A UK Lawyer's Perspective On Representing Designated Persons

Introduction

Lawyers advising on sanctions must not only navigate the risks their clients face but also manage their own risks when providing legal services. Just as professionals must guard against the misuse of legal services in other contexts, sanctions lawyers must take care to understand who their clients are and why they are seeking legal advice. As a general rule, the provision of legal services would not breach sanctions. There is, however, an increasing number of circumstances in which legal services could amount to prohibited or restricted activity and may require a prior licence.

Where legal services are sought for unlawful purposes, such as to commit, conceal or disguise a sanctions breach, it would clearly be improper for the lawyer to act. The general guidance on financial sanctions produced by the United Kingdom's Office of Financial Sanctions Implementation (OFSI) warns lawyers carefully to consider whether their legal advice is properly helping a client to comply with sanctions or amounts to improper participation in, or facilitation of, a sanctions breach. To illustrate the point, OFSI distinguishes between permissible advice to a client on the effects on business of prohibitions against raising capital on financial markets and assistance in preparing documents to raise the capital; the latter may amount to an attempt to circumvent sanctions.² OFSI's separate enforcement guidance makes it clear that failure by regulated individuals to meet regulatory and professional standards may be considered an aggravating feature of a financial sanctions breach.³

The need to combat the perceived involvement of lawyers and other professionals in sanctions evasion and circumvention emerged as a political priority in the wake of the invasion of Ukraine. In March 2022, a Russian Elites, Proxies and Oligarchs Task Force was set up by the G7 members, the European Union and Australia to take action against the assets of key Russian elites and proxies and to act against their enablers and facilitators.⁴ In support of this initiative, the United Kingdom's National Crime Agency has established a Combatting Kleptocracy Cell to investigate sanctions evasion, with a specific focus on professional enablers.⁵ The United Kingdom's Economic Crime Plan for 2023–2026 identified driving down sanctions evasion as a key priority, and committed to identifying and disrupting the enablers who are knowingly complicit in assisting elites to evade sanctions.⁶ Finally, there have been calls for lawyers to be designated as sanctions targets on account of their provision of legal advice to, and representation of, clients in connection with specific forms of legal proceedings.⁷ A number of lawyers have been designated on account of their provision of legal services outside the United Kingdom, in circumstances that have engaged designation criteria.⁸

When coupled with public criticism of law firms and individual lawyers for acting for specified categories of clients, including sanctioned clients, these developments may discourage law firms and individual lawyers from representing designated persons or advising clients who are located in, or otherwise connected in some way with, sanctioned regimes. A further disincentive is likely to result from the increase in scrutiny of, and by, professional regulators and representative bodies in this connection. According to a paper published by the Legal Services Board in July 2022, regulators have been encouraged to be more curious about the risks and challenges in their respective sectors, including by 'making appropriate enquiries of those who have been or may be involved in supporting sanctioned individuals and their wider networks'.⁹

In its guidance on the Russian sanctions regime, the Solicitors Regulation Authority (SRA) advises firms that they can decline instructions from clients they do not feel comfortable acting for, provided that the reason is not unlawful, whether under equalities legislation or otherwise.¹⁰ Whether a current retainer is terminated for good reason is ultimately a question of common law for the courts to determine in each case. In the SRA's separate guidance on compliance with UK sanctions, law firms are advised to include, in terms of business or equivalent, 'becoming a designated person' as a valid reason for ending the business relationship and ceasing to provide services.¹¹ Firms that choose to work in the area of sanctions are warned to consider seriously the risks and how they will address them before offering any services. The guidance further advises firms acting for designated persons to check whether their bank and insurers will continue to provide their services, in addition to considering reputational and regulatory risk.

The ability of a designated person to access legal representation is, however, an important element of the rule of law. Access to legal advice is necessary to ensure that sanctions prohibitions and restrictions are understood and complied with. Asset freezing measures adopted by the United Nations, the European Union and the United Kingdom allow licences or other forms of authorisation to be granted to permit frozen funds to be used by designated persons in payment of their legal fees.¹² The Explanatory Notes to the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) confirm that licensing grounds for the purpose of the United Kingdom's new autonomous sanctions may include reasonable professional fees and the reimbursement of reasonable and necessarily incurred expenses associated with the provision of legal services;¹³ and all regulations adopted under SAMLA have expressly included provisions to this effect. The types of legal services that can be licensed for this purpose are unrestricted under SAMLA, but OFSI's general guidance states that legal fees and disbursements must relate specifically to the provision of legal advice or involvement in litigation or dispute resolution.¹⁴ A further policy decision announced on 30 March 2023 now also restricts the types of contentious legal advice and representation available to persons designated as asset freeze targets. Following an internal review by HM Treasury, the UK government has concluded that, in most cases, the use of frozen funds for payment of legal professional fees for defamation cases is not an appropriate use of funds, and in many cases will be against the public interest.¹⁵ While OFSI will continue to review individual applications case by case for both appropriateness and compliance with the right to a fair hearing, it will now apply a presumption that applications for legal fees licences relating to defamation and similar cases will be rejected.¹⁶ In accordance with this policy, OFSI's general licences for the purposes of the Russia and Belarus sanctions regimes exclude fees and disbursements incurred in connection with the provision of legal advice or representation in court, anywhere in the world, in relation to a claim for defamation or malicious falsehood.¹⁷

The legal services that designated persons are expected to seek fall into three broad categories:

1. Designated persons will seek legal advice for the same reasons as anyone: to exercise their legal rights and to protect their lawful interests, which may be unrelated to their status as designated persons.
2. Designated persons would be expected to seek sanctions compliance advice to understand their obligations under the prohibitions and restrictions that apply to them, and to obtain assistance with licence applications.
3. Designated persons may seek legal advice and representation to request a variation to, or a revocation of, their designation.

