First-ever court challenge to Russia sanctions fails

18 August, 2023 | 3 minute read

Today the first-ever judicial challenge to a designation under the UK’s Russia sanctions regime was dismissed, as the High Court upheld the government’s decision to impose sanctions against the US-UK dual national Eugene Shvidler. The billionaire businessman, who is a long-standing friend and business associate of Russian oligarch and former Chelsea FC owner Roman Abramovich, had argued that sanctions against him were disproportionate and discriminatory.

Shvidler was designated on 24 March 2022 as part of a big sanctions package of 65 new listings at a time when the UK government was moving at speed to ramp up its sanctions in response to Russia’s full-scale invasion of Ukraine. Shvidler’s challenge is an important test case for how designation decisions made in the heat of the invasion now look in the cold light of the courtroom almost 18 months later.

The high bar for overturning sanctions

Shvidler argued that his designation was tenuous at best and discriminatory at worst, being based on little more than his association with Abramovich and his past role as a non-executive director of former FTSE 100 steel giant Evraz plc. As a British citizen, UK sanctions subject Shvidler to a world-wide asset freeze, meaning that the impact on him and his family is particularly extensive.

In his judgment, Mr Justice Garnham said sanctions are not “an altogether forbidden area” for the court and insisted that “close scrutiny is necessary” where measures interfere with fundamental rights. But he emphasised that the court “does not assume the role of the primary decision maker” and instead gives “special weight” to the government’s discretion and institutional competence in sanctions as an area of foreign policy.

While recognising the “severe” effects of sanctions measures against Shvidler, the court sided with the government that these consequences are not disproportionate in view of the considerable public interest in a strong sanctions response to Russian aggression in Ukraine. Mr Justice Garnham noted that the “foreign policy objectives here are of the highest order and weigh heavily in the scales when determining fair balance”.

The cumulative effect of sanctions measures

At the heart of the court’s ruling is a recognition of the important role of sanctions as a foreign policy tool. The government explained how sanctions aim to “send a signal” that there are negative consequences for associating with those propping up Putin’s regime, and “incentivise” them to change behaviour and disinvest from Russia.

Importantly, the court recognised that the impact of any sanctions regime doesn’t just turn on one designation, but on the combined effect of a range of measures designed to increase pressure on the global networks of influence that sustain Russian kleptocracy. In Mr Justice Garnham’s words:

The effectiveness of any sanctions regime depends, not on the effect of a particular measure directed at a single individual, but on the cumulative effect of all the measures imposed under that regime, together with other types of diplomatic pressure.

The court accepted that identifying “the levers of pressure by which to influence” Russia’s decision-making is a matter of foreign policy, which the government is best placed to assess.

Time for an independent review of the UK’s sanctions regime

Today’s landmark ruling is a significant victory for the government and strengthens their hand to pursue an ambitious sanctions strategy. The assurance of a judicial check on designation decisions also boosts public confidence in the government’s exercise of its extensive sanctions powers.

But Shvidler’s challenge also raised some serious questions about the government’s designation strategy, sanctions capacity and policy objectives. For example, his evidence painted a picture of an overstretched team in the Office of Financial Sanctions Implementation (OFSI) tasked with responding to licence applications seeking exemptions from sanctions. He also raised legitimate questions about what practical steps he and other designated persons need to take to come off the sanctions list. So far the government has made only vague statements about the possibility of an “offramp” for the oligarchs and recently lifted sanctions against Oleg Tinkov, but more clarity is needed about delisting policy to ensure sanctions really incentivise behaviour change.

Rather than resting on their laurels in this individual case, the government should embrace today’s ruling as an opportunity to take stock of the sanctions regime as a whole. Almost 18 months after the full-scale invasion of Ukraine, it’s time for a comprehensive review of the sanctions regime by an independent panel of foreign policy and legal experts. To ensure sanctions are effective, it’s essential that the right people are being targeted, that OFSI’s licensing regime supports the aims of sanctions, and that there’s a clear policy about the kind of behavioural change the government seeks to secure from those designated.

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