18.07.2022
In a crucial test case for the UK sanctions regime, the Westminster Magistrates’ Court ruled today that funds frozen by the National Crime Agency (NCA) for suspected sanctions evasion can be used to pay what many would view as luxury expenses of Russian billionaire Petr Aven, raising real questions about the toughness of UK sanctions enforcement.
The court refused to set aside the NCA’s Account Freezing Order (AFO) altogether, however, meaning that their investigation into whether the funds are the proceeds of sanctions evasion can continue, in an important victory for the NCA.
The court varied an AFO obtained by the NCA against two companies linked to Aven after it emerged that the Office of Financial Sanctions Implementation (OFSI) had granted a special licence allowing Aven to use these accounts. The NCA admits it made a mistake in failing to tell the court when first applying for the AFO that OFSI had granted this licence.
However, the NCA claims the funds are the proceeds of crime, having allegedly been moved to circumvent sanctions against Aven, who was designated by the EU on 28 February and by the UK on 15 March 2022. The NCA’s list of 10 suspected sanctions breaches features “very unusual” spending including transactions to fund a £200,000 payment to two car dealers and a £160,000 transaction in an alleged attempt to conceal the sale of a Bentley.
With the AFO now being varied to bring it in line with the OFSI licence, the NCA is concerned the frozen funds are at risk of being run down until there is nothing left to forfeit. Meanwhile, Aven is reportedly worth $5.3 billion and holds a £300 million art collection.
This case is an encouraging sign that the NCA is not shying from difficult cases, and is serious about taking swift and strong action against attempts to dodge sanctions. But it has also brought to light the challenges of detecting and disrupting evasion.
It emerged during the hearing that there was a failure in communication between the NCA and the OFSI team that issued the special licence in favour of Mr Aven. The teething problems in co-ordination between the NCA and OFSI need to be sorted out quickly if the sanctions regime is to have real bite through criminal enforcement.
As Shadow FCDO Minister Stephen Doughty noted in Thursday’s debate on ‘Magnitsky’ sanctions for corruption and human rights abuses: “We need to see better co-ordination among the OFSI, the NCA and other enforcement bodies to ensure a consistent approach”.
This case also raises serious questions about the transparency and rigour of OFSI’s licensing regime. Letting a sanctioned Russian oligarch use the suspected proceeds of crime to pay household expenses of at least £600k per year – over double the average UK house price – sends very mixed messages about how tough the UK wants its sanctions regime to be. Classifying luxury expenses such as theatre trips and fitness as “basic needs” raises real questions about OFSI’s licensing process.
We need a clear, common strategy and close co-operation between all government agencies and the private sector working together to ensure sanctions are implemented and enforced as robustly and effectively as possible.
Dr Helen Taylor, a legal researcher at Spotlight on Corruption, said:
“This is a crucial test of whether the UK can effectively tackle sanctions evasion through robust enforcement. While the case shows the NCA is serious about taking swift action following alleged sanctions breaches, it also exposes key sticking points in enforcement. Teething problems in the co-ordination between the NCA and OFSI need to be sorted out quickly if the sanctions regime is to have real bite. The case also raises serious concerns about the lack of transparency and the rationale for exemptions granted in the OFSI licensing regime. Allowing a Russian oligarch to spend £600,000 per year from frozen funds on what most would consider luxury expenses suggests a soft touch during a cost-of-living crisis.”