This chapter identifies some of the main issues that are likely to arise in the legal representation of designated persons in the United Kingdom.

Legal services prohibition

Trade sanctions now directly target the provision of legal services under one of the SAMLA sanctions regimes, following the introduction of Regulation 54D to the Russia (Sanctions) (EU Exit) Regulations 2019.¹⁸ With effect from 30 June 2023, any person subject to UK sanctions jurisdiction is prohibited from directly or indirectly providing non-contentious legal services to any person who is not a UK person that relates to activity that would breach any specified provisions of the Russia sanctions regime if done by a UK person or taking place in the United Kingdom (regardless of whether there is such a jurisdictional nexus to the activity). On 11 August 2023, a general trade licence was adopted by the Department of Business and Trade to clarify that the exception for compliance advice also applies where it relates to the sanctions laws and criminal laws imposed by any jurisdiction, including Russian counter-sanctions. Anyone seeking to rely on the licence must register via the online export licensing system, SPIRE, within 30 calendar days, and relevant records (other than privileged information) must be kept and made available on request for a period of four years. For prohibited legal advice falling outside the scope of the general trade licence, a standard individual export licence may be granted. Applicants are advised to explain how the continued provision of otherwise prohibited legal services is consistent with the aims of the sanctions, and the impact or implications if the services could not be provided.¹⁹

The legal services prohibition does not apply to any representation, advice, preparation or verification of documents undertaken as part of legal representation services provided in, or in anticipation of, any proceedings before administrative agencies, courts or other duly constituted official tribunals or arbitral or mediation proceedings.²⁰ Legal representation services are defined to include advice given in relation to a dispute or potential dispute, and on the settlement of a dispute, whether or not proceedings are commenced in relation to the dispute. The press release accompanying the introduction of the provision confirmed that legal representation of Russian nationals using UK legal expertise remains permitted.²¹ Nonetheless, the prohibition is likely to be a further disincentive to UK lawyers considering acting for designated persons. The stated objective of the prohibition reinforces the perception of lawyers as potential enablers of sanctions evasion and circumvention. When the government first announced its intention to restrict access to 'transactional legal advisory services for certain commercial activity' on 30 September 2022,²² the stated aim was to hamper the ability of Russia's businesses to operate internationally. When the prohibition was adopted nine months later, it was presented as plugging a perceived loophole that would otherwise potentially permit UK legal services providers to support commercial activity that advances the interests of Russia where those activities are not conducted in the United Kingdom or by UK persons.²³ The statutory guidance on the Russia sanctions regime similarly describes the legal services prohibition as supplementary to the prohibitions on circumventing financial and trade sanctions.²⁴

Legal fees licences

A legal fees licence is not a prerequisite for legal advice or assistance to be provided to a designated person. The provision of legal services cannot directly or indirectly make economic resources available to a designated person in breach of an asset freeze if the designated person is not likely to exchange legal services for, or use legal services in exchange for, funds, goods or services.²⁵ It is equally difficult to see how the provision of legal services, in itself, could be considered to make economic resources available for the benefit of a designated person, in the sense that the designated person thereby obtains (or is able to obtain) a significant financial benefit, including the discharge (or partial discharge) of a financial obligation for which they are wholly or partly responsible.

OFSI's general guidance confirms that a licence is not required to provide legal advice to, and act for, a designated person; nevertheless, lawyers are strongly encouraged to apply for a licence in advance of providing substantive legal services to have certainty as to the fees that will be recoverable while the designated person remains listed.²⁶ The SRA's compliance guidance similarly advises that unpaid work can be undertaken provided it does not circumvent the sanctions regime or provide financial advantage to the designated person.²⁷

The only exception to this general rule is where legal services are paid for and provided 'on credit', which in OFSI's view would require a licence.²⁸ In the absence of any explanation, it is unclear what is meant by the provision of legal services on credit. OFSI's guidance is clearly predicated on the assumption that licences will be sought and granted for legal services already rendered, and OFSI routinely grants legal fees licences to permit lawyers to be paid for these services.

A legal fees licence permits the use of frozen assets as payment for legal services or the use of unfrozen funds as payment for legal services rendered to a designated person. In other words, regardless of who pays, a licence is required to receive payment for any work on behalf of a designated person and any related disbursements. OFSI's general guidance states that a licence is required in advance of payment of court fees only if the court fees are 'significant', which is a question of fact. OFSI expects a legal fees licence to be sought before any payment is made into court as security for costs. OFSI takes the view that some licensing ground other than legal fees needs to be identified to pay security for damages into court, and the ground that will apply depends on the specific circumstances of the case.²⁹

Additional general licences have been adopted to mitigate further the effects of sanctions on access to justice, such as the General Licence on Court Funds Office Payments, issued on 29 February 2024,³⁰ and the General Licence for London Court of International Arbitration (LCIA) Arbitration Costs, issued on 17 October 2022.³¹

The issues that typically arise in practice include the considerable length of time it can take for specific legal fees licence applications to be processed, the amount of information that must be disclosed to OFSI as part of the application process and the ongoing compliance risks once the licence has been issued. Breaches of licence conditions are a criminal offence and compliance with any ongoing reporting requirements imposed in a legal fees licence must be carefully monitored.

Further issues are likely to arise following a policy position adopted by OFSI on 12 July 2023 no longer to engage with applicants where it considers an application to contain insufficient details or evidence. Applications that do not demonstrate that the criteria of the licensing grounds have been met or provide sufficient evidence will be deemed incomplete and returned to the applicant for resubmission.³² An OFSI blog post clarifies that applicants will be able to reapply,³³ but this will be treated as a new application and will not be prioritised purely because it has been resubmitted. OFSI's blog post further advises applicants to consider taking independent legal advice before applying, especially for complicated matters. A separate policy position adopted by OFSI on 26 July 2023 removed the option for applicants to request OFSI to review a decision to refuse a licence.³⁴ The only remaining options for unsuccessful applicants are to apply to challenge OFSI's decision in court under Section 38 of SAMLA or to reapply for a licence, with new or supplementary evidence and new supporting documents or on different licensing grounds.

