sanctions-in-response-to-putins-illegal-annexation-of-ukrainian-regions.
 Explanatory Memorandum to the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023, available at: www.legislation.gov.uk/uksi/2023/713/pdfs/uksiem_20230713_en_001.pdf.
 HM Government, ‘Statutory guidance, Russia sanctions: guidance’, updated 11 August 2023, available at: www.gov.uk/government/publications/russia-sanctions-guidance/russia-sanctions-guidance.
 DBT, ‘Guidance: Complying with professional and business services sanctions related to Russia’ (footnote 19).
 Section 60(2) of SAMLA defines ‘economic resources’ as assets of every kind, whether tangible or intangible, movable or immovable, which are not funds but can be used to obtain funds, goods or services.
 OFSI, ‘UK financial sanctions: General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018’ (footnote 2), paragraph 6.5.
 SRA, Guidance (footnote 11).
 OFSI, ‘UK financial sanctions: General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018’ (footnote 2), paragraph 6.6.1.
 id., paragraph 6.6.2.
 id., amended paragraph 6.9.
 OFSI, ‘An Update to our Licensing Process: Returning Incomplete Applications’, 12 July 2023, available at: https://ofsi.blog.gov.uk/2023/07/12/an-update-to-our-licensing-process-returning-incomplete-applications/.
 OFSI, ‘UK financial sanctions: General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018’ (footnote 2), amended paragraph 6.12.
 The ISIL (Da’esh) and Al-Qaida (United Nations Sanctions) (EU Exit) Regulations 2019, the Counter-Terrorism (International Sanctions) (EU Exit) Regulations 2019 and the Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019.
 GENERAL LICENCE INT/2020/G1, 11 January 2021 (as amended), available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/988364/General_Licence_-_INT2020G1_-_As_amended.pdf.
 GENERAL LICENCE – Russian Banks – UK subsidiaries – Basic needs, routine holding and maintenance, the payment of legal fees and insolvency related payments, INT/2022/1280876, 1 March 2022 (as amended 1 April 2022 and 22 April 2022), available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1070607/INT.2022.1280876_GL.pdf.
 GENERAL LICENCE – Russia Designated Persons – Charities and Interim Managers and trustees, INT/2022/1834876, 30 May 2022, available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1079599/GENERAL_LICENCE_CC_20220530_.pdf.
 The current version of this licence is OFSI General Licence under the Russia Regulations and the Belarus Regulations, INT/2023/2954852, 29 April 2023, available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1153971/Legal_Services_GL_INT20232954852.pdf.
 OFSI, Guidance, ‘Licences that allow activity prohibited by financial sanctions’, available at: www.gov.uk/guidance/licences-that-allow-activity-prohibited-by-financial-sanctions.
 OFSI, ‘Reasonableness in Licensing’, 30 June 2021, available at: https://ofsi.blog.gov.uk/2021/06/30/reasonableness-in-licensing/.
 OFSI, ‘UK financial sanctions: General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018’ (footnote 2), paragraph 6.5.
 See, e.g., the summary of the relevant judicial authorities in Colin Passmore, Privilege, 4th edition (Sweet & Maxwell, 2020), at 2-209 to 2-216.
 OFSI, ‘UK financial sanctions: General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018’ (footnote 2), paragraph 6.10.
 id., at paragraph 6.10.1.
 John Hyde, ‘Sanctioned clients in limbo as Treasury fails to grant “reasonable fees” licences’, The Law Society Gazette (10 April 2022), available at: www.lawgazette.co.uk/news/sanctioned-clients-in-limbo-as-treasury-fails-to-grant-reasonable-fees-licences/5112164.article.
 UK Parliament, Written questions, answers and statements, ‘[OFSI] update, Statement made on 30 March 2023’ (footnote 15).
 Case C-314/13, Užsieno reikalu ministerija & Ors v. Vladimir Peftiev & Ors.
 Foreign, Commonwealth and Development Office, ‘Guidance – How to request variation or revocation of a sanctions designation or review of a UN listing’, updated 2 February 2023, available at: www.gov.uk/government/publications/making-a-sanctions-challenge-how-to-seek-variation-or-revocation-of-a-sanctions-designation/making-a-sanctions-challenge-how-to-seek-a-variation-or-revocation-of-a-sanctions-designation.
 Practice Direction Part 79 – Proceedings under the Counter-Terrorism Act 2008, Part 1 of the Terrorist Asset-Freezing Etc. Act 2010 and Part 1 of the Sanctions and Anti-Money Laundering Act 2018, available at: www.justice.gov.uk/courts/procedure-rules/civil/rules/part79.
 See, e.g., Airey v. Ireland (1979-90) 2 EHRR 305.
 R (El-Maghraby and El Gazaerly) v. HM Treasury and Foreign and Commonwealth Office  EWHC 674 (Admin).
 R (Bredenkamp) v. Secretary of State for Foreign and Commonwealth Affairs  EWHC 3297 (Admin).
 Youssef v. the Secretary of State for Foreign, Commonwealth and Development Affairs and HM Treasury  EWHC 3188 (Admin).
 Al-Dulimi and Montana Management Inc. v. Switzerland, Application 5809/08) (2016) 42 BHRC 163.
 SAMLA, Section 25(2).
 The Sanctions Review Procedure (EU Exit) Regulations 2018, Regulation 7.
 SAMLA, Sections 23(2) and 25(3).
 The Sanctions Review Procedure (EU Exit) Regulations 2018, Regulation 8.
 SAMLA, Section 40.
 id., Section 22(3).
 Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA), Section 57(2), repealing SAMLA, Section 1(4); ECTEA, Section 57(3), repealing SAMLA, Section 2.
 SAMLA, Section 39(2).
 id., Section 39(2A).
 id., Section 11(1A)(b).
 ‘OFSI enforcement and monetary penalties for breaches of financial sanctions’ (footnote 3), paragraph 3.37.
 SRA, Guidance (footnote 11).
 SRA, Questions and answers, updated 28 July 2023, available at: www.sra.org.uk/solicitors/resources/money-laundering/guidance-support/aml-questions-answers/.
 SRJ and persons unknown  EWHC 2293 (QB).