New UK Sanctions Guidance Resolves Uncertainty Caused by Russia-Related Court Decision

More than a month after a British appellate court suggested the U.K. government could treat every Russian public and private entity as a sanctioned party because they can potentially be controlled by Russian President Vladimir Putin, a U.K. sanctions agency said it doesn’t plan to enforce its sanctions in that manner. The court ruling had caused widespread concern among the U.K. legal and business community, but the U.K.’s latest guidance means that uncertainty “is effectively resolved,” said law firm Osborne Clarke.

In new guidance released Nov. 17, the U.K.’s Office of Financial Sanctions Implementation and the Foreign, Commonwealth and Development Office said there "is no presumption on the part of the UK government” that a private entity is controlled by a sanctioned government official just because that entity is based in that official’s country. The agency also stressed that it doesn’t generally consider sanctioned public officials to exercise control over a public body “in which they hold a leadership function."

The U.K. won’t automatically sanction a company “simply because that entity is based or incorporated in a jurisdiction in which that official has a leading role in economic policy or decision-making,” OFSI said. “Further evidence is required to demonstrate that the relevant official exercises control over that entity under UK sanctions regulations.”

The guidance comes after an October U.K. Court of Appeal decision in which the court said the U.K.’s sanctions control test should be interpreted broadly. Because Putin exerts such strong influence over Russia, every company in the country could be deemed to be controlled by Putin, the court suggested, potentially making them subject to sanctions. Although the U.K.’s FCDO clarified that the government’s intent is not to treat every Russian company as a sanctioned party (see 2310160019), the decision still worried the U.K. legal community, who feared banks, as a result, would be even less willing to handle Russia-related transactions (see 2311010031).

But in its latest guidance, the U.K. said a person “should only be considered to exercise control over certain private entities” when that “can be supported by sufficient evidence on a case-by-case basis.”

Osborne Clarke called the guidance a “welcome clarification,” saying in a client alert this month that the appellate court’s ruling was “clearly not intended or expected by the UK government.” The guidance “provides some much needed reassurance that transactions with an otherwise non-sanctioned Russian commercial company or business will not be caught” by U.K. sanctions, the firm said.

It added that U.K. businesses “will 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.”

The new guidance also clarified that the U.K. would likely specifically sanction a public government agency, along with the head of that agency, if it determined that the public official was exercising control over that public body. “For example, regarding government ministries, if a designated individual were a high-ranking public official serving as a government minister, the public body in which they held a leadership position would not be automatically subject to sanctions just because the minister is designated,” the guidance said.

The agency added that sanctions against public officials “are not meant to bar routine transactions with public bodies including taxes, fees, import duties, permits, licenses, public utility services or ‘any other ordinary and incidental payments.”