UK Sanctions: A New Package, Guidance and Legal Clarifications

The future of international sanctions on Russia is not settled. Whilst the representatives of the US and Russia met in Saudi Arabia on 18 February 2025 to discuss possible avenues to peace in Ukraine, the foreign ministers of the G7, including the US, gave a joint statement on the margins of the Munich Security Conference emphasising the G7’s important contribution towards ending the war in Ukraine by “imposing further cost on Russia, if she does not negotiate in good faith, through caps on oil and gas prices, and by making sanctions against Russia more effective”. 

The G7 statement stressed that any new sanctions after February should be linked to whether Russia enters into “real, good-faith efforts to bring an enduring end to the war against Ukraine that provides Ukraine with long-term security and stability as a sovereign, independent country”. In keeping with those sentiments, both the EU and the UK adopted further sanctions on Russia on 24 February 2025. In the EU, the 16th sanctions package took effect on 25 February 2025. We will have a separate client alert on that topic. The UK’s most recent sanction package, adopted on 24 February 2025, included new designations of 67 individuals and entities, and specifications of 40 vessels used in Russia’s “shadow” tanker fleet. 

Given the geopolitical situation, UK sanctions will remain a critical area of focus and continue to develop, generally and specifically with regard to Russia, in the short to medium term. In this alert, we provide an update on a number of key developments from December 2024 onwards: 

• UK’s most recent sanctions package: The UK imposed over 100 new designations targeting individuals and entities supporting Russia’s military efforts in Ukraine, including third-country financial institutions. The designations aim to disrupt military supply chains and financial support for the Kremlin.
• New Financial Services Threat Assessment: The UK Office of Financial Sanctions Implementation (OFSI) has described key compliance threats, red flags that financial services firms should be aware of and recommendations on how to mitigate the identified risks.
• New guidance on combating circumvention: The UK Office of Trade Sanctions Implementation (OTSI) published new guidance designed to assist businesses in combatting the circumvention of Russia-related sanctions. It also highlighted specific high-risk goods and intermediary jurisdictions.
• Expansion of reporting requirements: The UK government lowered the threshold for reporting non-compliance and expanded the scope of relevant firms to include high-value dealers, art market participants, insolvency practitioners and letting agencies, effective from 14 May 2025.
• Closer enforcement cooperation between UK and US authorities: Key US and UK agencies signed a memorandum of understanding aimed at enhancing cooperation and coordination between them.
• A new High Court ruling on “control” under UK sanctions: The High Court clarified how the test of potential de facto control should be approached in relation to Russian publicly owned entities.^*

UK’s Most Recent Sanctions Package

On 24 February 2025, the UK passed its most recent sanctions package to coincide with the third anniversary of Russia’s full-scale invasion of Ukraine. The new measures include the designation of 67 further individuals and entities, including:

• Producers and suppliers of machine tools, electronics and dual-use goods for Russia’s military, based in a range of third countries, including Central Asian states, Turkey, Thailand, India and China. According to the UK government, China remains the largest supplier of critical goods for Russia’s military.
• Entities and individuals who are involved in sectors of strategic significance to the Kremlin such as coal mining, the financial sector, airlines, the energy sector, telecommunications and port operations.
• North Korean Defence Minister No Kwang Chol and other North Korean generals and senior officials involved in North Korean intervention in Russia.
• For the first time, a third country financial institution, Kyrgyzstan-based OJSC Keremet Bank.

Additionally, the UK has also specified a further 40 vessels involved in the shadow fleet carrying Russian oil.

Whilst the UK government has labelled this the “largest sanctions package since the early days of the invasion”, in practice these measures represent an expansion of the targets of the existing measures rather than a radical overhaul of the regime. Nonetheless, the latest sanctions package clearly signals the willingness of the UK government to target individuals and entities based in third countries, which have been active in circumventing and undermining Western sanctions on Russia.

New Financial Services Threat Assessment Report

On 13 February 2025, the OFSI published a Financial Services Threat Assessment Report (Threat Assessment), launching a broader effort to assist UK financial services firms in understanding and protecting against threats to compliance, particularly in light of the dynamic nature of international sanctions on Russia and the complexity of UK financial sanctions. OFSI noted that, to date, UK financial services firms were responsible for 65% of all of the suspected breach reports received by OFSI, with the majority (80%) provided by banks and non-bank payment service providers (NBPSP).

