Everything you need to know about Russian Sanctions and the Trust Prohibition.
The UK first announced its intention to prevent Russia from accessing trust services in June 2022. However, 6 months passed without those measures coming to fruition. The UK Government were concerned that illicit Russian funds didn’t hide within trust structures. Industry expressed concerns about the genuine impact on individuals of Russian descent who may have legitimate reasons for wishing to access the provision of trust services. There was also the day-to-day conflict for trustees as to how to balance their duties as trustees towards beneficiaries, whilst navigating the evolving sanctions landscape.
In December 2023 new Regulation 18C was added to the Russian (Sanctions) (EU Exit) (Amendment) (No.17) Regulations 2022, culminating in the introduction of the trust services prohibition. Thankfully for the trust industry it has a less broad remit than was initially envisaged.
The new Regulation 18C applies to:
- creating a trust
- providing a registered office, business, correspondence or administrative address;
- operating or managing a trust; and
- acting as a trustee or arranging for another to act as a trustee.
The new Regulation prohibits the provision of:
- trust services to, or for the benefit of, designated persons.
- trust services to, or for the benefit of, persons connected with Russia, unless they were doing so immediately to 16 December 2022.
A person connected with Russia means either:
- an individual/group of individuals who are ordinarily resident or located in Russia
- an entity which is incorporated/constituted under Russian law or domiciled in Russia.
A trust service is considered for the benefit of another if the person benefitting is a beneficiary, potential beneficiary or might reasonably be expecting to obtain a significant financial benefit from the trust.
Arguably the need to expressly prohibit the provision of trust services to designated persons is otiose. Given that the provision of such services, without a licence, would have been highly likely to trigger existing prohibitions on providing a benefit to a designated person in any event. However, the carve out for the provision of services prior to 16 December 2022 where a beneficiary is ‘connected with Russia’ is an important one in terms of enabling the ongoing management of existing trust structures.
So, what are the key takeaways?
- Whatever the scenario, providing trust services to a designated person is expressly prohibited.
- It is, however, possible to continue to provide trust services that benefit individuals or entities resident in, located in or constituted under Russian law, so long as those services were already being provided before 16 December 2022.
- Thereafter it is not permissible to commence new relationships to provide trust services for the benefit of a person connected with Russia.
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