UK Imposes Sanctions - Half Year Review
In a significant ruling, the UK Supreme Court has upheld the sanctions imposed on businessman Eugene Shvidler and Dalston Projects Ltd, marking a landmark decision in the assessment of proportionality for sanctions designation under UK law.
The case, which was considered a test for the UK's sanctions regime, saw the court affirm a powerful principle of deference to the government in sanctions matters, while also emphasising the need for judicial scrutiny to protect individual rights.
The sanctions, imposed under the UK's Russia regime, amounted to £416,590.92, following a breach by Markom Management Limited (MML) in February 2018, when they facilitated a payment to a person designated under UK Russian sanctions rules. MML reported the breach to OFSI via their legal representatives in October 2018.
OFSI initiated its investigation in June 2021, with an initial delay attributed to engagement with an unnamed third party. However, the investigation took four years to reach a conclusion, with the entire process spanning nearly seven years. OFSI determined that MML was ineligible for a reduction in penalty for voluntary disclosure, but no explanation was provided for this decision.
The Supreme Court's key guidance on proportionality assessments can be summarised as follows:
- Proportionality is assessed by the court itself, but with a wide margin of appreciation granted to the executive in how to respond to significant public policy challenges, such as Russia's invasion of Ukraine.
- The Court upheld the sanctions despite the interference with rights to property and private/family life under the European Convention on Human Rights (ECHR), finding these infringements justified by the important public policy aims.
- The judgment clarifies the limited role of appellate courts in proportionality reviews, emphasising deference to the executive’s expertise unless there is clear error or manifest unreasonableness in the application of the test by lower courts.
- Lord Leggatt dissented strongly from the majority, warning against excessive deference to the executive that risks rubber-stamping government assertions without sufficient scrutiny.
Lord Leggatt described the designation of Mr. Shvidler by the UK Government as "Orwellian" and argued that no fair balance was being struck between Mr. Shvidler's individual rights and the interests of the community. It is expected that Lord Leggatt's dissenting views may be adopted as arguments in future sanctions designation challenges.
The tardiness and duration of OFSI's investigation merit consideration, particularly in a case of a single, voluntarily self-reported payment breach. This is not the first time there has been confusion and unintended consequences in OFSI enforcement decisions.
The Supreme Court's ruling provides guidance on how courts should approach proportionality assessments when reviewing government decisions that interfere with human rights. The case establishes a leading precedent for future proportionality review of sanctions under UK law.
Businesses involved in finance must be mindful of the UK's sanctions regime, as demonstrated by the case of Markom Management Limited (MML), which facilitated a payment to a person designated under UK Russian sanctions rules and faced significant penalties. In this instance, the court affirmed a principle of deference to the government in sanctions matters, while also stressing the need for judicial scrutiny to protect individual rights.
The Supreme Court's ruling offers a clarified approach for courts in assessing the proportionality of sanctions that potentially infringe upon human rights, setting a significant precedent for future proportionality reviews of sanctions under UK law. This case signifies the importance of adhering to the UK's sanctions regime for businesses engaging in finance.