General legal fees licences

OFSI has granted general licences for legal fees on several occasions.

• Legal aid payments for representation of clients designated under antiterrorist sanctions: The first general licence issued by OFSI under SAMLA for legal services was limited to legally aided work for clients sanctioned under antiterrorist sanctions regimes.³⁵ A general licence issued at the beginning of 2021³⁶ authorises the government agencies involved in administering legal aid to make payments to solicitors acting for clients designated under any of the specified regimes, and for the solicitors to receive these payments, provided that no funds are paid directly or indirectly to the designated person. It replaced a broader general licence, which extended to private third-party payments for the representation of persons designated under the United Kingdom's domestic antiterrorism legislation, together with a parallel general licence for insurance (both now revoked).
• Payments by specified entities or their subsidiaries: In March 2022, OFSI, for the first time, issued a general licence authorising specific entities – UK subsidiaries of designated persons VTB Capital plc and Sberbank CIB (UK) Ltd – to make payments of reasonable professional fees for the provision of legal services or reasonable expenses associated with the provision of legal services.³⁷ Notification must be provided to OFSI within seven days of any payments made in reliance on the licence, and supporting records must be kept for a minimum of six years.
• A further general legal fees licence permits legal fees to be paid by an interim manager or a trustee when acting as receivers and managers in respect of the property and affairs of a charity.³⁸ Records of any activity conducted in reliance on the licence must be kept for a minimum of six years.
• Since 28 October 2022, successive general licences have permitted payments for legal fees and disbursements incurred in connection with the representation of persons designated under the Russia and Belarus sanctions regimes.³⁹ (The version of this licence in force at the time of writing expires on 28 October 2024.) There are separate conditions for payment obligations that pre-date designation and those that post-date designation. Each category is subject to a total cap on professional legal fees (including counsel's fees) of £500,000 (inclusive of value added tax) for the duration of the licence, per law firm instructed (as opposed to per matter worked on). Related expenses must not exceed 10 per cent of the amount payable for professional legal fees or £50,000, whichever is lower. Hourly rates must not exceed those specified. Reports (on forms provided for this purpose) must be made within 14 days of receiving payment. For the purposes of the licence, legal services are defined as legal services provided to a designated person, including legal advice and representation in court, whether provided within the United Kingdom or in another jurisdiction, in relation to any matter except a claim for defamation or malicious falsehood.

Specific legal fees licences

Applications for specific legal fees licences are made using the prescribed form for licence applications.⁴⁰ One reason why these applications tend to be time-consuming is the requirement to demonstrate the reasonableness of any amounts sought to be licensed. As explained by OFSI in a June 2021 blog post,⁴¹ OFSI is legally obliged under SAMLA to ensure that legal fees and expenses are reasonable. The requirement of reasonableness is in fact imposed in the regulations adopted under SAMLA rather than in SAMLA itself. However, neither SAMLA nor the regulations define what is to be considered reasonable for this purpose. Instead, OFSI's general guidance explains that the burden of demonstrating reasonableness of legal fees and disbursements falls on the applicant and that OFSI will take as its benchmark or starting point the rates applied when costs orders are made in civil proceedings, as governed by the Supreme Court Cost Guidelines.⁴² The blog post expands further on this general guidance by warning that OFSI will require a significant level of evidence when scrutinising the reasonableness threshold, and will consider the following factors:

• whether the work has already taken place or if it is anticipated;
• what the work has involved or will involve;
• which fee earners will be, or have been, involved in the work (and their positions or roles within the firm, including relevant experience);
• the fee earners' hourly rates;
• how many hours each fee earner has already spent, or is estimated to spend, on each work stream;
• any supporting evidence as to why the involvement or the number of hours of the particular fee earner is reasonable or proportionate to the nature and complexity of the work;
• any expenses that have been paid or are expected; and
• if any expenses are expected, why they are necessary.

Applicants are also warned not to assume that OFSI understands the process and practice of the legal profession. The obvious difficulty for many applicants, however, will be to provide all the details sought by OFSI without disclosing information protected by legal professional privilege (LPP). The blog post pre-empts this issue by confirming that OFSI does not generally consider fee notes and narratives of work (in generic terms) to be privileged, as they do not constitute the giving or obtaining of legal advice, stressing that OFSI will be unable to undertake a reasonableness assessment without having a breakdown of the legal costs for each area of work. It is not clear why OFSI has chosen to publish its policy position in the form of a blog post or how it is compatible with judicial authorities on the circumstances in which fee notes can attract LPP.⁴³ What is clear, however, is that OFSI will not issue a legal fees licence unless the specified details are disclosed. This potentially creates a conflict with the duty of regulated legal professionals to advise their clients on their entitlement to assert LPP, which is recognised under English law as a fundamental common law right as well as a human right.

Processing time for specific licence applications

The time taken by OFSI to process legal fees licence applications can be considerable. OFSI's general guidance previously stated that it aimed to 'engage' on the substance of a completed application in four weeks but now states that all new licensing applications are reviewed 'as soon as practicable'.⁴⁴ There are no publicly available statistics on the average processing times for licence applications, and ministerial responses to questions in Parliament have confirmed that no distinction is drawn by OFSI when processing applications between legal fees licences and other categories of licences. The current version of OFSI's general guidance states that urgent and humanitarian cases (i.e., those that involve a risk of harm or a threat to life) will be prioritised.⁴⁵ At times of high demand, OFSI will also prioritise applications where there are issues of personal basic needs or wider humanitarian issues at stake that are of material impact or urgency. It is not clear, however, whether legal fees licence applications would be considered of material impact or urgency. A response to a Freedom of Information Act request reported by The Law Society Gazette in April 2022 revealed that OFSI had granted no legal fees licences between 1 January 2022 and 10 March 2022, despite having received 15 applications relating to Russian individuals and entities.⁴⁶ The time taken for legal fees licence applications to be processed will clearly bear directly on access to justice, and specifically the designated person's access to the courts as a fundamental right protected by the common law as well as under the Human Rights Act 1998 (HRA). The hurdles created for designated persons to access legal services are compounded by the limitations imposed by OFSI on the duration and amounts authorised by licences, which means that multiple consecutive licence applications may need to be submitted for the same legal proceedings or the performance of the same instructions, adding not just to the length of time spent on making applications but also to the costs of legal representation.

