Summary
When the UK rolled out unprecedented sanctions in response to Putin’s full-scale invasion of Ukraine in February 2022, one prominent Russian oligarch decided to stay in London at a time when others left the country to put themselves and their wealth out of reach. The Ukrainian-born billionaire Mikhail Fridman was sanctioned on 15 March 2022 but continued to live at his Victorian mansion in Highgate, North London.
While Fridman has an estimated fortune of over $13 billion, sanctions meant he needed special permissions to free up funds to support his lifestyle and maintain Athlone House, which he bought in 2016 for $65 million before spending just as much renovating the 1855 home. The property has five acres of landscaped garden designed to emulate the palace at Versailles, houses a £44 million art collection, and has been serviced by a large staff.
Fridman approached the UK’s Office of Financial Sanctions Implementation (OFSI), part of the UK Treasury, for various licences authorising payments and expenses that would otherwise be in breach of sanctions. Although he was “given licences running into many millions with ongoing monthly licence payments”, in March 2023 Fridman challenged OFSI’s refusal in December 2022 to authorise certain additional payments totalling roughly £30,000 a month to cover particular maintenance and staff costs for Athlone House.
By the time Fridman’s challenge was heard in the High Court, OFSI’s licensing regime had come under serious criticism from all sides. While the private sector expressed frustration about blockages in the licensing process, parliamentarians and civil society raised concerns about the lack of transparency and rigour in OFSI’s overstretched licensing function.
As the first-ever court review of a sanctions licensing decision, Fridman’s challenge brought OFSI’s policies and decision-making processes under much-needed scrutiny. In October 2023, the High Court upheld the government’s refusal to grant Fridman additional licences in a decision that came as a welcome relief to OFSI while also providing the public with greater insight into its licensing policies and processes.
Who is Mikhail Fridman and why was he sanctioned?
Mikhail Fridman, a dual Russian and Israeli citizen, is the co-founder and main shareholder of the Alfa Group, a major business conglomerate with business interests in key Russian industries including oil, gas and banking. The group includes Alfa Bank – Russia’s largest non-state bank facing sanctions in the UK, EU and US. Fridman’s net worth is estimated to be over $13 billion.
Fridman was sanctioned by the UK on 15 March 2022 – one month after Russia’s invasion of Ukraine – on the basis that he was “associated” with Putin and that he was a “pro-Kremlin oligarch”. The grounds for Fridman’s designation were subsequently amended to focus on his role in and ownership of the Alfa Group, meaning he “is and/or has been involved in obtaining a benefit from or supporting the Government of Russia”.
In early October 2023, Fridman returned to Moscow for the first time since Russia’s full-scale invasion of Ukraine and has said that he plans to live in Israel.
Why does this case matter?
- As the first opportunity for court scrutiny of OFSI’s licensing decisions, the case gave the public a rare insight into OFSI’s internal licensing policies and processes. It shows the pressure OFSI is under to accede to special pleas from sanctioned oligarchs to cover costs that many people would regard as luxury expenses. Court documents reveal that OFSI has grappled internally with how to assess “basic needs”, noting that “all the designated oligarchs thus far have applied for lavish ‘entertainment’ expenditure”. In developing its internal policies, OFSI has also debated whether “private tutoring… salary of employees, longer-distance travel, medical insurance, security, physio [and] charitable contributions” should be covered, which can add up to £60 to £70,000 a month.
- After some troubling early licensing decisions that authorised luxury expenses and abusive litigation, OFSI’s approach in this case is a welcome sign that the government is tightening its policies to ensure generous permissions or luxury expenses do not undermine the impact of sanctions. By the time of Fridman’s challenge, OFSI had already provided him with licences to meet arrears and make one-off payments totalling almost £1.4 million, plus future payments of £760,000 a year. The judgment delivered a much-needed win for the government as it refines its licensing policies and gives stricter scrutiny to applications for exemptions from sanctions.
- It should not have taken a court challenge to bring key details about OFSI’s sanctions policy into public view. As Fridman himself pointed out, the government has made significant licensing decisions on the basis of internal policies that have not been publicly available. While OFSI has published further guidance since this case, much greater transparency about the licensing regime is needed to build public confidence that special exemptions are not undermining the aims of the sanctions regime.
