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Following the events in Ukraine, businesses in the Gaming and Betting sector are expected by regulators and governments alike to navigate increasingly complex sanction regimes.

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& Ince, in any case

The application of UK sanctions against Russia and Belarus and implications for the UK gambling industry and other regulated sectors.

Our Gaming & Betting team is able to provide a wide range of services, from sanctions checks and risk analyses to emergency response in the event of a suspected breach.

For more information on our sanctions services, please contact Andrew Cotton, Director of Betting and Gaming in the first instance on 0207 759 1623 or AndrewCotton@incegd.com, or get in touch with a member of our team here

The firm has an unusually high degree of insight into the practices and policies required by the Gambling Commission as regards compliance with its own requirements and conditions.

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Here are some issues for those in the sector (and other regulated sectors) to consider in their day-to-day operations in order to mitigate sanctions risk and prevent costly penalties. 

Please click on the headings to expand the sections below:

 

A. Background to EU sanctions and their application

Sanctions against Russian individuals, entities and parts of the Russian economy are not new. Following the annexation of Crimea in 2014, the EU introduced sanctions pursuant to EU Regulation 833/2014. This is the primary EU legislation covering restrictive measures in view of Russia’s actions in Ukraine and has been amended over subsequent years, culminating in a number of amendments over recent weeks in light of the latest situation in Ukraine.

In overview, the EU sanctions apply as follows:

  1. Within the territory of the EU;
  2. To any person inside or outside the territory of the EU who is a national of a Member State;
  3. To any legal person, entity or body, inside or outside the territory of the EU, which is incorporated or constituted under the law of an EU Member State; and
  4. To any legal person, entity or body in respect of any business done in whole or in part within the EU.

The EU sanctions would therefore apply to EU registered companies, EU nationals wherever they may be located in the world and any business done wholly or in part within the EU.

B. Background to UK sanctions and their application

UK sanctions in relation to Russia are set out in The Russia (Sanctions) (EU Exit) Regulations 2019 (the “Russia Regulations”) implemented when the UK left the EU.

The UK sanctions apply as follows:

  1. To conduct within the UK or UK’s territorial sea (in effect any person or entity doing business in the UK); and
  2. To UK persons, that is UK nationals and bodies incorporated or constituted under the law of the UK, to any conduct within the UK or elsewhere in the world.

The UK sanctions therefore apply to UK companies and UK nationals wherever located. Whether a subsidiary of an EU, US or UK company is caught by the sanctions may depend on the corporate structure and issues of ownership and control.

As in the case of UK GDPR, UK sanctions apply to those companies providing services to persons in the UK, in addition to EU sanctions applied to EU entities and companies. This requires two sets of sanctions checks to be undertaken where an EU company holds a Gambling Commission licence, as the exact requirements of UK, EU and US sanctions do vary.   

Those designated as “relevant firms” under the Russia Regulations are subject to the full force of the UK regime and should be aware and informed of their legal obligations. This definition mirrors that of the anti-money laundering and terrorist financing legislations and most notably includes a holder of a remote or non-remote casino operating licence (which includes the holder of a casino game host licence), along with entities such as:

  1. A person with permission to carry on a regulated activity under FSMA;
  2. A currency exchange office or a business which transmits money or cashes cheques that are made payable to customers;
  3. A provider of auditing, accountancy, legal, notarial or tax advice services;
  4. Certain trusts or related company services;
  5. An estate agent; and
  6. A trader of cold, silver, platinum, palladium, precious stones or pearls.

C. EU/UK sanctions

In relation to Russia, there are broadly three main areas of sanctions: (i) asset freezes on designated/sanctioned persons; (ii) financial restrictions against certain entities; and (iii) sectoral sanctions against certain trades. Here are some common themes that may be relevant to businesses in the Gaming and Betting sector:

  1. Sanctioned persons – a number of persons have been sanctioned by the UK and EU pursuant to which their assets are frozen, which in the case of Russia has included a number of government officials and oligarchs. As part of this asset freeze it is prohibited for persons to provide funds and economic resources, directly or indirectly, to sanctioned persons. Funds and economic resources are defined very widely and restrictions extend to indirect provision.
  2. Russian banks – a number of Russian banks are subject to asset freezes, financial restrictions relating to dealing in money market instruments, transferable securities, loans and credit and have been removed from the SWIFT system. In addition to the legal issues that arise with processing payments through Russian banks, there are likely to be practical issues where we expect many Western linked banks will be reluctant to deal with Russian banks, even if legally possible.
  3. Luxury goods – the EU has imposed a number of restrictions relating to the sale, supply, transfer or export, directly or indirectly, of luxury goods to persons in Russia or for use in Russia. Luxury goods encompasses a range of items, generally over EUR300 in value and including, wines, perfumes, handbags, clothing, tableware, electronic items, musical instruments etc.

Otherwise, given the current circumstances, where there is any trade with Russia or companies with Russian ownership, it is important to consider the extent of that trade, what sanctions may be at issue and steps that can be taken to deal with issues, whether that is exiting the trade or the contractual relationship, or applying for licences etc from the Office of Financial Sanctions implementation (“OFSI”), where appropriate, to enable the business relationship to continue.

D. Defences and penalties

The EU Regulations provide that it is for each EU Member State to impose penalties that are proportionate and dissuasive. These can include fines/imprisonment and are likely to vary between each EU country. In the UK, a breach of sanctions can lead to a fine and imprisonment (up to ten years on indictment).

Aside from the legal penalties, there may be practical issues for a company. A breach of sanctions can result in issues with banks in processing payments and more widely reputational issues with third parties.

It is of course possible that there may be an inadvertent breach of sanctions. The defence under the EU sanctions is generally that the person did not know and had no reasonable cause to suspect that their actions would infringe the prohibitions. This imparts a requirement on a party to conduct a level of due diligence on the transactions/activities they are involved in to avoid any such breaches.

The equivalent defence in the UK however was recently removed under the Economic Crime (Transparency and Enforcement) Act 2022, which is expected to come into force in the coming months. Those in breach could face a monetary penalty (up to 50% of the value of the breach or £1 million, whichever is higher) or even be subject to criminal prosecution. A monetary penalty may be levied as long as OFSI is satisfied that it is more likely than not that the person breached financial sanctions. It does not matter that the person did not know or had no reasonable cause to suspect that they were in breach.

The level of due diligence required is not set in stone and will require assessment on a case by case basis. It may be that a company is already performing some of this due diligence as part of their compliance systems, for example in relation to sanctions of another jurisdiction. It will be important to assess whether any current systems remain fit for purpose in light of recent developments and the scope of a particular business.

E. Gambling Commission reporting requirements

The Commission updated their guidance to licensees last week (read here).

Any licensee who breaches any sanctions must report the matter to OFSI and the Commission reminds its licensees that it may require the filing of a Suspicious Activity Report with the UKFIU and applying for a defence. The filing of a SAR then triggers a requirement to report the matter to the Commission as a Key Event (Key Event 15).

Should an investigation be initiated by any statutory, regulatory or government body into a breach of sanctions then a Key Event must be filed within five working days (Key Event 10).

The Commission has also reminded its licensees that they must regularly review their business relationships with third parties and review and update their money laundering risk assessments following the imposition of Russian sanctions.  

F. Sanctions beyond Russia

Sanctions do not only apply to Russia. There are currently in force in the UK a wide range of sanction regimes relating to particular issues (e.g. cyber activity and global anti-corruption) and geographic areas. The financial sanctions list for Belarus for example has recently been updated. Businesses in the industry are expected to remain abreast by regulators and our Sanctions Team is able to assist in every step along the way.

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