THE LEGISLATIVE PROHIBITION
The Russia (Sanctions) (Eu Exit) (Amendment) (No. 14) Regulations 2022 (“No.14/2022 Regulations”) came into force on 21 July. An explanatory memorandum was issued with the No.14/2022 Regulations which the reader can access here .
The No.14/2022 Regulations amend the Russia (Sanctions) (EU Exit) Regulations 2019 (“2019 Regulations”) and provide for a ban on certain professional and business services.
Under newly enacted section 54C a person must not directly or indirectly provide “accounting services” to a person connected with Russia.
“accounting services” is defined in new section 54B and means
- accounting review services, which are services involving the review by a person of annual and interim financial statements and other accounting information, but excluding auditing services;
- compilation of financial statements services, which are services involving the compilation by a person of financial statements from information provided by a client, including preparation services of business tax returns when provided together with the preparation of financial statements for a single fee, but excluding such preparation services of business tax returns when provided as a separate service;
- other accounting services such as attestations, valuations, preparation services of pro forma statements;
- bookkeeping services, which are services consisting of classifying and recording business transactions in terms of money or some unit of measurement in the books of account, but excluding bookkeeping services related to tax returns;
Readers can see that the definition scopes out certain services, auditing services is excluded from the prohibition under “accounting review services”, preparation services of business tax returns when provided as a separate service is excluded and so are bookkeeping services related to tax returns.
Regulation 21(2) of the 2019 Regulations sets out what a person connected with Russia means. A person is to be regarded as “connected with” Russia if the person is—
(a) an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia,
(b) an individual who is, or an association or combination of individuals who are, located in Russia,
(c) a person, other than an individual, which is incorporated or constituted under the law of Russia, or
(d) a person, other than an individual, which is domiciled in Russia.
DEFENCES, EXCEPTIONS AND LICENCES
New section 54C provides that it is a defence for a person to show that they did not know and had no reasonable cause to suspect that the person to whom the services were provided was connected with Russia.
New section 60DA provides certain exceptions to the ban.
The prohibition is not contravened if the act is done:
- to satisfy UK statutory or regulatory obligations (not arising under contract).
- in respect of contractual obligations concluded before 20 July 2022 provided the act is done before the end of the period of one month beginning with the day on which the No 14/2022 Regulations came into force (21 July 2022) and that the person doing the act has notified the Secretary of State in the UK no later than the day 10 working days before the day on which the act is carried out.
-out of necessity for the official purposes of a diplomatic mission or consular post in Russia or of an international organisation enjoying immunities in accordance with international law.
Licensing provisions are contained in Part 7 of the 2019 Regulations. Please see Chartered Accountants Ireland sanctions webpages for further information and links including paragraph 3.2 of updated government guidance UK Government webpage on “Russia Sanctions: Guidance”.
Please see here for a useful article on the sanctions by Stephenson Harwood LLP UK sanctions: professional and business services to Russian clients (shlegal.com) .The article includes a comparison with the EU ban on provision of accounting services introduced in early June 2022 and about which see further Chartered Accountants Ireland recent news item .
Readers attention is drawn to an update whereby the Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (the No. 17 Regulations ) were passed in the UK bringing into effect further prohibitions from 16 December 2022 including a ban on auditing services which was announced in September 2022.
“Auditing services “is defined and 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.
Readers should note that the No. 17 Regulations bring further changes into effect including a prohibition on the provision of trust services and they also contain certain exemptions from the prohibitions contained in the No.17 Regulations (see section 60DA(3) in relation to auditing services) .
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