Update on UK Sanctions Halfway Through the Year
In a landmark ruling, the UK Supreme Court has upheld the proportionality of sanctions imposed on businessman Eugene Shvidler and Dalston Projects Ltd under the UK's Russia regime. The decision, made on 29 July 2025, marks a significant milestone in the country's sanctions regime.
The sanctions, which include asset freezes and detentions, were imposed in response to a breach that occurred in February 2018. Markom Management Limited (MML), the company under scrutiny, facilitated the payment of £416,590.92 to a person designated under UK's Russian sanctions rules. MML reported the breach to OFSI via its legal representatives in October 2018.
However, it took a further four years for the final penalty notice to be issued, nearly seven years after the initial breach. No justification was offered for the duration of the investigation.
The Shvidler and Dalston Projects cases were considered test cases for the UK's sanctions regime, and the ruling provides guidance for future cases. The Supreme Court emphasized the importance of balancing the legitimate aim of the sanctions—such as deterring Russian aggression—with the degree of infringement on individual rights.
The Court formulated a four-part proportionality test, considering the legitimacy and importance of the government's objective, the effectiveness of sanctions in pursuit of that aim, the extent of individual rights infringed, and the appropriate level of judicial deference to executive foreign policy decisions.
In the Shvidler case, the majority of the Supreme Court concluded that the sanctions imposed were proportionate. However, a notable dissent by Lord Leggatt argued that the restrictions on Shvidler were "unjust and disproportionate," criticizing the government’s justifications as insufficient and cautioning against excessive judicial deference in protecting individual liberties.
Lord Leggatt's dissenting views may be adopted as arguments in future sanctions designation challenges. The decision also underscores the need for detailed proportionality scrutiny to ensure measures do not go beyond what is necessary.
The ruling comes amidst concerns about the confusion and unintended consequences of other OFSI enforcement decisions in the past. The case serves as a reminder of the critical role the courts play in ensuring that sanctions are proportionate and do not infringe upon individual rights more than necessary.
On 31 July 2025, OFSI imposed a £300,000 penalty on MML for the breach. Despite MML's self-report and voluntary disclosure, OFSI determined that MML was ineligible for a reduction in penalty for voluntary disclosure. The reasons for this decision were not explained.
References: 1. [Link to source 1] 2. [Link to source 2] 3. [Link to source 3] 4. [Link to source 4] 5. [Link to source 5]
The ruling by the UK Supreme Court on the Shvidler and Dalston Projects cases, considering the legitimacy and importance of sanctions in business and finance, set a significant precedent for future cases by providing guidance on the balance between deterring Russian aggression and individual rights. In the industry sector, this decision underscores the necessity for detailed proportionality scrutiny to ensure that sanctions, such as those imposed on MML, do not unnecessarily infringe upon business and financial rights.
