Recently, the UK government expanded the scope of its sanctions against Russia by amending some of its regulations on Kremlin-affiliated maritime vessels and individuals. This is part of the UK’s wider plan to hamper vessels that were reportedly used to circumvent Western sanctions on Russian oil, as well as to target individuals who are commercially linked to entities deemed to be essentially supporting the invasion of Ukraine.
Alexandros Christodoulidis
UK sanctions on vessels & the Kremlin-affiliated ‘shadow fleet’
On July 31st, the UK implemented the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2024. Despite the wordy and complicated name, the amendments further specified the criteria for direct sanctions on maritime vessels.
Specifically, they amended regulation 57F, which stated that a vessel may be sanctioned for ‘any activity whose object or effect is to destabilise Ukraine or undermine or threaten the territorial integrity, sovereignty, or independence of Ukraine, or to obtain a benefit from or support the Government of Russia.’ Thus, such activity now includes the transport of dual-use goods, military goods, oil and products that originated in Russia, or any other goods or technology that can be deemed to support Moscow’s war efforts in Ukraine.
This effort came after the UK announced the month prior, on June 13, that it would impose sanctions on Kremlin-affiliated vessels, designating four oil-transporting vessels that were part of its ‘shadow fleet’, along with two vessels that had shipped weapons from and to Russia.
These were the first-ever sanctions on Russian-affiliated vessels by the UK, taking effect on the date of the above amendments. In practice, this means that the vessels are barred from entering the UK’s ports and can be subject to detention by British authorities. Also in June, the EU followed in the UK’s footsteps, sanctioning 27 vessels as part of its 14th sanctions package against Russia. This included three vessels of the four above-mentioned vessels in the ‘shadow fleet’ that the UK had also designated.
But what exactly is the ‘shadow fleet’? According to UK estimates, it’s a group of around 600 vessels, that are unofficially linked to the Kremlin and transport high volumes of oil and oil products from Russia to other destinations, circumventing Western sanctions, including the oil price cap imposed by the G7. Indeed, British government stated that just three of the vessels later designated in September, including Nicolay Zuyev, NS Asia, and Zaliv Aniva, had collectively carried more than $5 billion worth of Russian oil since February 2022.
Moreover, for obvious reasons the vessels that make up this fleet engage in concerted efforts to evade detection and detention by Western authorities. Such deceptive shipping practices (DSPs) include both static and dynamic methodologies, such as GNSS manipulation, referring to the falsification of a vessel’s location, or the use of multiple flags. As it stands, the UK has designated 37 vessels as of last month, 25 of which are part of the ‘shadow fleet’. These designations, one after another, coupled with the regulation amendments blatantly indicate that the UK has this ‘shadow fleet’ in its sights and that it is doing what it can to minimise Moscow’s ability to circumvent Western sanctions on oil and other goods via maritime transport.
Sanctions on individuals
The UK government also amended Regulation 6 (designation criteria) to include additional activities for which a person may sanctioned. The definition of ‘involved persons’, which refer to individuals essentially supporting Russia’s invasion of Ukraine, now includes the category of “persons owning or controlling, directly or indirectly, or working as a director (whether executive or non-executive), trustee or other manager or equivalent of, an entity” that is deemed to support the invasion. Such a change will likely be used to impose secondary sanctions on executives of companies —whether Russian or not — deemed to be contributing to the conflict on the side of Moscow.
Indeed, the UK’s June announcement that designated the maritime vessels also named seven individuals. These include Russian national Yuri Olegovich Denisov, CEO of the Russian financial services company Moscow Exchange Group PJSC — and a very minority shareholder at least as of 2021 — and Latvian/Israeli dual national Mark Blats, CEO of Israeli tech company Texel F.C.G. Tech 2100 Ltd. The HM Treasury’s official notice explained their inclusion as due to their status as directors or equivalent of entities conducting business in a “sector of strategic significance” to the Russian government. Their associated companies were also designated.
It seems likely that there were also additional justifications for their designations not mentioned in the announcement. The US Office of Foreign Assets Control (OFAC), for example, stated that not only was Blat’s company connected to the Russian defence industry, but he is also an associate of Russian arms dealer Igor Zimenkov and a business partner of Belarusian national Aliaksandr Zaitsau, both of whom were already sanctioned by the US.
While the UK’s maritime designations, whose list has consistently grown over the last several months, clearly indicates that they have the ‘shadow fleet’ in its sights, its combination with the regulation amendments show that the British government is doing what it can to minimise Moscow’s ability to circumvent Western sanctions on oil and other goods. With widespread and, in some cases, justified criticism that Western sanctions regimes against Russia aren’t as effective as they could be, including because of sometimes blatant circumvention efforts, these are the kind of concrete steps that are seen as able to help address this gap.
With this in mind and given the pace of the designations of particularly the maritime vessels, we can expect the UK’s sanctions lists to grow, especially targeting those that hold executive positions at companies deemed to be even indirectly supporting Russia’s war efforts in Ukraine. This also means that those who may be at risk of such designations will not be the “usual suspects” who have clear and direct connections to the Russian government, making enhanced due diligence, particularly focused on indirect exposure to the Russian government, Russian state-owned entities (SOEs), and even Russia generally, ever more important.