Solicitors in Westminster, London
Russian sanctions and charities
Various rafts of sanctions have been brought to bear by the UK Government and international parties on Russian entities and people following the February 2022 invasion of Ukraine by the Russian Federation. To what extent is this something that charities in England and Wales need to be alert to? Clearly the concern will be higher for charities which work internationally, or who are larger or in receipt of significant donations or enter into contracts with international partners. However, it could affect smaller charities, particularly if trustees are identified as possibly unsophisticated and unwitting victims of money-laundering tactics.
There are four main categories of concern that charities should consider:
1. receiving funds from sanctioned entities carries criminal consequences – check the consolidated list of all sanctioned bodies and persons
2. using sanctioned entities to carry out the activities of the charity (eg the use of sanctioned shipping to convey relief) carries criminal consequences – again, check the consolidated list
3. even where an entity is not subject to sanctions, if a donation is the proceeds of crime (including criminal activity outside of the UK) or an activity of the charity is funneling that money then there may be criminal consequences for:
- concealing, disguising, converting, transferring, removing criminal property (s327 Proceeds of Crime Act 2002)
- arrangements facilitating the acquisition, retention, use or control of criminal property by -another persons (s328 Proceeds of Crime Act 2002)
- acquisition, use and possession of criminal property (s329 Proceeds of Crime Act 2002)
4. reputational damage through having a connection with a donor or an activity that is perceived to be dealing with dirty money, even if the legal situation is that the donation or activity is fully above board.
In relation to the top priority (1 and 2 above)– avoiding dealing with sanctioned bodies, it is important to do due diligence on partners and significant donors. Professionals such as solicitors may be able to help, especially if a shell company or other device is being used to hide the identity of the sanctioned body. You are legally required to report to the Office of Financial Sanctions (OFSI) if you know or suspect that a breach of financial sanctions has occurred. You must contact OFSI at the earliest opportunity. OFSI can grant licences to allow operations that would otherwise be in breach of sanctions.
It is therefore important that you take immediate steps to adjust your controls, procedures and policies relating to sanctions to ensure you keep abreast of new developments and mitigate exposure to additional risks. Checking for updated sanctions is important in the current climate, regularly checking the OFSI list of asset freeze targets for financial sanctions obligations and the UK Sanctions List.
You must also be mindful of the current trade prohibitions issued by the Department for International Trade (DIT) in relation to Russia, including those that apply to military-related goods and technology or financial or technical assistance; energy-related services; and goods/tourism relating to Crimea.
For avoiding money laundering (3 above), money may still being laundered even though the charity’s partner or donor is themselves not on the sanctions list. The money may have passed through various hands before it reached you. Normally, however, charity donations won’t be the way money is laundered. A true gift to a charity doesn’t pose any obvious benefit to crime, because there would be no obvious way of the criminal getting the money back. However, where a charitable scheme has been set up fraudulently or where the donors reserve a benefit to themselves (eg the gift of a house but subject to a lease back to themselves to live there), or where a loan is given to a charity, and must be paid back, or where the charitable scheme directly benefits the donor’s project and not a section of the public, alarm bells may ring. Clearly, for those charities working internationally, they must be prepared to carry out such due diligence that they are able on their partners and contractors, including considering the impact of anti-bribery legislation. Countries which have not implemented the recommendations of the Financial Action Taskforce are considered high risk and a higher standard of due diligence is required. The list compiled by Transparency International of countries prone to corruption is also relevant as is the list compiled by the Office of Financial Sanctions of countries subject to financial sanctions.
The Charity Commission has given guidance on “knowing your donor”, and we encourage all charities to read this in light of the current international context. They also have general guidance on managing risks when working internationally.
In terms of reputational damage (4 above), this will often follow-on from a failure to have proper systems and controls around 1 to 3 above. It can also occur when the source of investment in projects comes from a country with a poor track record on human rights or on corruption. There are occasionally accusations of “white-washing” “green-washing” in the media when investors connected with certain governments with poor reputations have supported entirely laudable projects. In the context of the present invasion of Ukraine, many commercial and cultural institutions have pulled out of relationships with Russian partners, due to the taint that such an association might bring and to be in solidarity with the people of Ukraine. However, charities should be careful not to discriminate on the basis of nationality. For example, when wishing to refuse big donations from persons of interest or institutions connected with governments with poor human rights, environmental or corruption records, there should be a policy on when to do this, and similarly policies around respecting laws on human slavery and anti-bribery. Otherwise, the response could be knee-jerk and discriminatory and could lead to accusations that the trustees have failed to act in the best interests of the charity by refusing on irrelevant grounds a donation that could be used for charitable purposes. This also connects with how charity money is invested. It has been the case for many years that charities have had ethical investment strategies that avoid petrochemicals, arms and tobacco. What is ethically sound can shift from one generation or market to the next and could extend to pornography, investment in countries with a poor human rights record, environmental depredations, poor working practices and so forth. For that reason, it is important that trustees consider carefully and minute their decision for not investing in certain products and areas in the ethical investment policy and to keep the policy under review. Particular care must be taken if returning a donation already accepted, as this is seen as an “ex gratia” payment by trustees out of the charity’s assets. The Commission has published guidance which must be followed.
An interesting news story from the past few weeks has been the attempt of Roman Abramovich, a well-known wealthy Russian national, resident in the UK and the owner of Chelsea Football Club to divest himself of ownership in that club. Initially, the reported proposal was that it would be vested in trustees of a charitable trust, perhaps the existing charity Chelsea FC Foundation. Clearly however, the regulator, the Charity Commission, was raising concerns about this. While “the advancement of amateur sport” is a charitable purpose, the advancement of professional sport is not. It may have been the case that the club’s profits would be applied to charitable purposes, but the running of a professional football club could not have in itself been a charitable purpose. While the club could be an asset of a charity, they would need to run it through a non-charitable trading company. The governance issues would have been very tricky. In any event, the proposals seem to have foundered. The proposal is at the time of writing to sell the club and for the net proceeds of sale to be donated to support the victims of the war in Ukraine. That in itself, poses no technical difficulties in charity law, as it is a donation of money to an existing charity. However, calls from the leader of the opposition, Kier Starmer M.P., to sanction Abramovich personally (and the Prime Minister’s mistaken assertion that he was already sanctioned) have a potential to have a chilling effect on the whole proposal. It is not suggested that the football club is in receipt of dirty money or has done anything illegal and Roman Abramovich remains a free man in a free country but the political context is sufficiently febrile as to cause uncertainty on what the UK Government will do next in terms of sanctions.
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