On 10 February 2022 the United Kingdom passed The Russia (Sanctions) (EU Exit) (Amendment) Regulations 2022 which amended its sanctions against Russia. The UK government passed the legislation in response to increasing tensions between Ukraine and Russia. The United States and the European Union have also indicated that they stand ready to impose increased sanctions on Russia as well should tensions continue to rise in the area.
The UK Government described their legislation as providing the framework for the strongest sanctions regime that they have ever had against Russia. What is of note is that the sanctions are not just imposed on those who are seen as destabilising or undermining Ukraine but also include those who obtain a benefit from or support the Government of Russia. “Involved in obtaining a benefit from or supporting the Government of Russia” means those who:
- carry on business as a Government of Russia-affiliated entity;
- carry on business of economic significance to the Government of Russia;
- carry on business in a sector of strategic significance to the Government of Russia;
- own or control directly or indirectly or who work as a director (whether executive or non-executive), trustee or equivalent of a Government of Russia-affiliated entity or of an entity named in (b) or (c) above.
Under the framework the UK can now impose sanctions on Russian businesses and individuals involved in a wide range of economic and strategically significant sectors including chemical, defence, extractives, information and communication technology and financial services.
As a British Overseas Territory, Bermuda generally implements the same international sanctions as the UK, and relies on the UK’s framework for sanction implementation. It is expected that the UK will introduce an Overseas Territories Orders in Council (OT Orders) related to these tougher sanctions. Unlike other overseas territories, OT Orders do not automatically come into force in Bermuda, as they must be brought into force domestically in Bermuda.
Sanctions are given effect in Bermuda by the International Sanctions Act 2003, the International Sanctions Regulations 2013, and the International Sanctions Amendment Regulations 2020 (Sanctions Regulations). Schedule 1 of the Sanctions Regulations lists every sanctions-related OT Order issued by the UK which is currently in force in Bermuda. It is expected that the Bermuda government will move to bring any OT Orders related to sanctions into force swiftly. Currently the Russia (Sanctions) (Overseas Territories) (Amendment) Order 2021 is in force in Bermuda.
The UK HM Treasury maintains a “Consolidated List” of individuals and entities subject to financial sanctions. The Consolidated List includes all the names of financial sanctions targets under United Nations Security Council Resolutions, European Union Regulations and UK legislation. As the new sanctions are implemented, the Consolidated List will be updated.
It is worth noting that the targets included in the Consolidated List may at times be broader than the requirements of the Bermuda sanctions regime. When the Consolidated List is updated as a result of new legislation, or changes to existing legislation, equivalent provisions in Bermuda may not yet have been implemented, but would be expected shortly thereafter.
Practical Compliance Responsibilities for Organisations
The Bermuda sanctions regime applies to all individuals and legal entities that are within or undertake activities within Bermuda. If upon screening a new or existing customer is matched to a sanctioned person, the Bermuda entity is not permitted (unless there is an applicable exemption under the relevant OT Order) to perform any further transactions or provide financial assistance or services for, or with, that customer, and the Bermuda entity must comply with the terms of such applicable OT Order, or take such other action as may be required. Positive matches on screening will also trigger a mandatory notification to the Financial Sanctions Implementation Unit and to the Bermuda Monetary Authority for licensed entities.
In practice, screening by reference to the Consolidated List for a designated or listed person under the applicable sanctions should be carried out at the start of a new business relation and on an ongoing basis. As we are expecting updates to the Consolidated List it is important that those who do business with Russian entities or persons ensure they are conducting screenings on an ongoing basis. If a target match is identified against the Consolidated List, then cross-reference should be made to the relevant legislation in force in Bermuda to verify whether in fact the target match is also subject to the prohibitions under the Bermuda sanctions regime. Even if not currently on the Bermuda list, such person or entity should be monitored as they could get added if tensions continue on the Ukrainian border.
Lastly, although Bermuda is not technically subject to the United States Office of Foreign Assets Control (OFAC) regime, as a practical measure, the OFAC sanctions can apply quite broadly due to “facilitation.” The facilitation rule generally means that a US person cannot “facilitate” a transaction by a non-US person that would be prohibited by sanctions if conducted by the US person. In addition, a non-US person that “causes” a US person to commit facilitation can be liable for the sanctions violation. This rule is most relevant for the use of US dollars. Because almost all wire transfers in US dollars are cleared through US banks, a US dollar payment to or from a “specially designated national” or a sanctioned country constitutes facilitation. As a result, transactions without any other US nexus can be caught in the US sanctions net if any payments are made in US dollars.
How can we help?
Our Regulatory Team can advise on all aspects of regulatory matters, including matters related to sanctions. Should you have any questions related to sanctions or your requirements under the Bermuda sanctions regime please get in touch with your usual Conyers contact, or the below named authors, members of the Conyers Regulatory Team in Bermuda.