In January 2023, HM Treasury commissioned an internal review of its approach to specific and general licences, to see if any changes were required to OFSI's licensing practice in relation to legal fees licence applications. On 30 March 2023, Parliament was informed that the review had confirmed that OFSI's decision-making on legal fees licence applications:

Challenges to licensing decisions

It is possible to challenge a decision by OFSI to refuse to grant a legal fees licence application, under Section 38 of SAMLA. It is also possible judicially to review OFSI's failure to consider a licence application within a reasonable period. However, a legal fees licence would be required to enable payment of lawyers for advising on and bringing any challenge. The UK courts have heard few challenges to licence determinations to date, and these have not concerned refusals by OFSI to grant legal fees licences.⁴⁸

Prior to the United Kingdom's departure from the European Union, the Court of Justice of the European Union provided clarification regarding the obligations of the national licensing authorities in respect of legal fees licences. In Peftiev,⁴⁹ the Court identified the considerations that would arise if a legal fees licence was refused altogether by a national licensing authority, specifically on account of concerns that the frozen funds might represent the proceeds of crime. The Court concluded that the licensing authority's discretion was tempered by the obligation to respect the fundamental human rights of the applicant, which, in the case of a target of EU sanctions, included the indispensable nature of legal representation in bringing an action challenging their lawfulness. The Court rejected the suggestion that a lawyer could be paid what was owed once sanctions have been lifted, finding that it was not open to Member States to require a legal services professional to bear such a risk and financial burden. The Court also rejected the suggestion that the designated person could be forced to resort to legal aid instead. As for the suggestion that the funds in question had been unlawfully acquired, the Court stressed that the nature of an asset freeze is different in kind from seizure or confiscation and the purpose of sanctions is not to penalise the unlawful acquisition of funds. This is why there is no carve-out from the right to apply for a legal fees licence, whether on account of the origin of the funds in question or their possible unlawful acquisition.

The position remains the same for licensing bodies in the United Kingdom in respect of their processing of licence applications in accordance with the SAMLA framework. As 'public authorities' for the purposes of Section 6 of the HRA, they are obliged to act compatibly with rights afforded under the European Convention on Human Rights (ECHR) when processing and determining legal fees and other licence applications.

Representing a designated person in applications for revocations of or variations to a UK designation

The legal work for which a legal fees licence is typically sought includes requests for a ministerial revocation or variation of a designation, or, for United Nations designations, a request that the Secretary of State use the best endeavours to request a reconsideration. The requirement periodically to review designations was repealed by the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) on 15 March 2022. However, Section 22 of SAMLA enables a government minister to consider whether the required conditions of a designation are met; and Section 23 of SAMLA confers a right on a designated person to request variation or revocation at any time. The process for submitting representations to a minister for this purpose is governed by the Sanctions Review Procedure (EU Exit) Regulations 2018 and supported by guidance and a standard sanctions review request form published by the Foreign, Commonwealth and Development Office (FCDO).⁵⁰ Section 38 of SAMLA confers a right to apply for a court review of ministerial decisions to refuse requests made under Sections 23 and 25 of SAMLA. The procedure is governed by Part 79 of the Civil Procedure Rules.⁵¹

A preliminary issue that typically arises in connection with these challenges is whether legal advice and assistance is necessary in the first place. There is no procedural requirement for legal representation, whether at the ministerial review stage or at the court stage, and the standard form is clearly intended to enable designated persons to apply without recourse to legal advice and assistance. However, designated persons are typically located outside the United Kingdom and are unlikely to be familiar with the United Kingdom's autonomous sanctions regime. Although litigants in person can ordinarily represent themselves in any court and in any case, sanctions designation challenges will inevitably raise complex issues of public law. Article 6 of the ECHR confers a right to legal representation in the determination of civil rights and obligations, in circumstances where a lawyer is indispensable for effective access to a court.⁵² The ability of a designated person to obtain legal representation of their choosing is also key to the legitimacy of any sanctions regime. It is important, therefore, that this right is effective and available in practice.

Applications for revocation are increasingly receiving judicial attention. While the United Kingdom was an EU Member State, challenges to EU sanctions designations would not be heard by the UK courts unless they involved a decision by a UK public authority – such as a decision to request a person's designation or a refusal to request the removal of a designation. In one of the earliest, unsuccessful, examples of these challenges, a minister's refusal to request a removal of, or an amendments to, a designation was considered a matter of foreign policy and, as such, unsuitable for judicial review.⁵³ A subsequent judicial authority concluded that it would be possible, albeit difficult, to challenge ministerial decisions to designate as well as to refuse to seek the removal of a designation.⁵⁴

Challenges brought under SAMLA not only confirm whether due process has been followed but also provide the means of ensuring ministerial accountability in connection with designation decisions. A prerequisite to challenging any public act is the ability to understand the case against the designated person. There is a duty on the minister to provide a statement of reasons for designating a person by name under the standard procedure, which would ordinarily be reproduced in the Consolidated List of Financial Sanctions Targets in the United Kingdom (the Consolidated List); however, this is not a substitute for the evidence relied on in support of the designation, which must be sought separately from the FCDO. As a matter of practice, the FCDO routinely provides on request both the Sanctions Designation Form and the Sanctions Designation Form Evidence Pack, which are the primary documents on which the FCDO relies at the time that a listing is made. However, there is no guarantee that all the relevant material will be disclosed. There is also no timetable that governs the FCDO's provision of this material. Although designated persons may separately invoke their rights as data subjects to obtain copies of their personal data, in accordance with the framework established by data protection legislation, there is only limited oversight of the FCDO's compliance with statutory deadlines and its reliance on exemptions to resist disclosure. Scrutiny by the Information Commissioner's Office in connection with specific subject access requests depends on the applicant bringing matters to its attention. Alternatively, the designated person would need to seek a court order to enforce their rights.

