Navigating Russia Sanctions When Raising Investment

Watch the full webinar button icon Buckworths Russia Sanctions Raising Investment

With Michael Buckworth

The real idea of today is to give start-ups and investors in start-ups a quick overview of the Russian sanctions rules and how they impact on companies raising investment. What’s prompted this,  we’ve done a number of BC rounds where this issue has come up and I’ll be honest, it’s caused a lot of confusion both on the investor side and also on the company side. 

It is quite a technical legal area, and so what I’ve done as we go through the slides, is put the relevant law on once side and then the actual content of the slides. Because it’s quite a complex area of law, this is going to be really short and sweet, so probably no more than half an hour, and I’ll take any questions at the end. 

Before we start thought, a quick bit about us. Buckworths is the only law firm in the market who work exclusively with start-ups. We have been around for ten years or so and literally working with start-ups is all that we do. London is our client base, which is quite heavily taxed, so probably about 70% of our clients are tech, roughly half of those are fin-tech, and the balance of our clients is a weird and wonderful mix of other start-ups. We have quite a big sort of hospitality group.

In terms of investment piece, our sweet spot is earlier stage investment rounds – so series A, series B is the area that we most enjoy but we do an awful lot of earlier stage work as well: all the way from first SEIS rounds through to late stage VC. 

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Both the UK government and the European union and you know a number of other governments have imposed a new sanctions regime on Russia. They were done in the UK through amendment regulations to those original 2020 regulations. It’s worth just thinking about what the government has done here. 

So, historically when we’ve sanctioned countries, it’s tended to really look at a couple of things. Specific individuals have been sanctioned and they tend to be people who are seen to be doing bad things, so primarily politicians and sort of military people. So, that tends to be the first thing we do. The second thing we tend to do is sanction banks.

So if you look at the Iranian sanctions, which have been around for a very long time now. What you have with Iran is (not all but pretty much all) Iranian banks are subject to sanctions so you can’t move money through them and obviously that impacts on the ability of the Iranian economy to operate and to interact with the rest of the world. So, that’s for the second thing really sort of attacking banks and then the third thing that we have traditionally done, is to limit the flow of goods and services primarily that relate to military stuff. So again, if you think of Iran, it is illegal to provide equipment that can be used to create nuclear reactors and those sorts of things because of the Iranian sanctions.

What’s happened here with the latest batch of Russian sanctions is that the UK government and a load of other governments have gone a hell of a lot further. And what they’ve effectively started doing is sanctioning to some extent normal people in Russia. So, not only have we got the original batch of sanctions that we’ve traditionally done, but you’ve now got restrictions in place that effectively stop in many circumstances stop people in Russia doing certain things. And I would say that’s a pretty significant change, and as we’ll see, it impacts potentially on investment around stuff. 

So, in respect of the amendment regulations which are the sanctions regulations that we are primarily thinking about here. The government have got very excited and have created a whole bunch of different amendments. The starting point was the one in the middle, the Russian Sanctions EU Exit Amendment Regulations 2022 that basically gave the secretary of state enhanced powers to sanction individuals. That started out sanctioning oligarchs. You’ve probably seen the case of Roman Abramovich, who is now subject to sanctions. The government have now extended it really quite broadly, so they’ve sanctioned a number of MPs, Russian MPs. They’ve sanctioned you know military people to generals who are active in in Ukraine. A whole bunch of specific sanctions are out there so that’s done by the original ones.

Number two is what we’re most interested in today, relates to transferable securities and money market instruments. For completeness, number three is basically goods and services related to military. Number four are ships and shipping. Number five is specific banks; number six is aviation and space, and shipping equipment. So effectively, you know things needed to maintain planes and ships, and space rockets. And number seven is a facilitative piece of regulation which allows the government to not only sanction specific named individuals, but to sanction specific classes of people. So you know, for example they’ve sanctioned members of the Russian parliament who are broadly in sort of Putin’s party if you like.

So that’s the sort of the whole group of them as I say we’re focused really today on number two which is the sanctions specifically relating to transferable securities and money market instruments. I thought the easiest way to help you understand the way the sanctions regime works is to just do a little case study….Continue reading

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