UK government clarifies that 'ordinary' Russian companies are not deemed 'controlled by Putin'

The appellant in Mints argued that two state-controlled Russian banks could not pursue litigation against him for alleged fraud because they are sanctioned under the Russia (Sanctions) (EU Exit) Regulations 2019. The EWCA ruled in the banks' favour, but in an obiter passage of the judgment also asserted that 'in a very real sense…Putin could be deemed to control everything in Russia'. The implication was that even Russian businesses that are not themselves designated could still be caught by the UK sanctions regime's ownership and control test.

That, said law firm Osborne Clarke, could have had profound implications for UK businesses with Russian interests, because of the way that UK sanctions are imposed by the Office of Financial Sanctions Implementation (OFSI). Not only is any designated person subject to financial sanctions, with UK persons prevented from dealing with that person, but those sanctions also apply to any entity 'owned or controlled' by a designated person. The regulations define 'control' as a situation where the entity might be expected to conduct its affairs in accordance with the 'controlling persons' wishes.

Being obiter, the court's opinion was not strictly legally binding. However, OFSI and the Foreign, Commonwealth and Development Office (FCDO) have now released guidance to clarify their stance. The guidance notes that, for private, 'ordinary' Russian companies, there is no presumption that a private company is subject to the control of a designated public official such as Putin just because such a company is based in or incorporated in Russia. 'The UK government does not consider that President Putin exercises indirect or de facto control over all entities in the Russian economy merely by virtue of his occupation of the Russian Presidency', it says. 'A person should only be considered to exercise control over certain private entities where this can be supported by sufficient evidence on a case-by-case basis.'

Similarly, in relation to public bodies, the OFSI guidance confirms that it does not generally consider designated public officials to exercise control over a public body in which they hold a leadership function. Nor does it intend routine transactions with public bodies, such as the payment of taxes, licence fees and import duties, to be prohibited. The guidance also makes it clear that this approach applies to all countries and not just Russia.

The government's intervention effectively neutralises the EWCA's dictum in Mints. 'This guidance provides some much needed reassurance that transactions with an otherwise non-sanctioned Russian commercial company or business will not be caught by a wide interpretation of the "control" test under the UK Russian sanctions regime', commented Osborne Clarke.

It is not yet clear whether OFSI will formally amend the regulations to reflect the guidance.

Sources

• Osborne Clarke
• OFSI
• BAILII (Mints)