Russia (Sanctions) (EU Exit) (Amendment) Regulations 2023
(11 months, 2 weeks ago)
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Lord Ahmad of Wimbledon
That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) Regulations 2023.
Relevant document: 38th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
The Minister of State, Foreign, Commonwealth and Development Office (Lord Ahmad of Wimbledon) (Con)
My Lords, the Russia Sanctions EU Exit Amendment Regulations 2023 amend the Russia (Sanctions) (EU Exit) Regulations 2019. The instrument was laid on 20 April 2023 under powers provided by the Sanctions and Anti-Money Laundering Act 2018. It contains measures that we have co-ordinated with our international partners to increase the pressure on Mr Putin for waging an illegal and brutal war against Ukraine. These measures place further constraints on Mr Putin’s war machine and on Russia’s economy, adding further force to the largest and most severe package of economic sanctions that Russia has ever faced.
On Trade 6, this instrument delivers on the commitment made by the UK Government to ban the export of all items that have been used by Russian forces on the battlefield to date. It builds on extensive bans made in previous legislation, widening export prohibitions to include additional aircraft and vehicle parts, radio and other electronic equipment, biotechnology assets and 3D printing machinery. The second tranche of measures contained in this legislation prohibits the import of nearly 150 additional goods which generate export revenues for the Russian economy. It catches products as diverse as cigars, wood, tools and machinery. The third tranche of new restrictions covers the import of iron and steel products, including metal coming from Russia that has been processed in third countries. These additional sanctions underline the UK’s leadership role on Russian trade sanctions and will inflict further economic damage and constrain Mr Putin’s ability to equip and fund this war. These measures were applied from 21 April 2023, with the exception of the prohibition on iron and steel products processed in third countries, which will enter into force on 30 September 2023, on the same date as the EU’s equivalent ban.
Before I conclude my opening remarks, I hope noble Lords will allow me to extend slightly beyond the scope of this debate as I would like to take this opportunity to update your Lordships on the Government’s position on a proposed separate sanctions measure announced by the Government in April 2022, but not introduced through a statutory instrument. After careful consideration, the Government have decided not to proceed with legislation on a cap on funds held by Russian nationals in UK bank accounts. Having made a detailed assessment of this policy option, we have concluded that carefully targeted sanctions against high net worth supporters and beneficiaries of Mr Putin’s regime is a more effective way to achieve our objectives. I assure noble Lords that this follows rigorous scrutiny of the policy by relevant officials across government and, importantly and as we have done with other sanctions, consultation with key industry partners, and it is in line with our objective of ensuring that our sanctions are targeted, practical and effective.
As this latest package demonstrates, we will continue to impose hard-hitting sanctions against the Russian state and its supporters. This package alone adds a further £280 million-worth of exports and around £145 million-worth of imports to our prohibited list. As with all our sanctions, this latest package has been developed in co-ordination with our international partners, a point made by noble Lords in all previous debates, and I assure noble Lords that we will continue to work with them to identify and address any gaps or loopholes that emerge in our sanctions regimes.
To conclude, these latest measures demonstrate our determination to target those who participate in or facilitate Mr Putin’s illegal war of choice. Since Russia’s full-scale invasion, the UK has sanctioned more than 1,500 individuals and entities, including 130 oligarchs and their family members with a global net worth of £145 billion, and we have sanctioned more than £20 billion-worth of trade, 96% of the total UK-Russia goods trade in 2021.
Sanctions continue to work. Russia is increasingly isolated and out of Western markets, services and supply chains. Key sectors of the Russian economy have fallen off a cliff, and its economic outlook is bleak. I assure noble Lords that the UK Government will use sanctions to ratchet up the military and economic pressure on Russia until Mr Putin ends this brutal invasion of Ukraine, and we welcome the clear and continued cross-party support for this important course of action, for which I am grateful. I beg to move.
