The UK Office of Financial Sanctions Implementation (“OFSI”) and the Foreign, Commonwealth and Development Office (“FCDO”) have issued joint guidance (“Joint Guidance”) on the application of the UK’s “ownership and control” test under financial sanctions legislation in circumstances involving designation of public officials.
The Joint Guidance follows a significant amount of debate in relation to these issues, following the Court of Appeal’s recent judgment in the case Mints v PJSC National Bank Trust  EWCA Civ 1132. The Mints judgment included far reaching comments about the role of Vladimir Putin and other sanctioned public officials in the Russian economy, and their potential ability to exercise “control” over entities in Russia for UK sanctions purposes (albeit in an “obiter dicta” section of the judgment that is not legally binding). The Mints judgment prompted OFSI and the FCDO to publish a joint online alert shortly after the judgement, noting that “[t]here is no presumption on the part of the Government that a private entity based in or incorporated in Russia or any jurisdiction in which a public official is designated is in itself sufficient evidence to demonstrate that the relevant official exercises control over that entity”. The Mints judgment has been followed more recently by the High Court case of Litasco SA v Der Mond Oil and Gas Africa SA  EWHC 2866 (Comm), which has also considered similar issues.
The Joint Guidance further supplements the points set out in the previous online alert published by OFSI and the FCDO, and notes that it applies to all UK sanctions regimes. Noteworthy statements in the Joint Guidance include the following:
- The Joint Guidance includes an introductory statement that “[t]he policy intention of the UK government’s approach to ownership and control in UK sanctions regulations is to ensure that sanctions cannot be easily circumvented” – emphasising the importance of considering ownership and control in the context of the asset freeze and making available prohibitions specifically.
- The Joint Guidance reiterates OFSI’s expectations that companies will undertake risk-based due diligence and screening: “OFSI does not prescribe the level or type of due diligence that should be undertaken to ensure compliance with financial sanctions. OFSI recognises that there is no one-size fits all approach”.
Control of public bodies
- The FCDO “does not generally consider designated public officials to exercise control over a public body in which they hold a leadership function”.
- The FCDO “does not intend for sanctions measures targeting public officials to prohibit routine transactions with public bodies”, including (but not limited to) taxes; fees; import duties; the purchase or receipt of permits, licences, or public utility services; or any other ordinary and incidental payments.
- The FCDO would look to designate the relevant public body if it considers that the designated public official exercises control.
- Notwithstanding the statements above, the Joint Guidance acknowledges that “if there was sufficient evidence to demonstrate that the designated individual exercises control over the public body within the meaning of the relevant regulations, then the relevant legal test under UK sanctions regulations may be met”. A relevant consideration as part of this assessment will be “whether the designated person derives a significant personal benefit from payments to the public body, such that they amount to payments to that person rather than the public body”.
Control of private entities
- The Joint Guidance notes that there is “no presumption on the part of the UK government that a private entity is subject to the control of a designated public official 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”. Instead, further evidence will be required to demonstrate control.
- The Joint Guidance then provides a more direct response to certain of the more far-reaching statements in the Mints judgment: “Specifically, for the purposes of regulation 7(4) of the Russia (Sanctions) (EU Exit) Regulations 2019, 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”.