English courts to assess 'discriminatory' nature of sanctions against Russian nationals

Financial technology company XTX was founded by Alexander Gerko. He has permanently resided and worked in the UK since 2006 and has held British citizenship since 2016. He also held Russian citizenship but is believed to have renounced that in 2022, according to law firm Womble Bond Dickinson.

In April 2022, XTX asked international tax and accountancy services provider Mazars to handle the payroll for its 200 employees around the world. Mazars' obligatory know-your-client (KYC) checks turned up the fact that Gerko is, or then was, a Russian citizen. Although Gerko has never been a designated person under the Russia (Sanctions) (EU Exit) Regulations 2019 (the 2019 Regulations), Mazars declined to offer its services because it has a global policy of not accepting any new clients with Russian ownership.

When XTX issued its discrimination proceedings in the Central London County Court, Mazars responded that it is obliged to obey Regulation 11 of the 2019 Regulations, which themselves distinguish Russians on nationality grounds, as well as other grounds. The firm denies any discrimination and told the court that XTX was not treated less favourably than a real or hypothetical comparator. It relied on s.44 of the Sanctions & Anti-Money Laundering Act 2018, which offers protection to defendants in civil proceedings where there is a reasonable belief that they are acting in compliance with sanctions regulations.

XTX requested the district judge to enter summary judgment in its favour, but the judge refused, holding that there were compelling reasons why the matter should proceed to a full trial. The sanctions regime created a unique set of circumstances and Gerko's nationality was only a factor because it engaged a consideration of the sanctions regime under the 2019 Regulations. Moreover, it was arguable that Mazars did not single out Gerko, but could not view him without looking through the lens of the 2019 Regulations at the same time. It was likely that there were a range of reasons as to why Mazars reached its policy decision, but only after the court has heard all the relevant evidence could it be determined whether Gerko’s nationality per se (as opposed to the relevance of his nationality by reference to the 2019 Regulations) was a significant influence in that decision (XTX v Mazars, 2023, Case No J02CL150).

It was also relevant, said the judge, that the 2019 Regulations are themselves discriminatory because they apply sanctions by reference to Russian nationality or race. However, this is not discrimination arising from anything that Mazars has done but because the discrimination is sanctioned by statute, within which Mazars has to operate. The 2019 Regulations and Gerko’s nationality are a relevant circumstance to be taken into account when considering the comparator.

Law firm Womble Bond Dickinson said that if the case goes to trial, ‘the judgment has potential to be useful in providing businesses with guidance on how to balance obligations under the 2019 Regulations with obligations under the Equality Act 2010. This could help to better inform businesses on how to navigate due diligence and when reliance can be placed on section 44 of SAMLA.’

Sources

• Womble Bond Dickinson
• European Sanctions