Briefing - Sanctions update – Putin does not control every company in Russia!

Overview

OFSI and the UK Government have now issued clarificatory guidance in response to a surprising decision by the English Court of Appeal with serious consequences for Jersey businesses subject to the application of Jersey’s sanction’s laws.

The Court of Appeal stated that "in a very real sense (and certainly in the sense of [the applicable regulation], Mr Putin could be deemed to control everything in Russia". This briefing note considers the impact of that decision and the current position post the clarification by OFSI.

Detailed analysis

A surprising decision was made by the English Court of Appeal in Boris Mints v PJSC National Banke (Mints), in late 2023 with serious consequences for Jersey businesses subject to the application of Jersey’s sanction’s laws. In Mints, the Court of Appeal stated that "in a very real sense (and certainly in the sense of [the applicable regulation], Mr Putin could be deemed to control everything in Russia".

The wide-ranging implications of that view arise from the way Jersey sanctions are imposed based on the UK’s regime. Any designated person (that is, a person placed on the UK's Consolidated List by the UK government) is subject to Jersey’s financial sanctions and Jersey persons are prevented from dealing with that person. This is because Jersey’s sanction legislation implements all UK sanctions regimes made under the Sanctions and Anti-Money Laundering Act 2018 (this includes UN sanctions). All UK asset-freeze designations are effective in Jersey. Further, those sanctions also apply to any entity "owned or controlled" by a designated person.

"Control" is defined in the law as including where: "It is reasonable, having regard to all the circumstances, to expect that P would (if P chose to) be able, in most cases or in significant respects, by whatever means and whether directly or indirectly, to achieve the result that affairs of C are conducted in accordance with P’s wishes".

In Mints the Court of Appeal considered whether the Central Bank of Russia (which is not itself a designated person) was "controlled" by President Putin and/or Ms Elena Nabiullina (the governor of the Central Bank of Russia), both of whom are designated persons, and found that they were.

The decision was only of persuasive application in Jersey and therefore while not strictly binding, if the view was followed by the Jersey Courts it would mean that potentially any entity controlled by President Putin (potentially, any company in Russia) would now be caught by the Jersey sanctions regime.

Clarification from the UK Government and OFSI

The UK government and OFSI (the financial sanctions enforcement body) has clarified this unexpected ruling in guidance. It sets out examples of what could amount to "control". This includes:

• having the right to exercise a dominant influence over an entity, for example pursuant to a provision in its Memorandum or Articles of Association;

• having the right to exercise a dominant influence referred to in the point above, without being the holder of that right (including by means of a front company); or

• having the ability to direct another entity in accordance with one’s wishes. This can be through any means, directly or indirectly. For example, it is possible that a designated person may have control or use of another person’s bank accounts or economic resources and may be using them to circumvent financial sanctions.

In relation to public bodies, OFSI confirms that it does not generally consider designated public officials to exercise control over a public body in which they hold a leadership function. Nor does it intend routine transactions with public bodies – such as the payment of taxes, licence fees, and import duties – to be prohibited.

In relation to private, "ordinary" Russian companies, the guidance states that there is no presumption that a private company is subject to the control of a designated public official (for example, President Putin) just because such a company is based in, or incorporated in Russia. The guidance concludes that: "The UK government does not consider that President Putin exercises indirect or de facto control over all entities in the Russian economy merely by virtue of his occupation of the Russian Presidency. A person should only be considered to exercise control over certain private entities where this can be supported by sufficient evidence on a case-by-case basis".

The guidance also makes it clear that this approach applies to all countries and not just Russia.

Conclusion

This joint guidance provides clarity that transactions with an otherwise non-sanctioned Russian commercial company or business will not be caught by a wide interpretation of the "control" test under the UK Russian sanctions regime. It also confirms that the same position applies to public bodies.

Although the confirmation from the UK government has come via guidance rather than changing the law, Jersey businesses can now likely consider that this issue is effectively resolved and that a period of uncertainty for businesses that have operations in or relating to Russia is concluded.

Amati Law’s experts regularly assist Jersey businesses in guiding them through regulatory issues.  

This briefing was written on 1 December 2023 and is correct as of this date

To find out more or to take advice about a sanctions matter contact info@amatilaw.com