Russian sanctions could be improved for the legal sector

In response to the Treasury Select Committee’s inquiry on Russian Financial Sanctions, the Law Society of England and Wales has suggested improvements that would benefit the legal sector.

The Law Society’s recommendations include:

  • Clearer guidance on the timing for licensing and the licensing grounds being too narrow
  • The external counsel disclosure obligation being reassessed. The current disclosure obligation has disincentivised some UK companies from conducting sanctions compliance risk assessments; and has had no obvious countervailing effect

Law Society president Nick Emmerson said: “The Law Society consulted our expert sanctions working group who have been engaging with various government departments and the Ministry of Justice to provide guidance on shaping and implementing the sanctions regime.

“The Committee’s inquiry presents an important opportunity for the UK government to consider concerns from the legal sector regarding its implementation of the sanctions regime.

“The timing for licensing needs clearer guidance. The process should include dialogue between the applicant and preferably, an assigned Office of Financial Sanctions Implementation (OFSI) officer, to ensure they’re aware of the progress and status of their application.

“The licensing grounds are also too narrow and the Russia regulations do not seem to cover the release of security. Sometimes this is covered by a general licence, but not always and where it isn’t, there does not appear to be any discretion for OFSI to grant a licence. Further guidance on this issue would be helpful.”

On external counsel, Nick Emmerson added: “The external counsel disclosure obligation implemented in 2017* was without precedent in any UK law – including anti-bribery, anti-money laundering and other key financial crime measures – and introduced in a rushed way, without opportunity for consultation or Parliamentary scrutiny.

“The external counsel disclosure obligation has had the result of causing many UK entities, who are not subject to similar disclosure obligations, to opt not to seek advice from UK-based sanctions compliance legal experts because they are concerned that those lawyers might report on them to OFSI against their will.

“Clients that remain in the dark concerning their financial sanctions obligations are less, not more, likely to provide information to OFSI.”

Nick Emmerson concluded: “The external counsel reporting obligation fundamentally misunderstands the role of law firms in advising clients concerning financial sanctions requirements, particularly in the years following 2017 as UK financial sanctions have increased in their scope and complexity.

“We strongly recommend that the Committee consider this observation and perform a careful assessment of the external counsel disclosure requirement during its inquiry.”

Notes to editors

Find out about the Treasury Select Committee’s inquiry into Are the UK’s Russian financial sanctions working?

* In 2017 the UK sanctions regulations were amended to include a new government disclosure obligation, requiring any “firm or sole practitioner that provides to other persons, by way of business . . . legal or notarial services” (among other categories of persons) to “inform the Treasury as soon as practicable” if a person “has committed an offence” under certain financial sanctions measures.

The reporting obligation applies, notably, to at least some information received by external legal counsel from that counsel's client under conditions of confidentiality – the obligation is subject to an exemption for “privileged information,” but that exemption does not cover a range of information that external legal counsel may receive from a client.

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