Navigating UK Sanctions Against Russian Persons In English Court Proceedings

• Published date: 21 September 2022
• Subject Matter: International Law, Export Controls & Trade & Investment Sanctions
• Law Firm: Herbert Smith Freehills
• Author: Ms Susannah Cogman, Alexander Gridasov and Steven Chua

The UK is one of many countries which have introduced extensive sanctions against Russia, its individuals and entities in light of the military action in Ukraine which began on 24 February 2022. The application of the sanctions is generally limited to the territory of the UK and the conduct of UK persons (as defined) inside or outside the UK, but their practical effect is nevertheless wide-ranging.

An area where the UK sanctions regime may have significant impact, but which is not often discussed, is the effect on proceedings in the English court involving sanctioned Russian parties. Whilst UK sanctions generally do not restrict court proceedings against Russian individuals or entities subject to sanctions, the effect of the overall sanctions regime means that pursuing such claims may involve practical difficulties, such as delays to the proceedings or issues with enforcement. Those who wish to pursue claims against sanctioned Russian persons in the English courts therefore need to understand how to navigate the relevant sanctions in order not to be caught off-guard by such difficulties.

Background to the sanctions regime

The sanctions regime imposed in response to Russia's invasion of Ukraine comprises mainly the Sanctions and Anti-Money Laundering Act 2018 (which provides for sanctions regulations to be made, and sets out some relevant definitions) and the Russia (Sanctions) (EU Exit) Regulations 2019, as amended (the "Regulations", which impose the relevant sanctions). An extensive and wide-ranging array of sanctions have been introduced by the Regulations, but the type most relevant to English court proceedings is the targeted freezing of assets.

In essence, the asset freezes restrict access to funds and economic resources of persons (whether individuals or entities) designated pursuant to the Regulations. On their designation, such persons are added to the Consolidated List of Financial Sanctions Targets maintained by the Office of Financial Sanctions Implementation ("OFSI"). Those on the list are known as "Designated Persons" and are primary targets of the freezes. However, importantly, the asset freeze restrictions also extend to entities owned or controlled, directly or indirectly, by a Designated Person. The test for "owned or controlled" is whether the Designated Person:

1. holds, directly or indirectly, more than 50% of the other entity's shares;
2. holds, directly or indirectly, more than 50% of the other entity's voting rights;
3. has the right, directly or directly, to appoint/remove a majority of the other entity's board; or
4. can reasonably be expected, having regard to all the circumstances, in most cases or in significant respects, by whatever means and whether directly or indirectly, to be able to achieve the result that the affairs of the other entity conducted in accordance with their wishes.

Further provisions relevant to the interpretation of these tests are set out in a Schedule to the Regulations, and there is some further clarification in OFSI's guidance.

References in this post to restrictions applying to Designated Persons should be taken also to apply to entities owned or controlled (within the meaning of the Regulations) by Designated Persons.

There are two key limbs to the asset...