New prohibition on providing audit services to Russia takes effect
In this article James Barbour CA highlights the Government’s regulations prohibiting services exports to Russia including auditing, announced by the Foreign Secretary on 30 September 2022 which took effect from 16 December 2022.
The regulations prohibiting services exports to Russia in advertising, auditing, architectural, engineering and IT consultancy and design services (professional and business services) announced by the Foreign Secretary on 30 September have been laid in Parliament under Section 55(3) of the Sanctions and Anti-Money Laundering Act 2018 and came into force on 16 December 2022.
Prohibitions on the provision of professional and business services are set out in regulation 54C. These prohibit the direct or indirect provision of such services to persons connected with Russia. Though the accounting and auditing services definitions are based on CPC codes, they are defined in Schedule 3J for clarity, given the differences in exceptions and licensing which apply to these two sectors.
“Auditing services” means services consisting of examination of the accounting records and other supporting evidence of an organisation for the purpose of expressing an opinion as to —
a) whether financial statements of the organisation present fairly its position as at a given date, and
b) the results of its operations for the period ending on that date, in accordance with generally accepted accounting principles.
For the purposes of the Regulations, ‘a person connected with Russia’ means:
- an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia;
- an individual who is, or an association or combination of individuals who are, located in Russia;
- a person, other than an individual, who is incorporated or constituted under the law of Russia;
- a person, other than an individual, who is domiciled in Russia.
The prohibitions and requirements imposed by the Regulations apply to all companies established in any part of the UK, and also apply to branches of UK companies operating overseas.
Regulation 60DA provides for exceptions in relation to the prohibitions on the provision of professional and business services. In some cases these exceptions apply to all prohibitions under regulation 54C.
The prohibitions in regulation 54C, in so far as they relate to auditing services, are not contravened by:
Any act done by a person (“P”) in satisfaction of an obligation arising from the appointment of P as the auditor of a parent undertaking (“C”) provided that:
(a) where C is a credit institution, the auditing services of P are for one or both of the purposes mentioned [in paragraph (4)];
(b) where C is not a credit institution, or is a credit institution that does not meet the condition in sub-paragraph (a)
(i) P is appointed as auditor of C before 16th December 2022,
(ii) the act is carried out before the end of 31st May 2023, and
(iii) P notifies the Secretary of State of the provision of the services, before or after the act is carried out, by the end of 15th March 2023.
The paragraph 4 purposes mentioned above are:
(a) C, in its capacity as a parent undertaking, deciding whether accounts of a subsidiary undertaking of C which is a person connected with Russia (“S”) should be included in consolidated group accounts of C, and
(b) the inclusion in consolidated group accounts of C of the accounts of S.
In addition, the prohibitions in regulation 54C, in so far as they relate to auditing services, are not contravened by any act done by a person (“P”)—
(a) in satisfaction of an obligation arising from the appointment of P as the auditor of a subsidiary undertaking (“S”) in respect of the provision of those services to S in relation to the discharge of or compliance with UK statutory or regulatory obligations, and
(b) which results in the provision of those services indirectly to a person connected with Russia in that person’s capacity as a parent undertaking of S.
If it is discovered that you have breached any of the trade prohibitions or licensing provisions applying to professional and business services, you should voluntarily disclose the irregularity by reporting it to BEIS.
Links for relevant information for this announcement are included below:
9.Amendment of regulation 54B (interpretation of Chapter 6B)
10.Amendment of regulation 54C (professional and business services)
14.Substitution of regulation 60DA (trade: exception relating to professional and business services)
Insertion of Schedule 3J to the Russia (Sanctions) (EU Exit) Regulations 2019
30 September Announcement
Sanctions Regulations overview (To be updated by BEIS shortly)
Statutory Guidance (Updated 16 December 2022)
In certain situations legal advice will need to be sought to ensure that members are compliant with these regulations.
Licences may be issued for certain trade activities that would otherwise be prohibited by the sanctions regulations. Please find the guidance on applying for a licence here: Guidance on applying for a licence.