Further context: The UK’s sanctions licensing regime
As the UK ramped up sanctions in the wake of Russia’s 2022 invasion of Ukraine, it also scrambled to build the capacity and resourcing of the relevant government offices tasked with implementing and enforcing sanctions. OFSI – the authority within HM Treasury responsible for the implementation of financial sanctions – found itself “front and centre” of this unprecedented rise in sanctions workload, needing to scale up its capacity and define its ways of working under the Russian sanctions regime.
Licences are written permissions from OFSI to undertake transactions or activities which would otherwise breach the prohibitions imposed by sanctions. In certain circumstances, licences are necessary to allow our own economy to function smoothly and to avoid unintended consequences or injustices for non-sanctioned people. Yet if these exemptions from the rules are not carefully crafted, they risk undermining the aims of the sanctions regime or allowing a ‘business as usual’ approach to those who have benefitted from the systems of patronage that sustain Russian kleptocracy.
While OFSI has come under serious criticism for its handling of licence applications, there is very little data in the public domain about the numbers, grounds, monetary values, processing times or refusal rates of specific licences under the Russia regime. This lack of transparency around OFSI’s decision-making processes undermines public confidence in the licensing regime.
Details of the UK case
After Fridman was sanctioned in March 2022, OFSI gave him numerous licences to make payments totalling over £1.38 million and €29,000.00. He also had permission to make payments for ongoing maintenance, basic needs and prior obligations in the region of £760,000 a year.
But OSFI refused to authorise certain additional payments totalling roughly £30,000 worth of monthly payments to cover particular maintenance and staff costs for Athlone House. While the purpose of the licensing regime is to “mitigate the harsher effects of sanctions”, the additional exemptions sought by Fridman – including a personal driver – suggested he would live anything but a harsh lifestyle.
Fridman challenged OFSI’s refusal to authorise these additional expenses and asked the High Court to set aside the government’s decisions. He argued that his applications met the legal criteria for obtaining licences, but OFSI had made its decisions on the basis of an untransparent, internal policy and had failed to give him a fair opportunity to respond to concerns about his application. OFSI meanwhile argued that Fridman’s requests showed a “strained interpretation” over what should qualify as basic needs.
Shortly before the court hearing on 17 October 2023, Fridman left Britain to travel to Israel and then Russia with the result that he dropped his challenge to OFSI’s refusal to pay his driver. The three remaining areas of dispute concerned the following expenses:
- £30,000 monthly management fee to Athlone House Limited (AHL), the company that handles the maintenance of Fridman’s Athlone House. AHL’s sole director, Nigina Zairova, has also been sanctioned by the UK, and OFSI argued that allowing payment to AHL would in effect circumvent the sanctions regime.
- £1,850 monthly payments from AHL to a company called Ideaworks as a service fee for lighting, security, communications, and TV equipment at Athlone House. While OFSI had granted a one-off payment to Ideaworks of £18,500 for TV, audio and phone services, it refused ongoing payments on the basis that Fridman had failed to distinguish between services provided by the company for entertainment purposes and security services.
- Wages and salaries for non-security staff including six housekeeping assistants. OFSI refused these payments based on an internal, unpublished policy aimed at preventing sanctioned individuals like Fridman from continuing a “pre-designation lifestyle” with expenses that do not fit within the scope of basic needs.
On 26 October 2023, the High Court dismissed Fridman’s challenge on all grounds. The judge ruled that OFSI acted lawfully and rationally in refusing these additional expenses, and had reached its decision in a procedurally fair manner. The court also agreed that the purpose of the sanctions regime would be “undermined” if payments were permitted to be made to a company controlled by another sanctioned person, Nigina Zairova.
A government spokesperson welcomed the judgment as evidence that its “financial sanctions licensing regime works” while OFSI has said it will “robustly defend baseless challenges against its decisions”. While the licensing regime has come under tangential scrutiny in designation challenges that have reached the courts, OFSI’s successful defence against Fridman’s direct challenge should strengthen the government’s resolve to operate a tighter and more transparent licensing regime.
Court documents
High Court
Further court documents can be requested by emailing info@spotlightcorruption.org.
