Update: Sanctions against Russia

The current Russian invasion of Ukraine, refugees leaving for various EU countries and the UK as well as the reactions of the UK, the EU and the US affects businesses worldwide. New and wider sanctions have been introduced with consequences for financial services like insurance providers.

Germany has stopped the approval process of one of the biggest infrastructure projects in history, the Baltic pipeline Nordstream 2. The prices for crude oil and natural gas are rising, with direct effects on consumer costs of living. This might drive inflation; the Russian Ruble lost value compared to other currencies and the Russian federal bank has taken various emergency measures and put interest rates up to 20%.

The EU Commission had announced a “sanction thunder storm”. This has been implemented piecemeal, and is still developing, but many elements are now in force, covering

• The Financial sector:

  a) Many Russian Banks are now on the sanction lists, key capital market access & key state-owned companies have had their assets frozen (though the EU has lagged behind the UK and (particularly) the US in freezing the assets of the largest Russian banks).

  b) European banks will no longer be able to deal in relation to Russian Government Bonds.

  c) Even Switzerland has agreed to back these sanctions and assets have been frozen in Switzerland as well.

  d) Swift Exclusion: The EU has coordinated with the UK, US and other allies to cut 7 prominent Russian banks from SWIFT, which is the system hosted in Belgium responsible for linking 11,000 banks and financial institutions allowing for easy money transactions.

• Energy sector: There is an export ban on oil and gas products

• Transport sector:

  a) No aircrafts sales, no aviation equipment to be sold to Russia. Many countries declared no fly zones for Russian aircraft, and Russian airlines have been declined access to European airports and airspace.

  b) Also, ports in the Ukraine are closed – this is an indirect consequence of sanctions and the war but this will lead to losses for merchants and claims in Marine insurance.

• Technology sector: There are export controls and a ban of export financing, so Russia has no access to crucial technology, semiconductors etc.

• Visa policy change: Effectively, there is a travel ban – no entries, effectively a travel ban for sanctioned individuals.

The EU has consulted with the US, the UK, Canada, Norway, South Korea, Japan and Australia to make sure the respective sanction laws and rules are aligned. There are differences in the precise application of sanctions, and some in the identity of the entities designated (for instance, the EU has been more aggressive than the UK in relation to individual oligarchs but less in relation to financial institutions). In large part this appears to be as a result of different focus points of policy but the direction of travel is the same.

The UK has released new sanctions preventing access for Russian companies in aviation and space industry to UK insurance sector. This measure will severely limit access to the global insurance and reinsurance market and measures apply directly and indirectly, at Lloyd’s and the whole London Market. The UK Government will bring in legislation to prohibit UK based insurance and reinsurance providers from undertaking financial transactions connected with a Russian entity or for use in Russia. Further details of the legislation will be available in due course. Coupled with similar actions by the EU, this move further isolates Russia’s economy from the international financial system

The UK previously had frozen assets of five banks, along with the assets of three Russian billionaires, who will also be hit with UK travel bans

We will be following these developments closely and are well placed to advise on any sanction related questions.