The Threat Assessment describes key compliance threats, red flags that businesses should be aware of, recommendations on how to mitigate the identified risks, as well as a general overview of OFSI’s findings in relation to reporting and enforcement so far. The key threats identified by OFSI include the following:

• Substantial delays in identifying and reporting suspected breaches.
• Common issues, such as improper maintenance of frozen assets and breaches of licence conditions, causing most of the non-compliance.
• Significantly increased professional and non-professional “enabler”¹ activity since 2023, including the use of enablers to make payments to maintain the lifestyle and assets of designated persons, or front for designated persons and claim ownership of frozen assets.
• Use of alternative payment methods, in particular cryptoassets, as well as intermediary countries, to evade UK financial sanctions.

The Threat Assessment notes that the majority of suspected breach reports related to Russia, but OFSI has identified recent threats to compliance relating to UK sanctions on Libya, Belarus, Iran and the Democratic People’s Republic of Korea.

Common Issues Causing Non-Compliance by UK Financial Services Firms

OFSI found that most instances of non-compliance are actually caused by several common issues, namely:

• Improper maintenance of frozen assets: OFSI found that debits were wrongfully made from accounts held by designated persons at UK banks and NBPSP. OFSI suggested these may stem from existing contracts or insurance policies, especially those which automatically renew. OFSI encourages care in this respect.
• Breaches of OFSI licence conditions: OFSI found that UK financial firms’ breaches related to allowing transactions after the expiry of the relevant licence, using bank accounts which were not listed in the licence, or failing to adhere to reporting requirements. Careful review of permissions is recommended.
• Failures to conduct accurate ownership assessments: OFSI has seen failures to identify entities owned by designated persons, specifically, subsidiaries owned by Russian conglomerates which are either designated themselves or majority-owned by a designated individual. OFSI encourages due diligence procedures which are updated regularly and enhanced scrutiny where red flags are identified.
• Incorrect UK nexus analysis: OFSI also dispelled the common misconception that a breach of UK sanctions must occur within the UK to be within OFSI’s jurisdiction. Provided there is a UK nexus, OFSI will have jurisdiction to investigate the breach. OFSI found failures to identify the involvement of UK nationals or entities in transaction chains and inaccurate analysis of differences between UK, EU and US sanctions.
• Use of System for Transfer of Financial Messages (SPFS): OFSI noted that SPFS was set up by the Central Bank of Russia as an alternative to SWIFT, and that it therefore presents a higher risk from a UK financial sanctions perspective. OFSI encourages UK banks to “assess their exposure to banks that have joined SPFS” and report any suspected sanctions breaches.

Use of Cryptocurrency and Intermediary Jurisdictions To Evade Sanctions

Another key development identified by OFSI is the appearance of criminal professional enablers offering laundering of funds through the use of cryptoassets and cash couriers, warranting particular vigilance regarding trades of high-value cryptoassets for cash (or vice versa). This comes off the back of “Operation Destabilise”, an international effort led by the UK’s National Crime Agency, which exposed a Russian money laundering network facilitating financial sanctions evasion by swapping cryptocurrency, usually a dollar-backed stablecoins such as tether (USDT), for cash across jurisdictions.

Based on OFSI’s findings, since February 2022, 25% of suspected breach reports from UK financial services firms referred to intermediary jurisdictions, most commonly the British Virgin Islands (BVI); the Republic of Cyprus; Switzerland; United Arab Emirates (UAE); Guernsey; Luxembourg; Austria; and Turkey. While in 2022, the BVI, Switzerland and Cyprus featured most frequently in suspected breach reports, by 2023 it was the Isle of Man, Turkey, the UAE and Guernsey. In Q1 2024, UAE was the most frequently featuring intermediary jurisdiction, followed by Luxembourg, the Cayman Islands and Cyprus. OFSI urges financial service firms to consider the involvement of these intermediary jurisdictions alongside other red flags of sanctions evasion and diligence these transactions accordingly.

Combatting Trade Sanctions Circumvention

Echoing the messages in the OFSI’s Threat Assessment, on 7 January 2025, the UK’s newest sanctions authority, OTSI, published new guidance related to countering potential Russia sanctions evasion. The guidance is intended to assist UK exporters in understanding red flags and practices regarding Russian sanctions circumvention.

The guidance notes that Russia uses strategies like indirect shipping routes, falsification of end-uses of goods and professional evasion networks to avoid UK sanctions. Additional information is provided to exporters regarding particularly sensitive and high priority goods that have been the focus of Russia’s evasion tactics, and goods that may pose a higher circumvention risk (e.g., industrial machinery and equipment, vehicle parts, engines and instruments for navigation). The guidance recommends that businesses should “continually assess the export environment of countries they engage with”, and consider conducting enhanced due diligence when exporting “at-risk” products to certain countries that are perceived to pose a higher risk of re-exporting such goods to Russia. These include Armenia, China, India, Israel, Kazakhstan, Kyrgyzstan, Malaysia, Mongolia, Serbia, Thailand, Turkey, UAE, Uzbekistan and Vietnam. As noted above, the most recent sanctions package in the UK targeted producers and suppliers of critical goods based in some of these countries as well.

