EU prohibits provision of services to Russian-linked trusts
From 10 May 2022, it will be prohibited in the EU to register or provide management services to a trust or any similar legal arrangement having a Russian national or resident as a 'trustor' [sic] or a beneficiary. Providing such an entity with a registered office, business or administrative address will also be forbidden. Acting as a trustee, nominee shareholder, director, secretary or similar or arranging for another person to do so will also be banned.
The ban extends to trusts whose beneficiaries are:
- Russian nationals or natural persons residing in Russia;
- legal persons, entities or bodies established in Russia;
- legal persons, entities or bodies whose proprietary rights are directly or indirectly owned more than 50 per cent by such a person or entity;
- legal persons, entities or bodies controlled by a Russian national or natural person residing in Russia; and
- any natural or legal person acting on behalf or at the direction of such a person or entity.
The delayed entry into force is to give EU practitioners time to extricate themselves from existing arrangements. There is an explicit exemption for activities that are strictly necessary for the termination of such arrangements by the 10 May deadline.
There are also exemptions for cases where the trustor or beneficiary is a national of a Member State, or a natural person having a temporary or permanent residence permit in a Member State. Providing advice to a trust with a Russian ultimate beneficial owner (UBO) is also not covered by the Regulation, according to Emily Deane TEP, Technical Counsel & Head of Government Affairs. STEP Europe is in the process of producing a paper that will address some of the practical issues and provide guidance for members who need to withdraw their services from these arrangements.
'If you are an EU professional and are involved in a trust, foundation or company for a Russian settlor, beneficiary or UBO then you will need to extract yourself from these arrangements before 10 May, unless your clients hold EU passports or residence permits', says Deane.
The measure, announced by the Council of the European Union (the European Council) on 8 April 2022, is part of the EU's fifth package of economic and individual sanctions against Russia. It is intended to prevent the use of trusts to circumvent those sanctions. Member States themselves will be responsible for its implementation.
The latest package imposes sanctions on an additional 217 individuals and 18 entities, including all 179 members of the provisional governments and parliaments of Donetsk and Luhansk. In total, 1,091 individuals and 80 entities have now been sanctioned by the EU, including the Russian banks VTB, Novikombank, Sovcombank, and Otkritie Bank, representing 23 per cent of market share in the Russian banking sector. These four banks are now subject to a full transaction ban, in the form of an asset freeze and a prohibition to provide them with funds and economic resources.
The EU has also prohibited the provision of high-value crypto-asset services to persons and entities in Russia.
However, the European Council says it is not targeting ordinary Russian people. 'We are targeting the Kremlin, the political and economic elites supporting Putin's war in Ukraine', said Josep Borrell, High Representative for Foreign Affairs and Security Policy for the European Council.
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