The UK government has extended regulations to prohibit the provision of auditing services to Russia
On 30 September 2022 Foreign Secretary James Cleverly announced the UK government’s intention to impose further restrictions on the provision of professional services to Russia (these being advertising, auditing, architectural, engineering and IT consultancy and design services).
Read the foreign secretary's announcement.
On 15 December the new regulations were laid in Parliament and came into force from 16 December.
The prohibitions apply to the UK and to the conduct of all UK legal persons (including companies and accountancy firms), wherever they are based in the world. It is a criminal offence under the regulations to contravene any of the prohibitions set out in them.
New regulation 54C of the 2019 Regulations now stipulates that a person must not directly or indirectly provide to a person connected with Russia:
Regulation 21(2) provides that ‘A person connected with Russia’ means:
Auditing services are defined as follows in paragraph 5 of new Schedule 3J to the 2019 Regulations:
(5) Auditing services’ means services consisting of examination of the accounting records and other supporting evidence of an organisation for the purpose of expressing an opinion as to:
a. whether financial statements of the organisation present fairly its position as at a given date, and
b. the results of its operations for the period ending on that date, in accordance with generally accepted accounting principles.
New regulation 60DA (3) to (5) sets out the exemptions which will apply to the provision of ‘Auditing Services’:
(3) The prohibitions in regulation 54C, in so far as they relate to auditing services, are not contravened by any act done by a person (‘P’) in satisfaction of an obligation arising from the appointment of P as the auditor of a parent undertaking (‘C’) provided that:
a. where C is a credit institution, the auditing services of P are for one or both of the purposes mentioned in paragraph (4);
b. where C is not a credit institution, or is a credit institution that does not meet the condition in sub-paragraph (a):
i. P is appointed as auditor of C before 16 December 2022,
ii. the act is carried out before the end of 31 May 2023, and
iii. P notifies the Secretary of State of the provision of the services, before or after the act is carried out, by the end of 15 March 2023.
(4) The purposes are:
a. C, in its capacity as a parent undertaking, deciding whether accounts of a subsidiary undertaking of C which is a person connected with Russia (‘S’) should be included in consolidated group accounts of C, and
b. the inclusion in consolidated group accounts of C of the accounts of S.
(5) The prohibitions in regulation 54C, in so far as they relate to auditing services, are not contravened by any act done by a person (‘P’):
a. in satisfaction of an obligation arising from the appointment of P as the auditor of a subsidiary undertaking (‘S’) in respect of the provision of those services to S in relation to the discharge of or compliance with UK statutory or regulatory obligations, and
b. which results in the provision of those services indirectly to a person connected with Russia in that person’s capacity as a parent undertaking of S.
There is also a general exemption relating to diplomatic/consular purposes and international organisations:
(7) The prohibitions in regulation 54C are not contravened by any act done by a person that is necessary for the official purposes of a diplomatic mission or consular post in Russia, or of an international organisation enjoying immunities in accordance with international law.
Below are the links to the specific regulations relevant to this announcement:
9. Amendment of regulation 54B (interpretation of Chapter 6B)
10. Amendment of regulation 54C (professional and business services)
14. Substitution of regulation 60DA (trade: exception relating to professional and business services)
Insertion of Schedule 3J to the Russia (Sanctions) (EU Exit) Regulations 2019
You can also read the full legislation.
Read the government’s statutory guidance, which iscurrently being updated to include auditing services.
Licences may be issued for certain trade activities that would otherwise be prohibited by the sanctions regulations. Read the guidance on applying for a licence.
ACCA members must consider how the prohibitions apply to their existing clients as well as any potential new clients.
ACCA provides supporting factsheets that help members understand how to assess risks of clients and how to conduct effective client due diligence.
Further resources on AML matters can be obtained from our AML Hub.