Don’t hope for simplicity from the City’s Russia export ban

It is tempting to want to punish the enablers of London’s laundromat with the strictest possible restrictions on the services they can offer to Russia-linked businesses. If only it were that simple.

Earlier in the month, the foreign secretary unveiled a “ban on services exports to Russia”. Beyond a commitment to “cut off Russia’s access to the UK’s management consulting, accounting and PR services”, we don’t know what the terms of the ban will be, or when it will come into force. The government — via the business department — is busy trying to work it out. A similar prohibition is due to take effect in the US on June 7.

The rationale for such a move makes sense. The UK is a services-based economy. One of the reasons that London attracted so much Russian money in the first place is that its professional services industries are so highly regarded internationally.

It seems wrong to allow City firms to continue to profit from such clients, and wrong to allow the clients to continue to profit from the firms’ expertise. And while a fear of reputational damage might be sufficient to put some firms off taking on clients with Russian links, relationships aren’t always transparent. There will surely be advisers who seek to push the limits where a mandate is particularly lucrative and the links to Russia loose enough to make it arguable. And for an industry where lobbying is almost part of the day job, it is enticing to give calls for exemptions short shrift.

That gives a blanket ban clear appeal. There will be questions about what constitutes a Russian company, and whether restrictions apply merely to companies which are majority owned and controlled by a Russian person or parent, or whether they could limit advice to UK multinationals with Russian subsidiaries too. These will be significant in determining the scope of and strength of the ban, since most firms have already severed ties with their Russian partnerships. There will also be questions about exactly which services are caught. But they are ultimately problems of definition answerable through drafting.

Other concerns about a sweeping prohibition on the provision of professional services are thornier, though. UK companies are required by law to have their accounts audited. Failure to file accounts on time is a criminal offence. It cannot be tenable to force the directors of a UK company to commit a criminal offence because they are owned by an oligarch or controlled by a Russian company.

One option would be to have an exemption to allow firms to provide advice only so far as is strictly necessary for a UK company to comply with its legal obligations. Yet even in that situation there are several shades of grey that are difficult to delineate. Should tax advice be covered, even though anyone can send in a tax return?

Try limiting the permitted activities to reserved professions and there are problems, too. Insolvency practitioners have to be specially qualified, but restructuring advisers do not. As a company gets into deeper and deeper trouble, at what point should it be permitted to access turnround advice that may end up saving domestic jobs?

These may be questions better answered on a case-by-case basis rather than through carve-outs upfront. The government could extend the licensing regime which has allowed advisers to help wind down Russian banks, for example, and Chelsea Football Club to continue functioning. Whether that is feasible in a situation where there is a wide-ranging ban on the provision of all sorts of services might depend on how many potential clients are caught in the net.

There is one oddity. If consultants, accountants and PR firms face a blanket ban, why do lawyers get a blanket exemption? Yes, there is a principle of a right to representation. But it’s hard to understand why that right to representation should be relevant on a corporate M&A deal. It would be illogical too for a lawyer to be able to provide tax advice to a client that an accountant could not.

Complexities are an inevitable consequence of a broad brush ban. The best response is not to water down the prohibition or restrict its scope so that it becomes ineffectual, but to keep any exemptions as restrictive as possible and deal with the difficulties that arise with a good dose of pragmatism.

cat.rutterpooley@ft.com
@catrutterpooley

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