This judgment suggested any company in Russia could be sanctioned because President Putin is subject to an asset freeze.

What was the issue?

While the issue did not decide the matter before the court, the Court of Appeal found that the Ownership and Control provisions of the UK’s sanctions on Russia were worded in such a way that all companies in a command economy, such as Russia’s, could be considered sanctioned if the Head of State was sanctioned (as Putin is).   The judgment noted that under the Russia sanctions regulations, “Putin could be deemed to control everything in Russia.”  Under the regulations, any entity controlled by a Designated Person is considered to be subject to the same sanctions as its controller.

While the UK’s sanctions on Russia are extensive, they are not comprehensive sanctions.  If every Russian legal entity was considered to be, in effect, subject to an asset freeze, even lawful and humanitarian activity in Russia could grind to a halt – a point the Court of Appeal recognised.  The Court suggested the solution was for the UK Government to either amend the legislation or to delist Putin.

What has the UK Government said?

The Foreign & Commonwealth Development Office, which manages sanctions policies and designations, says it would “look to designate a public body where possible when designating a public official if FCDO considered that the relevant official was exercising control over the public body.”

“There is no presumption on the part of the Government that a private entity based in or incorporated in Russia or any jurisdiction in which a public official is designated is in itself sufficient evidence to demonstrate that the relevant official exercises control over that entity.”

FCDO

The government says it is exploring further options to reduce uncertainty and clarify the position.

You can read the full statement here.

What can we take from this?

This is – in Government terms – a quick response and seeks to allay concerns from commercial businesses about what the ruling means for their own sanctions compliance.  It seeks to clarify the Government’s interpretation and intention under the UK sanctions regimes and may offer a degree of comfort to those worried about being subject to enforcement actions.  That said, the law has not changed and we would expect that the Government will try to address this matter more permanently.  Even so, a lot of businesses will remain understandably nervous, even after this government statement.

As with any situation where a UK person or legal entity is dealing with a counterparty that may be controlled by a designated person, enhanced due diligence is imperative.  OFSI has provided guidance on what DD may be appropriate when looking at control factors but, if there is any doubt, you should seek legal advice.

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