Also on 7 January 2025, OTSI published a separate “No-Russia clause” guidance for businesses involved in exporting “Common High Priority Items” and other items that are critical to Russia’s military complex. The guidance suggests that, to help mitigate the risk of restricted items being transferred to Russia, exporters should consider including in their contracts a “no re-export to Russia” clause, and suggested drafting is included.

In light of this guidance, and the continued attention being placed on circumvention by regulators, UK businesses should review their standards terms and conditions and consider including restrictions preventing any re-export of controlled goods or technology to Russia.

New Reporting Obligations

The UK government created new regulations which, among other things, introduced significant changes to the reporting obligations imposed under the UK sanctions regime. The key changes include the following:

• Lower threshold for reporting: Historically, relevant firms were required to report to OFSI, among other matters, if they knew or suspected an offence had been committed under UK financial sanctions laws, where the knowledge or suspicion arose while carrying on business. The regulations have amended this so that relevant firms will be required to report knowledge or suspicion of any non-compliance with sanctions regulations (as opposed to only the commission of an offence). This change came into force on 5 December 2024.
• Expanded scope of relevant firms: The definition of relevant firms will be expanded to include high-value dealers, art market participants, insolvency practitioners and letting agencies. UK businesses falling within that definition will need to comply with positive reporting obligations to OFSI. This change will come into effect on 14 May 2025.

Closer Coordination Between OFAC and OFSI

On 13 January 2025, OFSI and the US Office of Foreign Assets Control (OFAC) published a memorandum of understanding (MoU) aimed at enhancing cooperation and coordination between the two agencies. This MoU is a significant step towards strengthening the enforcement of financial sanctions and ensuring a unified approach to transatlantic sanctions compliance.

The MoU, among other items, outlines a framework for enhanced information sharing between the two agencies and the conduct of joint investigations and enforcement actions. OFSI has come under some criticism for the pace of its investigative and enforcement activity, including in comparison to that of OFAC. The adoption of the MoU has the potential to help to close that gap and lead to greater alignment in the implementation and enforcement of US and UK sanctions.

The High Court Again Rules on the Meaning of “Control” Under UK Sanctions

Determining if an entity is controlled by a designated person is crucial for UK sanctions compliance, affecting decisions on payments, contractual rights and asset freezes. For this reason, judgments by English courts which lay out how the test of control is likely to be applied are significant in shaping firms’ compliance processes.

On 23 January 2025, the latest High Court decision interpreting how the test for “control” under the UK Russia (Sanctions) (EU Exit) Regulations 2019 (Russia Regulations) was handed down. This follows the previous pronouncements by the Court of Appeal in Mints,² and the High Court in Litasco³ and Hellard,⁴ which we discussed in our 4 September 2024 client alert, “‘Control’ Under the UK’s Sanctions: The Emergence of Clarity?”

The Judgment in Thomas⁵

The background to this case centres on the collapse of the National Bank Trust (NBT) in 2014. NBT was a Russian bank which is majority-owned by the Central Bank of Russia (CBR). NBT has alleged that two of its ex-executives, Mr Fetisov and Mr Yurov (Directors), were involved in fraud to extract millions of dollars in salaries and bonuses. The Directors were ordered to pay around $900 million, in aggregate, to NBT by an order of the English High Court in 2020, after which they entered bankruptcy.

The immediate issue before the Court in Thomas was an application by the trustees in bankruptcy (Trustees) of the Directors seeking court permission to make distributions to NBT by making payments to the client account of NBT’s solicitors. Under a pre-existing licence issued by OFSI, the solicitors could then apply the monies in satisfaction of NBT’s legal costs.

NBT is not (and has never been) directly designated in the UK, but the question arose because the Court of Appeal in Mints found in obiter (a non-legally binding opinion) that NBT is controlled by President Putin and the governor of the CBR, Elvira Nabiullina. If NBT were controlled by designated persons, making funds available to them, directly or indirectly, would be a violation of UK sanctions. NBT’s solicitors proposed that the Trustees pay the monies into NBT’s solicitors’ client account to mollify concerns about making the funds directly available, in light of Mints, because another UK-based regulated professional with its own duties to comply with the sanctions regime would receive the money (though the judge found that this arrangement would be ineffectual if he had concluded that NBT is “controlled” by designated persons, as the prohibition applies to making payments indirectly as well⁶).

