On 19 May 2023, the UK expanded its list of Designated Persons under the Russia (Sanctions) (EU Exit) Regulations 2019 by adding 86 new persons, comprising 42 individuals and 44 Russian legal entities. The newly Designated Persons are primarily involved with, or linked to, the defense, transportation, extraction, metallurgy, financial and agricultural sectors of the Russian economy. This expansion of sanctions appears to follow the G7 Leaders’ Statement on Ukraine, which was also issued on 19 May.
It is worth noting, that top managers and directors of the following Russian enterprises have now been sanctioned under the UK regime: (i) Russian Railways (RZhD OAO), the state-owned railway monopoly; (ii) Transneft, a state-controlled oil pipeline company; (iii) Sovcomflot, a state-controlled shipping company which is one of the leaders in energy shipping, including the shipping of crude oil, LNG and petroleum products; (iv) Gazprom Neft, a subsidiary of Gazprom, a major state-controlled integrated oil and gas company; (v) several defense enterprises and research centres; and (vi) the State Grain Operator (GZO). Additionally, Igor Altushkin, the beneficial owner of the Russian Copper Company, has also been designated.
Several entities, whose ultimate beneficial owners (“UBOs”) had previously been sanctioned, are now Designated Persons in their own right; namely, AFK Sistema, Severstal and Rosbank. This development in turn nullifies some of these entities’ previous attempts to avoid being sanctioned through restructurings of their UBOs’ shareholdings, such that the designated UBOs could claim to have no control over the relevant enterprises.
- AFK Sistema. Vladimir Evtushenkov was originally one of Sistema’s directors and shareholders, but got sanctioned in April 2022. Due to his designated status, he stepped down from Sistema’s Board of Directors and transferred a portion of his stake in Sistema to his son, Felix Evtushenkov. In April 2023, Felix Evtushenkov in turn got sanctioned.
As of 19 May 2023, Sistema itself has become a Designated Person. Accordingly, all of the subsidiaries controlled by Sistema are now subject to an asset freeze. Based on the information of actual ownership of subsidiaries’ shares (as disclosed on Sistema’s website), entities under said asset freeze include: (i) Segezha Group (62,2%); (ii) Agroholding Stepp (89.7%); (iii) Binnopharm Group (72.2%); (iv) Medsi, a medical clinics network (95.5%); and (v) Sitronics IT holding (100%).
Sistema currently owns less than 50% in both MTS (telecommunications) and Etalon (real estate development). However, these entities might still be subject to an asset freeze, depending on other indicia of control.
- Severstal. Severstal’s UBO, Alexey Mordashov, was sanctioned in March 2022. Accordingly, due to Mr. Mordashov being reported as Severstal’s majority shareholder, Severstal had already been subject to the UK asset freeze since March 2022. As of 19 May 2023, it has become a Designated Person in its own right.
- Rosbank. Vladimir Potanin acquired Rosbank in 2022, with this entity comprising the former Russian subsidiary of Société Generale. Vladimir Potanin became designated in June 2022. Following his designation, Mr. Potanin was reported to have transferred part of his stake in Rosbank to a charitable fund in an attempt to ensure that the bank avoided being sanctioned. As of 19 May 2023, Rosbank itself constitutes a Designated Person. It was originally sanctioned by the EU in February 2023.
- Tinkoff Bank. Whilst Vladimir Potanin only holds a non-controlling shareholding (35.1%) in Tinkoff Bank, this financial entity has also been designated as of 19 May 2023. Tinkoff Bank was also originally sanctioned by the EU in February 2023. Before such sanctioning, Tinkoff Bank was one of the main banks that were still able to process cross-border transactions for Russian businesses and natural persons.
Oher major businesses which were sanctioned on 19 May include: (i) Mechel (Chelyabinsk Metallurgical Plant); (ii) OMK (United Metallurgical Company); (iii) MMK (Magnitogorsk Iron & Steel Works); (iv) TMK (Pipe Metallurgical Company); (v) the Russian Copper Company; (vi) FESCO (Far Eastern Shipping Company); (vii) Sovfracht (shipping); (viii) DOM.RF (financial and real estate development); and (ix) the State Grain Operator.
To read more about sanctions imposed by the U.S., UK and EU on Russian persons in connection with the Russia-Ukraine conflict and Russian countersanctions, please visit our website. If you have any questions concerning this memorandum, please feel free to contact the authors – Chase D. Kaniecki, Polina Lyadnova, Yulia A. Solomakhina – or your regular contacts at the firm.