Defeating Putin: the development, implementation and impact of economic sanctions on Russia/Introduction

by House of Commons Treasury Committee

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1Introduction

The invasion of Ukraine by Russia

1. On 24 February 2022, Russia began an invasion of Ukraine. In a statement to the House that same day, the Prime Minister made the following commitment in the face of Russia’s aggression:

   Now we have a clear mission: diplomatically, politically, economically and eventually militarily, this hideous and barbaric venture of Vladimir Putin must end in failure. At the G7 meeting this afternoon, we agreed to work in unity to maximise the economic price that Putin will pay for his aggression. This must include ending Europe’s collective dependence on Russian oil and gas that has served to empower Putin for too long, so I welcome again Chancellor Scholz’s excellent decision to halt the certification of Nord Stream 2.

   Countries that together comprise about half the world economy are now engaged in maximising economic pressure on one that makes up a mere 2%. For our part, today the UK is announcing the largest and most severe package of economic sanctions that Russia has ever seen. With new financial measures we are taking new powers to target Russian finance. In addition to the banks we have already sanctioned this week, today, in concert with the United States, we are imposing a full asset freeze on VTB [a Russian bank].^[1]

2. We deplore the illegal and unprovoked invasion of Ukraine by Russia. The Prime Minister was right to insist that the UK, alongside its international partners, implement stringent economic sanctions against Russia.
3. This Report considers the impact and effectiveness of sanctions currently imposed by the UK, and the scope for applying further sanctions.

HM Treasury, its associated public bodies and sanctions

4. The application of sanctions is co-ordinated across Government by various departments and units, each of which hold responsibility for discrete functions.^[2] The Foreign, Commonwealth and Development Office (FCDO) is responsible for the UK’s international sanctions policy, including all international sanctions regimes and designations, and it negotiates all international sanctions.^[3] The Office of Financial Sanctions Implementation (OFSI), which sits within HM Treasury, is the authority responsible for the implementation of the UK’s financial sanctions.^[4] HMRC is responsible for enforcement against breaches of trade sanctions.^[5] Other departments also have responsibilities in this area. HM Treasury is also the economics ministry of the UK, which includes the responsibility of “ensuring the economy is growing sustainably”.^[6]
5. While the Financial Conduct Authority is not responsible for enforcing asset freezes or sanctions, it expects financial firms to put in place systems and controls to mitigate the risk of financial crime, which includes ensuring that they meet their financial sanctions obligations.^[7]

Our inquiry

6. On 3 March 2022, we announced that we would begin an inquiry into Russia: effective economic sanctions. We have taken as our terms of reference:

   • The effectiveness of the current economic sanctions that have been imposed in relation to the invasion of Ukraine by Russia
   • Scope for further possible economic sanctions in relation to the invasion of Ukraine by Russia
   • Compliance with the sanctions and the scope for evasion
   • The ability to take enforcement action against breaches, and the effectiveness of the enforcement regime
   • The impact of sanctions on the UK, Russian and world economy
   • The role of financial services in implementing sanctions, the impact of those sanctions on financial services, and the role of regulators.

7. So far we have held two oral evidence sessions:

   • Monday 7 March 2022: Dr Justine Walker, Head of Global Sanctions and Risk at the Association of Certified Anti-Money Laundering Specialists; Natasha de Terán, payments policy expert; Tom Keatinge, Director at The Centre for Financial Crime and Security Studies (CFCS), Royal United Services Institute (RUSI); and Neil Shearing, Group Chief Economist at Capital Economics; and
   • Monday 14 March 2022: Professor Jagjit Chadha, Director at National Institute of Economic and Social Research (NIESR); Tony Danker, Director-General at the Confederation of British Industry (CBI); Nathan Piper, Head of Oil and Gas Research at Investec (speaking in a personal capacity); and Dr Amrita Sen, Director of Research at Energy Aspects.

   We would like to thank all those who have so far given evidence to us, especially given the speed at which they were called upon to do so.
8. In a fast-moving and constantly evolving situation, this Report reflects our views on 21 March 2022, when it was agreed.

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1. HC Deb, 24 February 2022, cols 564-565
2. A previous Director of the OFSI, giving evidence to our predecessor Treasury Committee, described the Office of Financial Sanctions Implementation (OFSI) as “part of a single operation that needs to work together”. See evidence from Rena Lalgie, Economic Crime, 10 October 2018, Q376
3. Office of Financial Sanctions Implementation, UK FINANCIAL SANCTIONS General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018, December 2020, p9
4. Office of Financial Sanctions Implementation, UK FINANCIAL SANCTIONS General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018, December 2020, p9
5. Office of Financial Sanctions Implementation, UK FINANCIAL SANCTIONS General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018, December 2020, p9
6. GOV.UK, About us [HM Treasury], accessed 14 March 2022
7. Financial Conduct Authority, Financial sanctions, Last updated: 24/02/2022, accessed 15 March 2022