Baroness Northover (LD)
My Lords, I thank the Minister for introducing these regulations. As was reiterated again yesterday at Oral Questions, and as the Minister has acknowledged, there is support across the House for the Government’s stance in opposing the Russian invasion of Ukraine and recognising the threat not only to Ukraine but to the whole of Europe. We have supported sanctions on those individuals who have clearly gained by their support of President Putin and are complicit in the actions that he has taken. We have seen, too, how President Putin has used global trade to put pressure on countries that oppose him and to seek to deter other countries from opposing him. Energy prices, food crises and so on all hurt the poorest most, and Putin knows that. The sanctions we are considering today seek to put pressure on Putin’s military resources as well as the Russian economy. The Government argue that this is
“the largest and most severe package of economic sanctions that Russia has ever faced”.
Can the Minister give us a breakdown of the pre- and post-invasion proportion of trade affected by these sanctions?
The Government also say:
“As with all our sanctions, the latest package has been developed in co-ordination with our international partners”.—[Official Report, Commons, Delegated Legislation Committee, 15/7/23; cols. 1-4.]
We agree—we have discussed it many times—that sanctions are most effective when they are brought in by a number of countries, particularly the economic might of the EU and the United States. Can the Minister tell us whether we are completely in lockstep over these or whether there are any variations and, if so, in what areas?
The Delegated Powers Committee wonders why these measures were not brought in before, stating:
“We were particularly perturbed to read in the Explanatory Memorandum that UK goods are still being used by Russia on the battlefield. This prompted us to question how effective the 17 sanctions instruments we have already seen have been”.
It also asked why any trade is still being permitted and speculated that goods found on the battlefield may have been supplied by third countries. I have seen the FCDO response to these questions and concerns, but will the Minister put it on record? Perhaps he could add details of what types of products have been circumventing the sanctions that were already in place and how this was happening.
The committee also asked why the restrictions on iron and steel do not come in until September 2023. The FCDO noted that UK businesses in the sector needed time to prepare for such a ban, and that this aligned with the EU. Why was it concluded that this sector needed time to prepare while others were judged not to need it? How will these sanctions be monitored and enforced, and what happens with contracts already agreed or in the pipeline? I also note that the regulations bring in scope providing financial services to source these materials or brokering them. Are law firms also included? What assessment has been made of the effect on global supply chains of, for example, the inclusion of fertilisers? Are the EU and US also involved in this? Given the effect on developing countries of lack of fertilisers, might this depress prices and increase supplies to them, or will it have a negative effect as the West seeks other sources of supply? Have we looked at the indirect impacts and how these might be mitigated?
I am concerned about the Minister’s second announcement on large bank balances held in the UK. I hear what he says, but this seems like a potential loophole. I look forward to hearing his reply, and meanwhile I welcome in general these sanctions and certainly their intent.
Lord Collins of Highbury (Lab)
My Lords, I know the Minister is fully aware of His Majesty’s Official Opposition’s position in fully supporting the Government in the action they are taking to back Ukraine in its defence against Russian aggression, including providing military, economic and diplomatic support. We fully recognise that this is a fight to maintain the international rules-based order, and such aggression cannot and should not be tolerated. As my noble friend Lord Coaker said yesterday, is not one of the greatest misjudgments that Putin made that Europe would not stand together shoulder to shoulder with Ukraine and would not support Ukraine against his illegal attack, and, even if we did, that support would be limited and short-term? It is therefore extremely welcome to see the solidarity across Europe that President Zelensky received, particularly this weekend in Italy and France. It was especially good to see the German Defence Minister commit to and promise an additional €2.7 million in military aid.
