In light of Russia’s continuing war of aggression against Ukraine, the European Council (EC) has imposed a fifth package of economic and individual sanctions against Russia on 8 April 2022.
This blog explains the purpose of these sanctions and the actions that EU practitioners who are involved in Russian trusts need to take as a result.
Purpose of sanctions
The EC says that it is seeing tangible results from the first four packages of sanctions that it has imposed. They have hit the Russian economy hard and limited the Kremlin’s political and economic options. However, the EC has taken the decision to increase pressure by broadening the sanctions and responsibilities of Member States to further impact the Russian economy.
The EC says that these sanctions are designed to maximise negative impact for the Russian economy while limiting the consequences for EU businesses and citizens. Ensuring an effective and diligent implementation of sanctions is key to prevent circumvention, which is primarily the responsibility of member states.
The new fifth sanction: Council Regulation (EU) 2022/576, Article 5m
As part of the European Union’s efforts to destabilise Russia’s economy, the EC has imposed a new prohibition in relation to providing certain services to Russian trusts or similar legal arrangements. It will now be prohibited in the EU to register, provide a registered office, business or administrative address as well as management services to, a trust or any similar legal arrangement having as a trustor or a beneficiary a Russian national or resident.
- It shall be prohibited to register, provide a registered office, business or administrative address as well as management services to, a trust or any similar legal arrangement having as a trustor or a beneficiary:
(a) Russian nationals or natural persons residing in Russia;
(b) legal persons, entities or bodies established in Russia;
(c) legal persons, entities or bodies whose proprietary rights are directly or indirectly owned for more than 50 % by a natural or legal person, entity or body referred to in points (a) or (b);
(d) legal persons, entities or bodies controlled by a natural or legal person, entity or body referred to in points (a), (b) or (c);
(e) a natural or legal person, entity or body acting on behalf or at the direction of a natural or legal person, entity or body referred to in points (a), (b), (c) or (d).
- It shall be prohibited as of 10 May 2022 to act as, or arrange for another person to act as, a trustee, nominee shareholder, director, secretary or a similar position, for a trust or similar legal arrangement as referred to in paragraph 1.
- Paragraphs 1 and 2 shall not apply to the operations that are strictly necessary for the termination by 10 May 2022 of contracts which are not compliant with this Article concluded before 9 April 2022 or ancillary contracts necessary for the execution of such contracts.
- Paragraphs 1 and 2 shall not apply when the trustor or beneficiary is a national of a Member State or a natural person having a temporary or permanent residence permit in a Member State.
Timeframe for action
Therefore, if you are a EU professional and are involved in a trust, private foundation or nominee agreement for a Russian settlor, beneficiary or ultimate beneficial owner (UBO) then you will need to extract yourself from these arrangements before 10 May, unless your clients hold EU passports or residence permits. Providing advice to a trust with a Russian UBO is not covered by the Regulation.
STEP Europe has produced a paper that addresses some of the practical issues and provides guidance for members who need to withdraw their services from these arrangements. STEP has published guidance on sanctions in Russia and Ukraine, will continue to monitor sanctions and will update its guidance and members’ responsibilities accordingly.
Emily Deane TEP, Technical Counsel & Head of Government Affairs