In accordance with a partial 'ouster clause' introduced in SAMLA for revocation and variation requests, no court can hear a delisting application until the ministerial review process under Section 23 of SAMLA has been exhausted. There are no time limits for ministerial decisions beyond a general requirement that they are to be made as soon as reasonably practicable;⁵⁵ however, a number of individuals have been removed from the UK sanctions list following successful requests for ministerial review. Where revocation requests are unsuccessful, they may instead lead to a variation of the grounds for the designation.

The minister must inform the applicant in writing of the decision on the request and the reasons for it, as soon as reasonably practicable after the decision is made. However, the minister can exclude any matters in the interests of national security or international relations, for reasons connected with the prevention or detection of serious crime or in the interests of justice.⁵⁶

If a request under Section 23 of SAMLA is refused, no further request can be made unless there is a significant matter that has not previously been considered by the minister.⁵⁷ Instead, the designated person may apply under Section 38 of SAMLA for the court to review the minister's decision, but the grounds for challenge are limited. The courts may hear sensitive evidence not disclosed to the applicant, in a 'closed material' procedure imported from domestic antiterrorist legislation.⁵⁸ Following amendments to SAMLA by ECTEA, the ability of a court to order damages in the event of a successful challenge is now confined to circumstances where a designation is found to have been adopted in bad faith.⁵⁹ Any damages award made may also not exceed any amount specified by a minister in regulations adopted for this purpose.⁶⁰

Finally, there appears to be nothing in SAMLA to prevent a designation from being remade on different grounds, after the initial designation has been revoked by the minister or the decision to refuse de-designation has been declared unlawful by a court.

To date, only two challenges to ministerial refusals to revoke designations have been brought in the UK courts under Section 38 of SAMLA, neither of which has been successful.⁶¹ Permission to appeal to the Supreme Court has been granted in one of these cases.

It remains the position that no variation or revocation can be made by a UK minister in relation to designations based on UN listings. An early challenge to the compatibility of this restriction with the designated person's convention rights was rejected by the High Court of England and Wales in Youssef,⁶² despite a precedent seemingly to the contrary from the European Court of Human Rights in Al-Dulimi.⁶³ Instead, the only remedy available for UN designated persons is to request the Secretary of State to use the best endeavours to secure their removal from the UN list, and any refusal to do so can be challenged on judicial review principles.⁶⁴

Although a minister may vary or revoke a designation at any time, there is only an obligation to do so if the necessary conditions cease to be met.⁶⁵ Those necessary conditions have been further limited by amendments to SAMLA introduced by ECTEA, which enable ministers to conclude that any sanctions adopted for a discretionary purpose are appropriate without first satisfying themselves that there are good reasons to pursue the purpose for which the sanctions are to be adopted and that the imposition of sanctions is a reasonable course of action for that purpose.⁶⁶

Concurrent designations in multiple jurisdictions create additional issues that need to be factored in when advising designated persons, particularly in connection with legal and administrative challenges to designation decisions. The proliferation of sanctions designations worldwide has increased the likelihood of the same person being designated in more than one jurisdiction – in fact, the 'urgent' procedure for temporary UK designations is predicated on a prior designation by one of the specified jurisdictions.⁶⁷ Simultaneous designation challenges raise complex strategic considerations as well as practical coordination challenges, not least as legal fees licences may need to be sought from multiple authorities.

General considerations arising in all legal work for designated persons

Any legal work for designated persons will expose a lawyer to a heightened risk of committing financial sanctions breaches, including by participating in or facilitating circumvention offences. It may not always be clear what activities could potentially amount to unlawful facilitation and circumvention. OFSI's enforcement guidance explains that facilitation of a financial sanctions breach is a form of circumvention and that individuals who act on behalf of or provide advice to others as part of their job may be considered professional facilitators. In OFSI's view, simply discovering a potential sanctions breach when acting for a client does not automatically make a professional adviser party to it, but they may become so if their subsequent actions amount to collusion in the breach.⁶⁸

Lawyers working for designated persons are also assuming a heightened exposure to potential criminal liability for failing to comply with applicable reporting obligations. In addition to any reporting obligations imposed as conditions of legal fees licences, firms and sole practitioners providing legal or notarial services to other persons, by way of business, are 'relevant firms' obliged under each SAMLA regulation imposing sanctions prohibitions, in accordance with information provision obligations adopted pursuant to Section 16 of SAMLA, to inform HM Treasury as soon as practicable if they know, or have reasonable cause to suspect, that a person is a designated person or has committed a criminal breach of financial sanctions. If a designated person is a client, relevant firms are also required to report on the nature and extent of any frozen assets held on that client's behalf: OFSI has published a standard 'compliance reporting form' on its website for this purpose. Where the designated person is a client, the obligation to report knowledge that a person is a designated person would in any event be discharged when submitting a legal fees licence application or, where reliance is placed on a general licence, when complying with reporting conditions.

