Part one: UK sanctions tightened further – no construction services to Russia?

On 13 May 2026, the UK took significant steps to tighten the screws on an already stringent sanctions regime. The not-so-pithily titled “Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2026” commenced on that date, aiming to make life harder for sanctioned countries, persons and organisations. As a consequence, the legal landscape has become even more demanding for compliance officers already struggling to cope with a regime that is complex, sprawling and impossibly dynamic.

The impact of the Regulations is expected to be significant. Accordingly, we will produce a series of short articles addressing key aspects of the reform. First, we examine the newly introduced ban on the provision of “construction services” to persons connected to Russia. A subsequent article will consider the application of “sanctions end user controls”. With regard to construction services, we also highlight important and time-critical guidance on how providers of these services may take advantage of transitional provisions in order to seek a temporary safe-harbour from the prohibitions in respect of certain ongoing works.

Whilst many of the reforms have clearly been implemented with Russia in mind, such as the construction services ban, it is important to note that the rules are not limited to that particular state.  Some cut across the thirty-six other jurisdictions, such as Venezuela, DPRK, Somalia and Syria, or themes, including. cyber-crimes, human trafficking and illegal drilling in the Eastern Mediterranean, all of which have attracted UK sanctions measures.

Construction services ban

The new regulations operate as a series of additions and clarifications to the existing rules. Regulation 54C of the Russia (EU Exit) (Sanctions) Regulations has, since 2022, prohibited the provision of certain services – directly or indirectly – to “persons connected to Russia”, a legal concept discussed below. The list of proscribed services has included “architectural services” and “engineering services”, among others. The 2026 Regulations have added “construction services” to that list.

“Construction services” is defined by reference to the 1991 Central Product Classification. The scope includes all conceivable cradle-to-grave elements of any construction project, ranging from site investigation, excavation, concrete and masonry work, plastering, scaffolding, finishing and demolition. In most instances, any project worked on by a UK firm will already have been caught by the bans on engineering and architectural services.

There are two important carve-outs, which may allow existing projects to continue for a short period.  Regulation 60DA exempts construction work done up to 20 August 2025, provided that this (i) relates to a contract that had already been concluded before 20 May 2026 and has (ii) been notified to the Secretary of State before 20 August 2026. Construction works may also be permitted where required for essential maintenance, provided that the person carrying those out gives a justification of the essential maintenance within 5 business days of starting the work.

In all other cases, construction must cease unless and until the Office of Trade Sanctions Implementation (OTSI) gives a licence allowing its continuance.

Who is a person connected to Russia (“PCWR”)?

The PCWR definition is critical to understanding when the construction ban bites. It is important to avoid the mistake of thinking this applies only to projects inside territorial Russia. The definition is set out at Regulation 22 of the Russia (Sanctions) (EU Exit) Regulations 2019 (as amended) and includes the following:

(a) an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia,

(b) an individual who is, or an association or combination of individuals who are, located in Russia,

(c) a person, other than an individual, which is incorporated or constituted under the law of Russia, or

(d) a person, other than an individual, which is domiciled in Russia.

These are alternatives which need to be considered carefully. For example, “ordinarily resident” is not defined in the Regulations themselves but has been fleshed out in other judgments such as R v Barnet London Borough Council, ex parte Nilish Shah [1983] 1 All ER 226. These have outlined the feasibility of an individual being considered “ordinarily resident” in more than one place simultaneously, as this depends on how an individual orders his or her life. Lord Warrington noted that a Supreme Court judge may be resident in London during the week but in the country at weekends.

For this reason, due diligence must not stop at checking whether an individual has an address abroad and/or a passport of that jurisdiction. Deeper inquiries will be needed into an individual’s circumstances. The possession of a foreign passport is not by itself determinative and careful counterparty diligence is needed. The due diligence needed to safely discharge the assumption that a person or organisation is not connected to Russia should probably go beyond the level that we would request for standard AML checks.

An important, but easy to overlook aspect is that the prohibition applies to the provision – directly or indirectly – of the service. This requires firms to look behind who will really benefit from the project. A corporate client may not be incorporated in Russia but its ultimate beneficial owner may be.  Sometimes, the firm must try to look as best as it can through trust structures and offshore entities.

The consequences

For those active in construction, our key takeaways are as follows:

• Check whether your KYC and due diligence is sufficient – consider ongoing projects alongside new ones, as the Regulations make no distinction. All new clients should be subject to rigorous sanctions checks;
• Consider carefully whether any in-scope project must be notified to OTSI under the transitional provisions discussed above. Take note of the deadline and ensure you engage legal assistance with any notification;
• Before seeking to rely on the essential maintenance exemption, consider carefully the statutory definition of that term and satisfy yourself your projects fall within it – ensure your notification is filed within the five working day deadline and get legal help with the wording;
• Consider the impact of the ban on contractual obligations. Do not assume the contract is frustrated as the English courts set a high bar. Equally, do not assume the ongoing existence of a contract (and the risk of contractual liability) will operate as any form of defence if it turns out your client (or another stakeholder) is connected with Russia.
• Separately, consider whether the client (or another stakeholder) is a designated person under any UK sanctions regime. If this is the case, it will be illegal to receive funds from that person or to make available any economic resources. This part of the regime is administered by the Office of Financial Sanctions Implementation (“OFSI”). A PCWR will not necessarily be a designated person, and vice versa.

Breaching sanctions carries heavy penalties. Aside from reputational damage, possible debarment from government contracting and director disqualification, persons connected to a breach may be criminally prosecuted. Firms may be fined the higher of 50% of the breach value and £1 million. In a recent public consultation, OFSI proposed to double this statutory maximum amount to the higher of £2 million or 100% of breach value. As the 2025 US $20 million damages award against BNP Paribas illustrated, victims of sanctions breaches may also litigate. These are developments that no firm or person involved in construction can ignore. If you have any questions in relation to the information discussed in this article, please contact Paul Henty.