Turning to the regulations, I wish to raise the issue of £50,000 cap, which was a government commitment. I have just been looking at Hansard for yesterday’s debate in the Commons. My honourable friend Catherine West interjected to ask whether there would be an opportunity for the decision not to proceed with this to be properly debated. According to the Minister and the Chair, it was agreed that there would be an opportunity to debate that. I just want to place on record the Opposition’s view that there should be measures such as the cap. If there is a decision not to proceed, what alternative measures are we taking to restrict the flow of finance, particularly when it is so easy to circumvent the £50,000 cap with the use of family members and others? There may be good reasons for not proceeding, but there should be a full debate.
As the noble Baroness, Lady Northover, said, the regulations come into force on 21 April and on 30 September for the iron and steel bans. The Minister mentioned that 30 September was to coincide with the EU equivalent ban, but why is there that time lag? There have been plenty of occasions when we have moved faster on certain sanction measures. It is very important that we act in concert, but we have understood why other countries may move faster than us and so on. We need a better explanation of why all the measures cannot be introduced straightaway.
In his introduction, the Minister mentioned the nature of certain items in these regulations. He particularly identified items found on the battlefield in Ukraine, such as electronic equipment, vehicles, 3D-printing machinery and biotechnology. Given that the sanctions seem to cover mostly electronic items found on the battlefield, has the department or the appropriate authorities in it explored ways to restrict the use of relevant firmware in the area—for example, by blocking the digital export of the firmware necessary for running 3D-printing machines? It would be good to hear how we may be working with our allies to look at ways of dealing with that. Of course, many of the items listed are quite small and easily hidden. What sort of advice and support would be given to the appropriate officials to ensure that they can be properly identified to prevent them reaching Russia?
I turn to the 190 goods, including iron and steel products processed in third countries. I welcome the extremely helpful briefing that I received from the department. It states that they are largely in line with the action taken by our European and US partners. What does “largely” mean? What are the differences? Where have we not been able to replicate fully the measures of our allies, particularly all our NATO allies?
The provision of services was a key part of trade before the Russian invasion. The December 2022 regulations banned the export of advertising, architectural, auditing, engineering, IT consultancy and design services to Russia. That is quite a comprehensive list of banned services. What assessment has been made on the extent of that service ban and its impact? I understand from the briefing that the department may be looking at the provision of legal services and how they may be brought into the scope of those sanctions. Can the Minister give us an update on them?
The briefing also touches on the exceptions for goods that are essential for humanitarian assistance activity. I fully support the need for that, but how are we actively monitoring those exceptions, and how can we be confident that the goods are going for the purpose intended? Obviously, pharmaceuticals and pharma products are important for humanitarian purposes, but they can be used in other ways.
The G7 summit is coming up later this month, and the briefing covers how it will be an opportunity to collaborate with all our allies to increase economic pressure. Will the Minister tell us how we are working towards a much more comprehensive agenda at that meeting?
It is one thing having regulations and laws on sanctions, but another is how we ensure compliance. That is a major issue. I hope that the Minister can tell us how Whitehall departments are working together to ensure compliance. I was thinking about the iron and steel trade and the reasons for the delay in implementation. Has the department looked at how we can incentivise faster implementation of sanctions, not simply giving time for firms to adjust, but considering other options to ensure speedy implementation?
What steps are we taking to raise awareness of the sanctions that we are imposing, so that they become an effective deterrent to those who may be tempted to circumvent them? Whenever sanctions are introduced, people look at every possible way to avoid and circumvent them, particularly with flows going into other countries.
What capacity do we have across Whitehall departments to ensure compliance and to police these sanctions? It would be good to know whether there has been an increase in the relevant staff. There have been stories in the media recently about countries— I mention Cyprus in particular—that have brought in sanctions but then ignore violations for one reason or another; it could be a capacity issue. I hope the Minister can give us an update on those issues and on how we provide support to ensure that our allies fully implement these sanctions.