Additional reporting obligations apply to relevant firms if they know, or have reasonable cause to suspect, that funds or economic resources are held for the Russian Central Bank, the National Wealth Fund, the Ministry of Finance or any person directly or indirectly owned or controlled by them or acting on their behalf or at their direction. Clients may also be subject to reporting obligations of their own, particularly where they are designated under the Russia (Sanctions) (EU Exit) Regulations 2019 or the Republic of Belarus (Sanctions) (EU Exit) Regulations 2019.

There is a limited carve-out from the information provision obligations in SAMLA regulations for information that is protected by LPP, when it is in the possession of a person who has acted or is acting as counsel or as a solicitor for any person. The identity of a client may be protected by LPP in certain circumstances.⁶⁹ However, the requirement to report knowledge or reasonable cause to suspect that a person is a designated person is in any event understood to be confined to individuals and entities on the Consolidated List (as opposed to entities owned or controlled by designated persons) and directed at circumstances where the designated person in question is seeking to disguise their identity and designated status. It would present an obvious obstacle to access to justice if lawyers were required to report the fact that they had been approached by a designated person lawfully seeking legal assistance, in circumstances where they decline instructions or are not retained to act.

The SRA's compliance guidance advises firms also to consider making the SRA aware that a client is a designated person, regardless of whether this information relates to any reportable conduct – to ensure that the SRA has a record of what has happened and why, in case of any future queries or concerns.⁷⁰ This advice, however, is addressed to the situation where a client becomes designated in circumstances in which it is not possible to terminate the retainer and there is no general licence in place.

The SRA has separately confirmed that it expects firms to screen not only their clients but also any counterparties against the Consolidated List at the outset of a matter, and to conduct more in-depth due diligence and regular ongoing monitoring for riskier counterparties and transactions.⁷¹ The SRA warns that reliance on another party's screening systems is unlikely to provide a complete defence in the event of a breach of the sanctions regime.

This expectation is repeated in the SRA's guidance on conducting firm-wide sanctions risk assessments, which the SRA considers best practice for firms at higher risk to adopt.⁷² The themes identified in a firm-wide risk assessment should inform matter or client-specific risk assessments.

Relevant firms are additionally obliged to provide information about frozen funds in response to OFSI's annual frozen assets reviews. This is an exercise of the broad powers conferred by SAMLA on HM Treasury to request any person to provide specified information or to produce specified documents, in any manner specified, for a specified purpose. A failure to comply with any information provision obligation, without reasonable excuse, is a criminal offence and the obligation may be enforced by court order.

Dr Anna Bradshaw is a partner in the business crime team at Peters & Peters Solicitors LLP, where she advises on sanctions and trade controls as part of her wider financial crime practice. In addition to compliance advice, she assists with investigations into suspected breaches and related reporting obligations and represents individuals and corporates in contentious proceedings. She also acts for designated persons in legal and administrative challenges to sanctions listings. Anna regularly publishes and speaks in the United Kingdom and abroad on topics relating to sanctions and financial crime. She is an associate fellow of the Royal United Services Institute and assists its Centre for Financial Crime and Security Studies with its research on US, EU and UK sanctions.

Alistair Jones is of counsel in the business crime and investigations team at Peters & Peters Solicitors LLP, and advises individuals and corporates on all aspects of economic and trade sanctions risk, compliance and enforcement. Alistair is regularly instructed by companies and individuals across a range of industries and is recognised in the 2024 edition of The Legal 500 for his 'in-depth knowledge' of UK sanctions and export controls. He is listed as an expert by WorldECR, the leading publisher for sanctions and export controls. He regularly advises designated persons. He has made some of the first successful applications for the removal of individuals from the UK sanctions list, as well as coordinating sanctions challenges resulting in some of the first delistings in other jurisdictions, such as Canada and Australia. He has successfully resisted enforcement actions by the Office of Financial Sanctions Implementation. He has also successfully acted for companies alleged to have breached trade sanctions, including in relation to unlawful seizures of goods.

Footnotes

2 Office of Financial Sanctions Implementation (OFSI), 'UK financial sanctions general guidance' (updated 16 May 2024), para. 6.6.1, https://www.gov.uk/government/publications/financial-sanctions-general-guidance/uk-financial-sanctions-general-guidance (accessed June 2024).

3 OFSI, 'OFSI enforcement and monetary penalties for breaches of financial sanctions: Guidance' (updated 16 May 2024), para. 3.4.2 E, https://www.gov.uk/government/publications/financial-sanctions-enforcement-and -monetary-penalties-guidance/financial-sanctions-enforcement-and-monetary-penalties-guidance (accessed June 2024).

4 US Department of the Treasury, press release, 'Russian Elites, Proxies, and Oligarchs Task Force ministerial joint statement', 17 Mar. 2022, https://home.treasury.gov/news/press-releases/jy0663 (accessed June 2024).

5 United Kingdom Financial Intelligence Unit, et al., 'SARs In Action', Issue 15, Mar. 2022, p. 8, https://nationalcrimeagency.gov.uk/who-we-are/publications/591-sars-in-action-march-2022/file (accessed June 2024).

6 HM Government, 'Economic Crime Plan 2: 2023–2026', para. 3.10, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/ attachment_data/file/1147515/6.8300_HO_Economic_Crime_Plan_2_v6_Web.pdf (accessed June 2024).

7 Jonathan Ames, 'Deny visas to oligarchs' British lawyers', The Times, 19 Apr. 2022, www.thetimes.co.uk/article/deny-visas-to-oligarchs-british-lawyers-tg5g6dkjj (accessed June 2024); Stephanie Kirchgaessner and Julian Borger, 'Calls for US to issue visa bans for UK lawyers enabling Russian oligarchs', The Guardian, 16 Apr. 2022, www.theguardian.com/us-news/2022/apr/16/calls-for-us-to-issue-visa-bans-for-uk-lawyers-enabling-russian-oligarchs (accessed June 2024).

