British authorities granted the LCIA a licence to receive and process payments from persons under UK sanctions against Russia and Belarus

On 17 October 2022 the London Court of International Arbitration (“LCIA”) was granted a general licence by the Office of Financial Sanctions Implementation (the “OFSI”) INT/2022/1552576 (the “Licence”), allowing the LCIA to receive and process payments from persons under the UK sanctions against Russia and Belarus, as well as from companies controlled by such persons and their representatives in arbitration proceedings to cover arbitration costs.
Although the proportion of LCIA arbitrations involving Russian parties has recently significantly decreased, some Russian companies have not so long ago included LCIA arbitration clauses in their contracts with foreign parties.

Download the alert in PDF format >>

What the Licence covers
The Licence only provides for exemptions from the UK sanctions regime against Russia and Belarus.
The Licence is effective from 17 October 2022 and applies indefinitely.
The LCIA may use funds already received from persons subject to the UK sanctions as well as funds that such persons will pay in the future.
The LCIA may also receive payments from a non-sanctioned party to an arbitration with a sanctioned person where it fails to pay its part of the arbitration costs.
The Licence covers all arbitration costs under the LCIA Rules, including registration fees, deposits, fees and expenses of arbitrators, fees of the LCIA itself, and fees and expenses of secretaries and experts appointed by arbitrators, in accordance with the schedule of costs found in the LCIA Rules.
The Licence also permits banks and other financial institutions to make payments subject to the Licence and allows banks, in which the LCIA holds deposits received from parties, to charge interest on funds received from persons under the UK sanctions.

What the Licence does not cover
The Licence does not provide for exemptions from other UK sanctions regimes or the sanctions regimes of other countries or interstate unions. In its announcement, the LCIA encourages parties and arbitrators to take into account the sanctions regimes of other states when receiving payments.
The Licence does not apply to the repayment of unspent deposits to persons under UK sanctions. The LCIA requires a separate OFSI Licence to return unspent funds.
The Licence does not cover other payments to persons under the UK sanctions relating to arbitration proceedings, e.g., to UK lawyers, experts, stenographers, translators, etc.
The scope of the Licence covers only cases administered by the LCIA under 2020, 2014 and 1998 LCIA Rules. Thus, arbitration proceedings under the UNCITRAL Rules administered by the LCIA and cases in which the LCIA acts solely as a fundsholder will require a separate licence from the OFSI.

The LCIA Comment
Commenting on the Licence, the LCIA has publicly supported the use of sanctions in connection with the situation in Ukraine (see third paragraph of the LCIA statement).
In comparison, six arbitration institutions in Europe (including SCC and VIAC), which lobbied for exclusion of arbitration costs from the EU sanctions regime, refrained from commenting on whether sanctions are appropriate.

Should you have any questions or comments in connection with this review, please contact us and we will be happy to discuss them.