Lord Ahmad of Wimbledon (Con)
My Lords, I thank the noble Baroness, Lady Northover, and the noble Lord, Lord Collins, for their strong support of the Government’s actions. Once again, it demonstrates the unity of purpose and, importantly, the unity of action on these important measures. I thank them for their careful scrutiny and consideration of the various measures. I will certainly seek to answer some of the specific questions and issues that have been raised in the time allocated. I will also follow up in the usual customary way with specific responses, particularly to some of the technical questions that the noble Baroness, Lady Northover, raised.
Both noble Lords raised the issue of legal services. I will not speculate on that particular issue, but I note the fact that both the noble Baroness and the noble Lord have raised it, and I totally understand the wider context of application. When we look at key industries and sectors, we need to look at the wider context of how these sanctions can be effectively implemented.
The noble Baroness, Lady Northover, pressed slightly further on the impact of the sanctions, asking for a kind of compare and contrast of what the impact has been. I have a raft of statistics, including that there was a 99.1% reduction in UK goods imports from Russia in September to November 2022 compared to the same period in 2021. There have been various studies, including one by Yale University, for example, which showed that more than 1,000 foreign businesses have withdrawn, undoing the vast majority of foreign investment made in Russia not just since the war but dating back to the fall of the Soviet Union. There was a 79.7% reduction in UK goods exports to Russia in September to November 2022 compared to September to November 2021.
Export bans have contributed to the long-term downgrading of Russia’s military and high-tech industry and prevented oligarchs accessing even luxury products. For example, UK exports of machinery and transport equipment decreased by 98% between February and August 2022. Russia’s Transport Minister has admitted that Russia’s logistical infrastructure is now broken as a result of these sanctions. Additional sectors have also been impacted, and I would be happy to share the facts and figures with the noble Baroness, but I hope that gives at least a sense that the sanctions are having a direct impact.
The noble Baroness and the noble Lord, Lord Collins, both raised, rightly, the importance of alignment. I assure them that we are on the same page here. I have said time and again that measures work best when we are aligned. Indeed, the delay to 30 September on one of today’s proposed measures is reflective of that co-ordination. I will elaborate further: because of the complexity of supply chains and the interconnectivity of the global world that we live in, it is important that those sanctions are applied in the most effective manner. We have taken that decision with our key partners.
The noble Lord, Lord Collins, raised a broader point about co-ordination with those countries—he mentioned a number of them—where the sanctions may be introduced or even talked about but are not implemented effectively. With those key partners to us who are not implementing sanctions, I believe there are opportunities to change this, as I saw as recently as Saturday when I was in Stockholm. We focused in on Ukraine and there were countries present from the Indo-Pacific region who perhaps do not share the same objectives behind sanctions as us. This allows us and other key partners—including the US, which was in the room, and, importantly, our EU partners—to demonstrate the why: the need for these sanctions to be implemented. We will certainly avail ourselves of other opportunities in this respect. Indeed, after I finish here today I will go to the airport to attend the Council of Europe meeting in Iceland where, again, the focus will be on Ukraine specifically.
A question on fertilisers was also raised. Our sanctions are designed to minimise unintended consequences for critical supply chains, including for the important areas of food security and pharmaceuticals. Both the noble Baroness and the noble Lord acknowledged that in any sanctions we impose, we still have to address the false narrative that is sometimes put out by Russia that somehow these sanctions do not allow essential goods—such as humanitarian support and medicines—to get through. They do, and there are humanitarian carve-outs for that.
On some of the points that the noble Lord raised about the overseas territories, I assure him that we work very closely with them. Although some may legislate for themselves, a number require support in terms of legislative capacity. We are very much in lockstep to ensure that these sanctions are implemented, and they have the resources and support required to implement them. Of course, we review our general relationship with the OTs over a raft of areas, as we have done recently, including through the joint ministerial council. Many overseas territories were represented at the coronation a couple of weeks ago.