8 e.g., Russian lawyers Yulia Mikhailovna Maiorova (UK Sanctions List Ref: GAC0014) and Andrei Alekseevich Pavlov (UK Sanctions List Ref: GAC0007) were both designated on 26 April 2021 as asset freeze targets under the Global Anti-Corruption Sanctions Regulations 2021. Cypriot lawyer Georgiou Vassiliades (UK Sanctions List Ref: RUS1825) was designated under the Russia (Sanctions) (EU Exit) Regulations 2019 on 12 April 2023.

9 Legal Services Board, 'Financial sanctions and legal services', Paper (22) 39, 19 July 2022, https://legalservicesboard.org.uk/wp-content/uploads/2022/07/04.-Paper-22-39-Sanctions-update-.pdf (accessed June 2024).

10 Solicitors Regulation Authority (SRA), news release, 'The importance of complying with Russian financial sanctions', 4 Mar. 2022, as updated 15 Mar. 2022, www.sra.org.uk/sra/news/russian-conflict-and-sanctions/ (accessed June 2024).

11 SRA, Guidance, 'Complying with the UK Sanctions Regime', 28 Nov. 2022, www.sra.org.uk/solicitors/guidance/financial-sanctions-regime/ (accessed June 2024).

12 See, e.g., the Council of the European Union, 'Guidelines on Implementation and Evaluation of Restrictive Measures (Sanctions) in the Framework of the EU Common Foreign and Security Policy', as updated 4 May 2018, at para. 25.

13 Sanctions and Anti-Money Laundering Act 2018 (SAMLA), Explanatory Notes, para. 65(c), www.legislation.gov.uk/ukpga/2018/13/notes (accessed June 2024).

14 id., para. 6.5.

15 UK Parliament, Written questions, answers and statements, '[OFSI] update: Statement made on 30 March 2023', Statement UIN HLWS686, https://questions-statements.parliament.uk/written-statements/detail/2023-03-30/hlws686 (accessed June 2024).

16 Letter from Baroness Penn to Alicia Kearns MP, chair of the Foreign Affairs Committee, House of Commons, 18 Apr. 2023, https://committees.parliament.uk/publications/39307/documents/192902/default/ (accessed June 2024).

17 OFSI General Licence under the Russia Regulations and the Belarus Regulations, INT/2024/4671884, https://assets.publishing.service.gov.uk/media/662ba56d5b89e6a356bf9357/Legal_services_GL_INT.2024.4671884.pdf (accessed June 2024).

18 Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023, S.I. 2023/713.

19 Department of Business and Trade, Guidance, 'Complying with professional and business services sanctions related to Russia', updated 22 Dec. 2023, www.gov.uk/government/publications/professional-and-business-services -to-a-person-connected-with-russia/professional-and-business-services-to-a-person-connected-with-russia (accessed June 2024).

20 Russia (Sanctions) (EU Exit) Regulations 2019, Schedule 3J, para. 8A.

21 HM Government, press release, 'New law imposes fresh sanctions on Russia using UK legal expertise', 29 June 2023, www.gov.uk/government/news/new-law-imposes-fresh-sanctions-on-russia-accessing-uk-legal-expertise (accessed June 2024).

22 HM Government, press release, 'Sanctions in response to Putin's illegal annexation of Ukrainian regions', 30 Sept. 2022, www.gov.uk/government/news/sanctions-in-response-to-putins-illegal-annexation-of-ukrainian-regions (accessed June 2024).

23 UK Government, 'Explanatory Memorandum to the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023', www.legislation.gov.uk/uksi/2023/713/pdfs/uksiem_20230713_en_001.pdf (accessed June 2024).

24 HM Government, Statutory guidance, 'Russia sanctions: guidance', updated 12 June 2024, www.gov.uk/government/publications/russia-sanctions-guidance/russia-sanctions-guidance (accessed June 2024).

25 Section 60(2) of SAMLA defines 'economic resources' as assets of every kind, whether tangible or intangible, movable or immovable, which are not funds but can be used to obtain funds, goods or services.

26 OFSI, 'UK financial sanctions general guidance', op. cit. note 2, para. 6.5.

27 SRA, Guidance, 'Complying with the UK Sanctions Regime', op. cit. note 11.

28 OFSI, 'UK financial sanctions general guidance', op. cit. note 2, para. 6.6.1.

29 id., para. 6.6.2. The availability of a licensing ground was considered in Mints & Ors v. PJSC National Bank Trust & Anor [2023] EWCA Civ 1132.

30 OFSI General Licences, Court Funds Office Payments, General Licence INT/2024/4398024, https://assets.publishing.service.gov.uk/media/65e06e67b8da630f42c86307/INT-2024-4398024.pdf (accessed June 2024).

31 OFSI General Licences, LCIA Payments, General Licence INT/2022/1552576, https://assets.publishing.service.gov.uk/media/657c7c971c0c2a000d18ce76/ INT-2022-1552576_LCIA_Fees_GL.pdf (accessed June 2024).

32 OFSI, 'UK financial sanctions general guidance', op. cit. note 2, para. 6.9.

33 OFSI, 'An Update to our Licensing Process: Returning Incomplete Applications', 12 July 2023, https://ofsi.blog.gov.uk/2023/07/12/an-update-to-our-licensing-process-returning-incomplete-applications/ (accessed June 2024).

34 OFSI, 'UK financial sanctions general guidance', op. cit. note 2, amended para. 6.12.

35 The ISIL (Da'esh) and Al-Qaida (United Nations Sanctions) (EU Exit) Regulations 2019, the Counter-Terrorism (International Sanctions) (EU Exit) Regulations 2019 and the Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019.

36 General Licence INT/2020/G1, 11 Jan. 2021 (as amended), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/988364/General_Licence_-_INT2020G1_-_As_amended.pdf (accessed June 2024).

