Eugene Shvidler: First challenge to Russia sanctions heads to UK Supreme Court

Summary

The first-ever court challenge to a designation under the UK’s Russia sanctions regime was brought in early 2023 by the dual UK-US citizen Eugene Shvidler. After losing in both the High Court and the Court of Appeal, the Russian-born businessman is now taking his case to the Supreme Court in a crucial test for the UK’s post-Brexit sanctions regime.

Pointing to the absence of any close connection between him and Putin, Shvidler has claimed that sanctions measures against him are not rationally connected to the ultimate aim of deterring Russian aggression against Ukraine. Shvidler also argued that sanctions are a disproportionate infringement on his rights especially because, as a UK citizen, the measures freeze his assets worldwide.

In considering these arguments, the Court of Appeal held that targeted sanctions against individuals like Shvidler are part of the overall impact of Russian sanctions and that the measures – though “severe” – are proportionate. The UK government heralded the decision as a “comprehensive” victory, and it has given a legal stamp of approval to its approach to Russian sanctions.

On 2 May 2024, Shvidler received a green light to take his case to the UK Supreme Court, setting the stage for the top court to weigh in for the first time on Britain’s post-Brexit sanctions regime. Many eyes will be watching as this case faces the ultimate legal test.

Who is Eugene Shvidler and why was he sanctioned?

Eugene Markovich Shvidler is a Russian-born businessman, now with dual British-American citizenship, who was sanctioned by the UK on 24 March 2022 based on his “close business links” to the Russian oligarch Roman Abramovich, former owner of Chelsea Football Club. Shvidler was previously a non-executive director of Evraz, the former FTSE 100 steel giant which Abramovich partly owned.

The UK considers that Shvidler was “involved in obtaining a benefit from or supporting the Government of Russia” through his former role at Evraz. The UK-incorporated steel giant has business in the extractives, construction and transport sectors which is of vital strategic importance to Russia, including their production of 97% of Russia’s rail-tracks which are used to move key military supplies and troops.

While Shvidler told the court that he never received a financial benefit from Abramovich, investigative journalists have reported that Shvidler personally borrowed at least $637 million from Abramovich. One loan appears to have paid for Shvidler’s $300 million investment in Evraz and at least $545 million of the total loan amount appears to have been gifted to his family.

Why does this case matter?

The Court of Appeal ruling affirms that judges in England and Wales will tread lightly when reviewing the government’s discretionary decisions to impose targeted sanctions. The case sets a high bar for successful legal challenges to designations in the future.

Shvidler’s designation is a rare example of a UK citizen being targeted under the UK sanctions regime. Shvidler urged the courts to take account of the more extensive effects of sanctions against him which stem from his UK citizenship, effectively subjecting him to a worldwide asset freeze. In its response, the court highlighted that Shvidler and his family can obtain permission to pay for their basic needs in the UK from HM Treasury’s Office of Financial Sanctions Implementation (OFSI) and that any complaints about this licensing system are not a reason to “question the lawfulness of the designation.” This demonstrates that the courts will accept severe impact on individuals as a consequence of the government’s interest in securing the effectiveness of Russia sanctions, regardless of citizenship.

The Supreme Court hearing is likely to raise broader questions around the end-game for sanctions against Russia. Shvidler argued that he has not been to Russia since attending former Russian President Boris Yeltin’s funeral in 2007, and that he has no ability to influence Russian government policy. He also complained that the UK government refused to engage about what he should do to be delisted (or removed from the sanctions list). At the heart of Shvidler’s case is a debate about how sanctions against him are linked to and balanced with the ultimate aim of deterring Putin. Ultimately the hearing will also raise questions about the courts’ role in providing oversight of the government’s sanctions policy and of its effectiveness – questions that should also be subject to rigorous scrutiny by Parliament. It is also likely to raise questions about whether the UK has clear off-ramps for those who have been targeted to help ensure sanctions do incentivise behaviour change.

Global context

Shvidler’s designation provides an example of the lack of policy alignment between the UK and key allies. Despite being targeted in one of the UK’s early batches of designations following Russia’s full-scale invasion of Ukraine, Shvidler is still not designated in the EU or US. He has been residing in the US while attending his London court challenges via video link.

While UK and US officials have often stressed the importance of international cooperation, Shvidler’s isolated designation by the UK shows that there remain gaps in consensus on who should be targeted through sanctions. Shvidler’s court challenges also reflect how differences in delisting policy and legal frameworks raise further challenges for coordination on sanctions.

Details of the UK case

The High Court

After an unsuccessful bid to get UK sanctions against him lifted through a ministerial review of his designation, Shvidler took his challenge to the courts.

On 18 August 2023, the High Court rejected Shvidler’s designation challenge on all grounds. Despite Shvidler’s assertions that he and his family have suffered “serious hardships” following his designation that are disproportionate to the “vague and non-specific public benefits” of sanctions, the High Court firmly recognised the Foreign Secretary’s discretion in this area of foreign policy.

The government’s rationale that Shvidler’s designation would “send a signal” that there are negative consequences for associating with supporters of Putin’s regime was found to be sufficient, with the court observing that the Foreign Secretary was better placed to understand the “levers of pressure” involving Russia.

The Court of Appeal

On 27 February 2024, the Court of Appeal again upheld Shvidler’s designation, finding that there was a fair balance struck between the infringement of Shvidler’s rights with the objective of encouraging Russia to cease its aggression against Ukraine. However, the court made clear that it will not simply rubber stamp the Secretary of State’s analysis, but make its own assessment of proportionality of the effects on designees’ rights.

The court further found that “each individual designation does make a contribution to the overall impact of all the measures imposed under the sanctions regime,” and that sanctions often “have to be severe and open-ended if they are to be effective”. A “serious price” must be paid by those who are designated.

The Supreme Court

On 2 May 2024, the Supreme Court granted Shvidler permission to appeal.

These successive dismissals of Shvidler’s challenges leave the UK government with a wide remit for designations against UK citizens and non-citizens alike. Subject to what the UK’s top court rules in Shvidler’s case, further challenges to sanctions measures now face very high legal hurdles to succeed. The grounds on which the UK Supreme Court granted Shvidler’s appeal are not yet publicly available, but this case will be a crucial ultimate test for the UK’s approach to Russian sanctions.