Since the invasion of Ukraine in February 2022, the UK has been continually broadening the scope of its sanctions against Russia. What started in 2022 as restrictions on targeted industries has been steadily expanding, with a recent judgement by the UK Court of Appeal marking the most significant increase yet in the number of Russian entities that could be caught by the sanctions. This case demonstrated that the Russia (Sanctions) (EU Exit) Regulations 2019 (Russia Regulations) could be interpreted so broadly as currently written that in effect, any Russian entity in Russia’s “command economy” might now be caught by Regulation 7.

Development of the UK sanctions regime

In response to Russia’s invasion of Ukraine the UK expanded its existing sanctions against Russia by imposing wide restrictions on trade, aircraft, shipping, immigration and financial sanctions including asset freezes against designated individuals and entities, restrictions on financial markets and services and directions to cease doing business.

The sanctions are set out in the Russia Regulations made under the Sanctions and Anti-Money Laundering Act 2018, which replaced the EU rules that applied pre-Brexit. There have been 20 sets of extensive amendments to the regulations since the invasion of Ukraine.

In February 2022, the UK announced two initial tranches of sanctions that targeted five Russian banks and three Russian oligarchs. These sanctions also banned key Russian industries and companies from raising finance on the UK’s financial markets and introduced asset freezes on major Russian financial institutions, among other measures. 

From this point onwards the UK government introduced a “rolling programme of intensifying sanctions” as it faced mounting pressure to impose further measures. In July 2022 the criteria for those who could be subject to sanctions was further expanded and by August 2023 there were 1,627 individuals and 238 entities sanctioned. With a comprehensive system in place at this stage, the focus had turned to preventing and dealing with sanctions evasion.

Since August, the courts have played a role in the development of the sanctions regime. Two recently decided cases were brought by individuals who the Foreign, Commonwealth and Development Office (FCDO) had designated for sanctions purposes and were subject to asset freezes and other measures. The decisions in these cases showed that the courts will allow FCDO a wide discretion in deciding who to designate for sanctions purposes and that concerns about individual rights or hardships will not count against foreign policy aims of the highest order.

Recent changes 

The most significant of these recent cases is the Boris Mints case (Boris Mints and others v PJSC National Bank Trust and Another [2023] EWCA 118 (Comm)). It commenced in the High Court in 2019 and was later successfully appealed, with judgment handed down in October 2023.

The court had to decide, among other questions, whether a designated person (in this case Vladimir Putin or Elvira Nabiullina, the governor of the Central Bank of Russia) “controls” an entity within the meaning of the Russia Regulations, where the entity is not a personal asset of the designated person, but they can nevertheless exert influence over it as a result of employment or political office held. The question related to one of the claimants, National Bank Trust (NBT), which was not itself a designated entity.

It was found that NBT is “controlled” by Putin and/or Nabiullina within the meaning of the Russia Regulations. The regulation covers a designated person who exercises control over another company, irrespective of whether they have any form of ownership of the company. “Control” was interpreted in terms of sufficient influence and power, rather than direct ownership, and there is no limit in the provision as to how this control is achieved. The judgment noted that although the implications of this are wide and far reaching – the “consequence might well be that every company in Russia was ‘controlled’ by Mr Putin and hence subject to sanctions” – it is the correct interpretation of the regulations in their current form. “Control,” the judgment said, has a “clear and wide” meaning in the Russia Regulations.

What next?

The analysis of “control” in the Boris Mints case may lead to a much wider range of entities being caught by the Russia Regulations than previously thought. The FCDO is considering the implications of the judgment but has commented that where it considered that a designated public official was exercising control over a public body it would designate the public body itself. Its approach was not to presume that the existence of a designated public official in Russia (or elsewhere) was sufficient evidence that they exercised control over a private entity based or incorporated in that country.

Whether a further appeal to the Supreme Court or a re-writing of the Russian Regulations are coming remains to be seen, but for the time being, the implications of this ruling will be extensively felt.

James Ellis-Rees and Christopher Jefferies are associates at Faegre Drinker Biddle & Reath. Emily Evans is a trainee at the firm.