37 General Licence – Russian Banks – UK subsidiaries – Guernsey subsidiary – EU subsidiaries – Basic needs, routine holding and maintenance, the payment of legal fees and insolvency related payments , INT/2022/1280876, 1 March 2022 (as last amended on 31 May 2024), https://assets.publishing.service.gov.uk/media/6659c106dc15efdddf1a8609/INT.2022.1280876_GL.pdf (accessed June 2024).

38 General Licence – Russia Designated Persons – Charities and Interim Managers and trustees, INT/2022/1834876 (as last amended on 15 Dec. 2023), https://assets.publishing.service.gov.uk/government/uploads/system/ uploads/attachment_data/file/1079599/GENERAL_LICENCE_CC_20220530_.pdf (accessed June 2024).

39 The current version of this licence is OFSI General Licence INT/2024/4671884, 26 Apr. 2024, op. cit. note 17.

40 OFSI, Guidance, 'Licences that allow activity prohibited by financial sanctions', 4 Aug. 2017, www.gov.uk/guidance/licences-that-allow-activity-prohibited-by-financial-sanctions (accessed June 2024).

41 OFSI, 'Reasonableness in Licensing', 30 June 2021, https://ofsi.blog.gov.uk/2021/06/30/reasonableness-in-licensing/ (accessed June 2024).

42 OFSI, 'UK financial sanctions general guidance', op. cit. note 2, para. 6.5.

43 See, e.g., the summary of the relevant judicial authorities in Colin Passmore, Privilege (Fourth Edition, Sweet & Maxwell, 2020), at 2-209 to 2-216.

44 OFSI, 'UK financial sanctions general guidance', op. cit. note 2, para. 6.10.

45 id., at para. 6.10.1.

46 John Hyde, 'Sanctioned clients in limbo as Treasury fails to grant "reasonable fees" licences', The Law Society Gazette (10 Apr. 2022), www.lawgazette.co.uk/news/sanctioned-clients-in-limbo-as-treasury-fails-to-grant-reasonable-fees-licences/5112164.article (accessed June 2024).

47 UK Parliament, 'Statement UIN HLWS686', op. cit. note 15.

48 OFSI's refusal to grant licences was considered by the Administrative Court in R (on the application of Mikhail Fridman) v. HM Treasury [2023] EWHC 2657, but this did not consider legal fees licences. Various aspects of OFSI's licensing powers were considered in Mints & Ors v. PJSC National Bank Trust & Anor [2023] EWCA Civ 1132, including in relation to the payment of adverse costs.

49 Case C-314/13, U~sieno reikalu ministerija & Ors v. Vladimir Peftiev & Ors.

50 Foreign, Commonwealth and Development Office, Guidance, 'How to request variation or revocation of a sanctions designation or review of a UN listing', updated 2 Feb. 2023, www.gov.uk/government/publications/making-a-sanctions-challenge-how-to-seek-variation-or-revocation-of-a-sanctions-designation/making-a-sanctions-challenge-how-to-seek-a-variation-or-revocation-of-a-sanctions-designation (accessed June 2024).

51 Proceedings under the Counter-Terrorism Act 2008, Part 1 of the Terrorist Asset-Freezing Etc. Act 2010 and Part 1 of the Sanctions and Anti-Money Laundering Act 2018, Part 79, www.justice.gov.uk/courts/procedure-rules/civil/rules/part79 (accessed July 2024). See LLC Synesis v. Secretary of State for Foreign, Commonwealth and Development Affairs [2023] EWHC 541 (Admin) and Dalston Projects Limited v. Secretary of State for Transport and Shvidler v. Secretary of State for Foreign, Commonwealth and Development Affairs [2024] EWCA Civ 172.

52 See, e.g., Airey v. Ireland (1979-90) 2 EHRR 305.

53 R (El-Maghraby and El Gazaerly) v. HM Treasury and Foreign and Commonwealth Office [2012] EWHC 674 (Admin).

54 R (Bredenkamp) v. Secretary of State for Foreign and Commonwealth Affairs [2012] EWHC 3297 (Admin).

55 The Sanctions Review Procedure (EU Exit) Regulations 2018, Regulation 7.

56 id., Regulation 8.

57 SAMLA, Sections 23(2) and 25(3).

58 id., Section 40.

59 id., Section 39(2).

60 id., Section 39(2A).

61 See LLC Synesis v Secretary of State for Foreign, Commonwealth and Development Affairs [2023] EWHC 541 (Admin) and Dalston Projects Limited v Secretary of State for Transport and Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs [2024] EWCA Civ 172.

62 Youssef v. the Secretary of State for Foreign, Commonwealth and Development Affairs and HM Treasury [2021] EWHC 3188 (Admin).

63 Al-Dulimi and Montana Management Inc. v. Switzerland, Application 5809/08) (2016) 42 BHRC 163.

64 SAMLA, Section 25(2).

65 id., Section 22(3).

66 Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA), Section 57(2), repealing SAMLA, Section 1(4); ECTEA, Section 57(3), repealing SAMLA, Section 2.

67 id., Section 11(1A)(b).

68 OFSI, 'OFSI enforcement and monetary penalties for breaches of financial sanctions: Guidance', op. cit. note 3, para. 3.37.

69 SRJ and persons unknown [2014] EWHC 2293 (QB).

70 SRA, Guidance, 'Complying with the UK Sanctions Regime', op. cit. note 11.

71 SRA, 'Compliance with the regulations and preventing money laundering Q&A', updated 28 July 2023, 14 Feb. 2024, https://www.sra.org.uk/solicitors/resources/money-laundering/aml-questions-answers/ (accessed July 2024).

72 SRA, Guidance, 'Sanctions regime – firm wide risk assessments', 23 Jan. 2024, https://www.sra.org.uk/solicitors/guidance/sanctions-regime-firm-wide-risk-assessments/ (accessed June 2024).

Originally published by Global Investigations Review's Guide to Sanctions

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