Enhanced Sanctions to Include the Provision of Trust Services in the UK
By: A.G. Paphitis & Co Law Firm
The exact prohibition mainly deals with the offering of services to Russian oligarchs or the identification of those legal entities that are holding property on behalf of someone else.
The latter is acclaimed as the beneficial owner of that entity, henceforth he / she is the ultimate beneficial owner of the said property too (being held by the entity) and is entitled as the equitable owner of the property.
A simple definition of a trust services provider:
A Trust Services Provider (TSP) is an entity which provides any number of trust services involved with the creation, validation and preservation of e-signatures, e-seals, or digital certificates. Security is of the utmost importance to ensure the integrity of certificates provided to create electronic signatures.
Guidance published by the Office of Financial Sanctions Implementation (OFSI) issued recommendations to those who provide the afore-mentioned trust services to Russians and if these recommendations are not followed, the Russian designated entities run the risk of being sanctioned.
The word ‘connections’ was identified in this Article to mean:
“A person is broadly considered to be “connected with Russia” (Regulation 19A) if they:
- are located or a resident in Russia, or (if a corporate entity)
- if it was incorporated or constituted under the law of Russia
- or is domiciled in Russia.
There are some important differences with the EU’s sanctions, which focus on the nationality or residence of a trust’s settlor or beneficiary. It is important to note that, under the UK’s rules, a private individual who is a Russian national but is resident elsewhere will not automatically be considered connected with Russia for these purposes.
The provision of trust services is defined as:
- Creating a trust or similar arrangement;
- Providing a registered office, business address, correspondence address, or administrative address for a trust or similar arrangement;
- Operating or managing a trust or similar arrangement;
- Acting or arranging for another person to act as a trustee of a trust of similar arrangement.
There are two exceptions to the above categories:
- if the trust services are provided in relation to discharging or complying with obligations for purposes including the maintenance of an asset freeze, and;
- when dealing with transferable securities or money market instruments, where such dealing with is not prohibited by regulations 16 (securities restrictions) and 18B (investment restrictions).
The trust services restrictions will also be considered to not be in breach if the services are not provided primarily to, or for the benefit of, a designated person or person connected with Russia and those who are offered either:
- Community amateur sports clubs registered with HMRC, certain UK charities, registered pension schemes or certain activities relating to financial services and markets;
- Making funds and economic resources available to or for the benefit of a minor, or vulnerable adult.
OFSI will consider issuing licenses’ under the trust services restrictions for the following categories:
- Extraordinary situations
- Humanitarian assistance activity
- Medical goods or services
- Production or distribution of food to the civilian population
- Diplomatic missions
- Safety and soundness of a firm
- Financial regulation
- Financial stability
- Unauthorised unit trusts
The providers of such UK trust Services must be careful when servicing under the regime of the said law. In case the government decides to apply certain exceptions and proceed with the registration of such a trust, it will fall strictly under the afore-mentioned categories, and undoubtedly be strict with the non-exceptions set by the relevant laws.
At the same time, failing to abide by the Sanction laws may result to penalties imposed by the government and/or the regulator of the provider.
The information provided by A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.