Russian Sanctions

On 12 December 2024, Mrs Justice Cockerill handed down her ruling on the applications to dismiss in the first ever trial for breaches of the Russia sanctions regime.

The sanctions regime was created by the Sanctions and Anti-Money Laundering Act 2018 (‘SAMLA’).  The Russia (Sanctions) (EU Exit) Regulations 2019 / 855 (‘the Russia Regulations’) were made under section 1 of SAMLA and came into force at 23:00 on 31 January 2020.

Sanctions are a foreign policy measure to assist in bringing about a foreign policy aim and a detailed overview of the scheme was provided in PJSC National Trusåt Bank and Ors v Boris Mints and Ors [2023] EWHC 118 (Comm), paras. 13-76.  The provisions of the Russia Regulations are often, but not always materially the same as those under the European Union regime (examples of similar provisions can be seen in the annex to the judgment in Vneshprombank LLC and Kireeva v Bedzhamov [2024] EWHC 1048 (Ch)).

There is a developing body of law which deals with the application of the Russia Regulations:

• The purposes of the Regulations are to encourage Russia to cease actions destabilising Ukraine or undermining or threatening its territorial integrity, sovereignty and independence: Shvidler v FCDO [2024] EWCA Civ 172 [175]; Khan v FCDO [2024] EWCA Civ 172 [17-18].
• These aims are achieved under the Russia Regulations by the use of “Targeted asset freezes: these apply to named individuals and entities restricting access to funds and economic resources”.
• “The intention of Parliament and the Government was to continue the EU regime without substantive change and “differences are to be explained as putting the same thing differently””: PJSC National Bank Trust v Mints [2023] EWCA Civ 1132.

Part 3 of the Russia Regulations creates criminal offences for:

1. 1. Reg. 11: dealing in funds or economic resources owned, held or controlled by a designated person (“DP”) if the person (“P”) knows or has reasonable cause to suspect that P is dealing in such funds or economic resources;
   2. Reg. 12: making funds available directly or indirectly to a DP if P knows or has reasonable cause to suspect that P is making the funds so available;
   3. Reg. 13: making funds available for the benefit of a DP if P knows, or has reasonable cause to suspect, that P is making the funds so available;
   4. Reg. 14: making economic resources available directly or indirectly to a DP if P knows, or has reasonable cause to suspect that: (i) P is making the economic resource so available; and (ii) that the DP would be likely to exchange the economic sources for, or use them in exchange for, funds, goods or services;
   5. Reg. 15: making economic resources available to any person for the benefit of a DP if P knows, or has reasonable cause to suspect, that P is making the economic resources so available.
   6. Reg. 19: intentional participation in activities whose object or effect is the evasion of Regs 11 to 18.

The case before Cockerill J. was concerned principally with the application of Regulation 19 and answered the question: what does circumvention mean?

Regulation 19 states:

“(1) A person must not intentionally participate in activities knowing that the object or effect of them is (whether directly or indirectly)—

(a) to circumvent any of the prohibitions in regulations 11 to 18C, or

(b) to enable or facilitate the contravention of any such prohibition.

(2) A person who contravenes the prohibition in paragraph (1) commits an offence”

Q1: Is Regulation 19 a result offence?  That is, does it require a prescribed result, namely the prohibitions in Regulations 11 to 18 are in fact circumvented or contravened?

A1: The wording is clear. It is about conduct which has a particular object OR effect. It follows that conduct with an object which does not achieve the effect is still an offence.

Q2: What does participation require?

A2: Positive acts of participation are not required, and participation can be found in supporting or agreeing, with little or no active component.

Q3: Whether, if such provision could not be established, it would be enough if the acts were part of a concerted plan between others and the DP contributed no more than strategy at the outset?

A3: The provision of strategy at the outset is participation. Thought and communication of thought is a form of action. And even if it is not, it is certainly a form of participation. There can be no participation in a plan without the plan. A Moriarty participates in the plans which he develops.

Q4: Is knowledge required?

A4: The sanctions regime cannot have been intended to be of unlimited effect.  It would be wrong to “tweak” the approach to statutory interpretation towards a broad construction, particularly where to do so would be at the expense of clarity.  Care must be taken to guard against doubtful penalisation.

Regulation 19, taken in context and against the background of the earlier regulations, is not remotely clear enough to capture “anticipatory breaches”, i.e. actions taken when someone may or may not become a DP.  Nor logically can a wider approach to knowledge be taken here than is taken in respect of the earlier provisions, because Regulation 19 refers back to so many previous regulations.

Q5: Can Regulation 19 apply to a person (A) when A acts with the intention and object of circumventing sanctions but in circumstances where the person A is aiming to assist actually is a DP but is not positively known by A to be a DP?

A5: It is tempting to say that (particularly bearing in mind the use of the word “object” in the regulation) if a person without actual knowledge but with (for instance) Nelsonian knowledge, so acts with regard to prohibitions affecting a designated person, that is caught by the Regulation. The scope for such an approach to operate unfairly would be narrow, given the requirement of intention to circumvent, which presupposes sufficient information to have a belief that there is a sanction in operation.

However once that approach is pursued there is no real reason why the same argument could not be made when there is only reasonable cause to believe that a person is a DP; and fairly plainly in the context of this wording that would not be sufficient.  It is hard to see how reasonable cause to believe (only) could co-exist with “knowing that the object or effect” is circumvention.

In a later ruling, Cockerill J. answered a further question.

Q6: Since knowledge must be proved, knowledge of what?

Following the approach taken in R v Datson [2022] EWCA Crim 1248 (decided in relation to fraudulent evasion under section 170 of the Customs and Excise Management Act 1979), there has to be room for the required knowledge of circumvention to bite; the knowledge of the prohibition must be sufficient for the object or effect of circumvention or breach to be of that restriction (or apprehended restriction) ie. a restriction of broadly the type or types in question and covered by the relevant section of the Regulation.

While a requirement for knowledge that there is a prohibition is more precise than the very wide “financial prohibition”, it is in reality little more than clarifying whether the understanding of designation was whether the sanction was on movement or money – and if so money in or out.  Thus, it may be framed as a financial prohibition relating to receiving financial benefit.

It remains to be seen whether, in light of this important ruling, many more suspects in sanctions breach investigations are charged.

Gavin acted for the third defendant who was acquitted of three counts but convicted of two others in relation to the payment of his nephews’ school fees in circumstances where the DP, his brother, had a contingent liability in relation to the fees – he was jointly and severally liable for the fees with his wife, the second defendant.