On whether we are going far enough, quickly enough and whether we have enough staffing, in December 2021 there were 48 substantive roles in the sanctions unit, which has now become a sanctions directorate. My work in government allows me to say that when a unit becomes a directorate and a directorate becomes a department, you can see where the trajectory is heading. It is not quite a department, and one hopes we will not need to get to that stage. However, we have now doubled the number of officials focused on our response and have over 100 permanent staff delivering our response. That does not include those working across the FCDO and its overseas network, who are also part of some of the wider roles that we undertake.
I have already talked through some of the detailed impacts of the sanctions themselves. The noble Baroness, Lady Northover, and the noble Lord, Lord Collins, referred to the debate yesterday which was also about the issue of the cap on UK bank funds. I would certainly be happy to have a discussion about that, but I assure the noble Lord and the noble Baroness that, as I said in my opening remarks, we are looking at all these measures to ensure that they are effective and implemented in a way that will allow for the most practical outcome. It is certainly the Government’s view that a proposal to introduce an indiscriminate cap on funds that Russian nationals are allowed to hold in UK bank accounts would in effect punish those Russians in the UK who do not support Mr Putin and his illegal actions.
To give a personal anecdote, I remember when I started in banking many years ago in 1991 and the Iraq war happened. One of the places where I was doing my training had the highest net worth of Iraqi clients, and when restrictions were imposed, they were also imposed on the very people who were opposing the regime. We have reiterated time and time again— I know the noble Lord, Lord Collins, and the noble Baroness, Lady Northover, share the same sentiments—that our dispute is not with the Russian people or ordinary Russian citizens, or indeed the many Russians who have made their lives in the United Kingdom. It is with Mr Putin and his illegal war in Ukraine. We believe that in our approach—again, I am grateful for the support on this—we are targeting those who support Mr Putin and his illegal actions in Ukraine. The measures debated today are targeted specifically at those who participate in, facilitate and support this illegal war.
I assure both noble Lords that the UK is committed to using sanctions to keep up the pressure until Mr Putin ends his brutal and senseless war. We stand resolute in our firm support: indeed, the recent visit of President Zelensky underlined our commitment not just in terms of the support we give in the markets but also our support for Ukraine’s direct defences. As I have intimated already and said yesterday, my right honourable friend is already in Reykjavík meeting some of our key Council of Europe partners. Equally, I hope during the course of my engagements there once again to make the case very strongly about the need for unity, purpose and action. Sanctions are one of the key instruments that allow us to ensure that Mr Putin realises the real cost to him, to those who support him and to the Russian economy if he continues with this brutal and senseless war.
As I said earlier, a number of smaller technical questions were raised, particularly by the noble Baroness—I will of course write to her in this respect. I put on record again my sincere thanks to the noble Lord, Lord Collins, and the noble Baroness, Lady Northover, and indeed to all across your Lordships’ House, whichever party they represent. Today, once again, through the debate on these important measures, we have sent a very consistent and unified message that this House and this country stands with Ukraine.
Lord Collins of Highbury (Lab)
Before the noble Lord sits down, I just want to be clear. In yesterday’s debate on the Commons, it appears that the Minister was suggesting that there would be an opportunity to debate and vote upon the decision not to proceed with the cap. There may be good reasons for that, but can the noble Lord clarify what that means?
Lord Ahmad of Wimbledon (Con)
I think I sought to clarify part of that. A vote would come on something that is there already: a statutory instrument was never introduced in that respect and of course the Government, when various announcements were made by the previous Prime Minister and Foreign Secretary, were alluding to a raft of different measures that we would look to evaluate. I know the noble Lord appreciates that, consistent with our approach, we would talk to industry and look to consult effectively to ensure that these are practical measures. As I said in my opening and concluding remarks, the view of the Government, after consulting across government and with industry, is that the most effective way is to target through our sanctions the specific individuals and organisations who directly support Mr Putin.
Just to be clear, although announcements were made on a range of measures, the key votes—I am thankful, again, that we have not had to take any votes on sanctions introduced—are on those measures that have been introduced through statutory instruments. I hope that clarifies the position.