In Mints, the court’s view was based on a concession by NBT’s lawyers that if “control” under the Russia Regulations includes control through political office, then NBT would be controlled by President Putin and Governor Nabiullina.⁷ In Thomas, the judge stressed that the Mints concession was not binding on the parties before him and that NBT did not make a similar concession this time.⁸

Accordingly, the judge found that he had to consider all the evidence to decide whether the test for “control” under Regulation 7(4) of the Russia Regulations was in fact made out.⁹ In this exercise, he applied the interpretation of Regulation 7(4) expounded in Hellard.¹⁰

The judge considered the following factors relevant:

• NBT was not listed as a designated person in the UK.
• The fact that the concession in Mints was deemed to be rightly made in subsequent cases does not influence the evaluation of evidence in this case.
• OFSI did not consider NBT to be owned or controlled by Mr Putin or Ms Nabiullina.
• NBT’s lawyers confirmed that their view was also that Mr Putin and Ms Nabiullina did not in fact exercise control over NBT.
• There was an absence of evidence of potential de facto control, since it was not shown that Mr Putin could obtain control over NBT without obtaining third-party consents, breaching the law or suffering adverse consequences.¹¹

Therefore, the judge concluded that it would not be reasonable to expect that Mr Putin or Ms Nabiullina would be able to achieve the result that affairs of NBT are conducted in accordance with their wishes.¹²  Therefore, NBT was not “controlled” by Mr Putin or Ms Nabiullina within the meaning of Regulation 7(4), and the proposed payment would not breach UK sanctions.

The judge then went on to find that, even assuming that NBT was controlled by designated persons, the exemption under Regulation 58(5) of the Russia Regulations would apply (which relates to payments to relevant institutions in discharge of an obligation pre-dating the designation). This is because the relevant bankruptcy order was made in January 2020, well before either Mr Putin or Ms Nabiullina were designated.¹³ This was on the basis that the proposed payment was a discharge of an obligation created by the bankruptcy order.¹⁴

Impact of the Decision

The decision in Thomas is a further step in the “sensible direction” first chartered in Litasco and Hellard. The decision is also in line with the UK government’s guidance issued in the aftermath of Mints.

However, while Thomas helps to alleviate some of the uncertainty, it does not completely resolve the issue. Courts, practitioners and businesses continue to face conflicting statements from the Court of Appeal (albeit non-binding) and the High Court, though the High Court has now managed to distance itself from Mints on at least three occasions.

A binding decision of the Court of Appeal or a decision of the Supreme Court is still needed to resolve the tensions and uncertainties. Unfortunately, the opportunity for the Supreme Court to weigh in on the issue has just been postponed, as the appeal in Mints, which the Supreme Court was scheduled to hear in March 2025, has now been vacated and the case adjourned due to confidential developments in that case.¹⁵

Conclusion

The UK’s sanctions landscape continues to evolve. Companies should be vigilant and proactive in assessing and managing sanctions-related risks, especially as the UK government is making new designations with great regularity. Awareness and detection of circumvention tactics, as well as focusing on compliance issues like properly maintaining frozen assets and complying with licence conditions, is crucial. Companies should ensure their compliance programmes are regularly evaluated and updated to stay on top of the changing regulatory picture and in light of shifting risks.

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* This client alert is for informational purposes only and does not constitute legal advice. Complex assessments often have to be made as to which sanctions regime applies in any given instance, given the multinational touch points of many entities and individuals. In that regard, given the complex and dynamic nature of these sanctions regimes, there may be developments not captured in this summary. Moreover, while the summary was accurate when written, it may become inaccurate over time given developments. For all of these reasons, you should consult with a qualified attorney before making any judgments relating to sanctions, as there are potentially severe consequences of failing to adhere fully to sanctions restrictions.

1 OFSI defines “enablers” as individuals or companies providing services or assistance on behalf of or for the benefit of designated persons to breach UK financial sanctions prohibitions.

2 PJSC National Bank Trust v Mints [2023] EWCA Civ 1132.

3 Litasco SA v Der Mond Oil and Gas Africa SA and Locafrique Holding SA [2023] EWHC 2866 (Comm).

4 Hellard v OJSC Rossiysky Kredit Bank (in liq) [2024] EWHC 1783 (Ch).

5 Thomas v PJSC National Bank Trust [2025] EWHC 75 (Ch).

6 Id., paras 12 and 48.

7 Mints, para 63.

8 Id., para 30.

9 Id., paras 46-47.

10 Id., paras 40-46.

11 Id., para 47.

12 Id., para 47(f).

13 Id., paras 49-50.

14 Id., para 51.

15 Id., para 37.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.