What’s this about?
The UK sanctions regime concerning Russian individuals and entities with regard to the war in Ukraine continues to develop – for more about how the UK sanctions regime works see the What is the UK sanctions regime? section of our article here https://www.corderycompliance.com/add65uksanctions/.
At the same time, UK case-law on the interpretation of the UK-Russia sanctions regime is also developing and a recent judgment of the UK Court of Appeal in the matter of Boris Mints and Others v PJSC National Bank Trust and PJSC Bank Okritie Financial Corporation has, amongst other things, interpreted (in passing) the important concept of “control”, which this article looks at in brief.
What’s the background?
Litigation in the UK High Court started in June 2019 where two banks, Bank Otkritie and National Bank Trust, were claiming some US$ 850 million against Boris Mints and others on the basis that the latter had allegedly conspired with representatives of the banks to enter into uncommercial transactions with companies connected with Boris Mints and others by which loans were replaced with worthless or near worthless bonds.
The litigation had been progressing towards trial when the Russian invasion of Ukraine took place following which the UK-Russia sanctions were then introduced. Bank Otkritie was sanctioned, i.e. it was made a so-called “designated person” under the UK-Russia sanctions regime, but National Bank Trust was not.
Three important issues concerning the scope of the UK-Russia sanctions regime arose, which, in simple terms, were as follows:
- Can an English court enter judgment in favour of the two banks in question?;
- Can the Office of Financial Sanctions Implementation (the UK sanctions regulator) grant licences to authorise certain litigation-related activities?; and,
- Does a “designated person” (in this case President Vladimir Putin or Elena Nabiullina, the governor of the Central Bank of Russia) “control” an entity (in this case National Bank Trust, 99% owned by the Central Bank of Russia) within the meaning of UK-Russia sanctions rules where the entity is not a personal asset of the “designated person” but the “designated person” is able to exert influence over it by virtue of the political office that he or she holds at the relevant time?
The High Court decided the first two issues in favour of the two banks in question and the third issue in favour of Mints and others. Mints and others then went to the Court of Appeal.
What did the Court of Appeal rule?
The Court of Appeal dismissed the appeal ruling that:
- Sanctions imposed on a party/entity under the UK-Russia sanctions regime did not restrict the right of a party/entity to pursue legal action in English courts, including the English courts’ ability to rule in their favour;
- The Office of Financial Sanctions Implementation could grant licences to authorise certain litigation-related activities;
- In light of the court’s conclusion on the above two issues, the “control” issue did not arise, because, even if Bank National Trust is a “controlled person” and therefore to be regarded as a “designated person”, the two banks are entitled to pursue the proceedings on which, were the claim to be successful, the court would be able lawfully to enter a money judgment, and, the two banks are both entitled to the licences to which the second issue relates. However, by way of so-called obiter dicta (or, “said in passing”), the court ruled that on the “clear and wide meaning” of the UK-Russia sanctions regime (specifically Regulation 7) National Bank Trust was controlled by Mr. Putin and/or Ms Nabiullina because he or she was able to exert influence over it by virtue of the political office he or she held, also stating that “[…] the absurd consequences (of this interpretation) arise not from giving the Regulation its clear and wide meaning but from the subsequent designation by the Government of Mr Putin, without having thought through the consequences that […] Mr Putin is at the apex of a command economy.”
What did the UK government do?
A little later the UK Foreign, Commonwealth & Development Office (“FCDO”) issued the following statement about the Court of Appeal’s ruling:
“The Government is carefully considering the impact of the Court of Appeal’s judgment in Mints & others v PJSC National Bank Trust & another, in particular the Court’s views that PJSC National Bank Trust is ‘controlled’ by Designated Persons by virtue of their political office, noting that the case was not decided on this point.
FCDO 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.
In the interests of reducing any uncertainty, we are exploring the options available to the Government in clarifying this position further.”
In effect, based on the Court of Appeal’s ruling, sanctioned parties and entities can bring claims or engage in litigation before the English courts.
Whilst what the Court of Appeal has said as obiter dicta might in effect seem to mean that Putin could be deemed to control everything in Russia, the UK government’s position doesn’t seem to support this, but it’ll have to be seen how this is further clarified, possibly by a legislative change to the UK sanctions regime.
The UK-Russia sanctions rules are complex to say the least – if an organization needs to determine certain issues under the regime it should seek specialist legal advice.
With regard to sanctions in general, organisations should consider doing the following:
- Undertaking a rigorous and thorough due diligence screening against individuals and entities on sanctions lists;
- Checking whether any accounts are maintained or any funds or economic resources are held for sanctioned persons and entities;
- Freezing sanctioned accounts, and other funds or economic resources and any funds which are owned or controlled by sanctioned persons and entities, and refraining from dealing with the funds or assets or making them available (directly or indirectly) to sanctioned persons (unless licences have been granted);
- Reporting any findings to the regulator and co-operating with any investigations that the regulator may undertake;
- Doing a contracts clauses check on relevant contracts to ensure that provisions concerning warranties, force majeure, termination, and, liability are all up to scratch as regards sanctions;
- Updating policies, procedures and risk assessments – be prepared to deal with sanctions breaches;
- Where possible, and of use, (either as an alternative or a complement to contract breach risk), considering obtaining insurance (export credit, political risk, and, trade disruption) against sanctions risks; and,
- Training staff on sanctions issues.
We last wrote about the UK sanctions on Russia sanctions here: https://www.corderycompliance.com/uk-russia-0923-06/, and our other articles about sanctions can be found here: https://www.corderycompliance.com/category/sanctions/.
We spoke at an event about Russian sanctions, where we focused on sanctions policies & due diligence/screening issues https://www.corderycompliance.com/rbcc-dit-russia-uk-02-dec/.
We have also written about the UK Economic Crime (Transparency & Enforcement) Act 2022 here https://www.corderycompliance.com/uk-ecte-act-sanctions-russia-belarus/.
The Court of Appeal’s judgment can be found here: https://www.judiciary.uk/judgments/mints-v-pjsc-national-bank-trust/.
The UK government’s statement following the judgement can be found here: https://content.govdelivery.com/accounts/UKFCDO/bulletins/375e351.
For UK official guidance about the UK sanctions on Russian see here https://www.gov.uk/government/collections/uk-sanctions-on-russia, and the UK sanctions list can be found here https://www.gov.uk/government/publications/the-uk-sanctions-list.
The UK Sanctions and Anti-Money Laundering Act 2018 can be found here https://www.legislation.gov.uk/ukpga/2018/13/contents/enacted.
For more information please contact Jonathan Armstrong or André Bywater who are lawyers with Cordery in London where their focus is on compliance issues.
|Jonathan Armstrong, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH||André Bywater, Cordery, Lexis House, 30 Farringdon Street, London, EC4A 4HH|
|Office: +44 (0)207 075 1784||Office: +44 (0)207 347 2365|