High Court upholds OFSI's discretionary power in denying licenses to Mikhail Fridman under Russia sanctions regime

Citation: [2023] EWHC 2657 (Admin)
Judgment on

Introduction

In the High Court of Justice case “Mikhail Fridman, R (on the application of) v HM Treasury,” presided over by Mr. Justice Saini, the court examined a challenge concerning the issuance of licenses under the Russia (Sanctions) (EU Exit) Regulations 2019/855 concerning asset freezes and economic restrictions placed on the claimant, Mikhail Fridman. The case delves into the interpretation and application of the sanctions regime, the scope of OFSI’s discretion in issuing licenses, and the extent to which post-decision evidence might inform judicial review.

Key Facts

Mikhail Fridman, a designated person under the sanctions regime, sought licenses for the use of frozen assets to make certain payments, which OFSI refused on the basis of the Russia Regulations. Three specific refusals were scrutinized: the £30,000 monthly management fee to Athlone House Limited (AHL), payments to Ideaworks Group Ltd for maintenance of communication and security systems, and payments to various non-security staff.

Residual Discretion in Licensing

The court addressed whether HM Treasury (HMT), via OFSI, has an “embedded discretion” to refuse the issuance of a license for payments despite meeting threshold criteria for derogations under the sanctions regime. It concluded that pursuant to Regulation 64(2) of the Russia Regulations, HMT possesses a “residual discretion,” affirming the principle that regulatory language using “may” indicates a discretionary, not mandatory, power to issue licenses. The exercise of this discretion must align with sanctions policy objectives and is subject to rationality review under public law principles.

Admission of Post-Decision Evidence

The court was clear that judicial review under Section 38 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) should be grounded in the factual context known to the public authority at the time of the decision. The court cited “LLC Synesis v FCDO” to affirm that post-decision evidence is not permitted in judicial review save for instances where proportionality assessments under human rights law are required, as established in “Belfast City Council v Miss Behavin’ Ltd.”

The “Tameside” Duty and Procedural Fairness

The “Tameside” duty and the concept of procedural fairness were interpreted within the context of the sanctions regime. The court rejected the necessity for OFSI to undertake additional enquiries or provide iterative guidance to the applicants, reinforcing that the applicant bears the burden of proof in licensing applications.

Interpretation of “Directly or Indirectly” in Sanctions Regime

The court examined the phrase “directly or indirectly” within the context of the Russia Regulations, establishing that payments to entities owned or controlled by a designated person (DP) fall within this phrase, even if the corporate veil would typically render them separate entities. This interpretation is informed by the overarching objectives of the sanctions regime.

Outcomes

The court dismissed the claim in its entirety, upholding OFSI’s decision to refuse the licenses on multiple grounds:

  • The “Management Fee Application” because payments under the “Prior Obligations Derogation” could not indirectly benefit other DPs controlled entities.
  • The “Ideaworks Application” on the basis that the services were not a “basic need,” and the Basic Needs Framework was appropriately applied.
  • The “Staff Costs Application” concluded that OFSI lawfully exercised its residual discretion in refusing ongoing payments beyond accrued obligations.

Conclusion

The judgment in “Mikhail Fridman, R (on the application of) v HM Treasury” elucidates the principles governing the issuance of licenses under the UK’s sanctions regime. It reaffirms the discretionary power of HMT in licensing decisions, the non-admissibility of post-decision evidence in judicial review, and the nuanced interpretation of the phrases like “directly or indirectly” in counteracting evasion of economic sanctions. The court’s rigorous application of these principles underscore the stringent nature of the sanctions regime and the importance of aligning individual license decisions with the broader objectives of the national and international policy.