Ownership and control of Russian entities

As many will be aware, there has been much debate regarding whether to treat entities associated with the Russian state as sanctioned on the basis that they are subject to the "control" of President Putin or other senior officials who are designated persons under UK sanctions with whom such entities are linked, pursuant to Regulation 7(4) of the Russia sanctions regulations.

Whether that's the case became quite a vexed question following the judgment of the Court of Appeal in Mints v NBT and Bank Okritie [2023] EWCA Civ 1132, where the judge stated in obiter comments that he was satisfied that NBT was subject to Putin's control since, as the apex of a command economy, Putin could exert influence over it and "could be deemed to control everything in Russia". NBT is not listed as a designated person on the UK sanctions list, but is majority owned by the Central Bank of Russia, a Russian state institution. The Governor of the Central Bank of Russia, Elvira Nabiullina, is a designated person, as is President Putin.

This judgment was swiftly followed by Guidance on Public Officials and Control from OFSI which stated (inter alia) "the UK government does not consider President Putin exercises indirect or de facto control over all entities in the Russian economy merely by virtue of his occupation of the Russian Presidency. A person should be considered to exercise control over certain private entities where this can be supported by sufficient evidence on a case-by-case basis."

Since then, various cases have sought to distinguish the position in Mints when interpreting the "control" test under the Regulations (see Litasco SA v. Der Mond Oil and Gas Africa SA and Locafrique Holding SA [2023] EWHC 2866 (Comm) and Hellard & Others v. OJSC Rossiysky Kredit Bank (in Liquidation) & Others [2024] EWHC 1783 (Ch)). The headline point following those cases is that, in the absence of any evidence that the designated person (i) has a legal right under which they can exercise control (de jure control); (ii) is in fact exercising a decisive influence over the entity (actual present de facto control); or (iii) has the legal means to obtain ownership or control in the future (potential future de jure control); it will be reasonable to conclude that the designated person could otherwise exercise control if they wished to (potential future de facto control) only in rare cases, and in particular where there is evidence that the controller could exercise control unilaterally and without penalty or consequences which they would be unlikely to accept.

Whilst it had been hoped that the Supreme Court would rule definitively on the point and give further comfort to those making assessments in practice as to where the lines should be drawn, these cases provide a basis for challenging the judge's interpretation of "control" in Mints in respect of NBT and other entities in a similar position and a reasonable alternative approach.

The status of NBT

As for NBT specifically, there has been further judicial consideration which supports the conclusion that it is not to be treated as designated under UK sanctions, and more generally endorses the application of the future/potential de facto control test described above.

In Yurov and others v NBT [2025] EWHC 75 (Ch), the trustees in a bankruptcy sought an order permitting them to pay NBT's share of any dividends in the bankruptcies (in which it is the 99.5% majority creditor) to Steptoe, NBT's solicitors, and thereby obtain the confirmation of the Court that doing so would not amount to a breach of sanctions.

In that case, the judge concluded that NBT was not a designated person on the basis of control by Putin or Nabiullina for the following reasons (paragraph 47):

"It seems to me that the appropriate approach for this court is to consider all the evidence, which is something the Court of Appeal in Mints did not need to do. I consider the following points to be important:

(a) NBT is not a designated person in the UK and, until recently, was not designated anywhere. The recent OFAC designation of NBT appears to have been a broad-brush designation given that fifty other Russian banks were subjected to sanctions at the same time, rather than a reassessment of Mr Putin and/or Ms Nabiullina's ability to control NBT.

(b) The Mints Appeal proceeded on the basis of a concession about Mr Putin's actual de facto control of NBT. That concession was thought to have been properly made in Litasco and Rossiysky, but it does not seem to me that the impressions of the judges in these cases relating to other potentially sanctioned entities can have any bearing on the assessment of the facts in the present case.

(c) OFSI has confirmed that it does not consider NBT to be owned or controlled directly or indirectly by Mr Putin or Ms Nabiullina.

(d) Steptoe have also confirmed, without waiving privilege, that their view based on the information available to them is that Mr Putin and/or Ms Nabiullina do not in fact exercise control over NBT. This is directly contrary to the concession made in Mints, and removes much of the relevance of that decision to the question I have to decide.

(e) Although it is possible, given the nature of Mr Putin's political position, that he may in the future seek to control the affairs of NBT in some relevant way, there is no evidence that he could do so without third-party consents, a breach of the law, or consequences which might cause him not to seek such control. The absence of evidence of potential de facto control in the present case is significant. If there were such evidence, OFSI would no doubt take a different position.

(f) Overall, and to use the language of Regulation 7(4), it does not seem to me that it is reasonable, having regard to all the circumstances, to expect that Mr Putin and/or Ms Nabiullina would (if they chose to) be able, in most cases or in significant respects, by whatever means and whether directly or indirectly, to achieve the result that the affairs of NBT are conducted in accordance with their wishes. If that expectation were reasonable, it appears to me that there would by now be some evidence of actual de facto control by one of the designated persons, and that would be reflected in a different approach by OFSI."

For context, the concession referred to was one made by the claimants in Mints at first instance that "if control extends to control via office by one means or another, the control test would be satisfied in relation to NBT ... in that either Mr Putin or Ms Nabiullina could exercise influence over it in significant respects." That concession was found not to be binding on the parties to the application in Yurov, and NBT made it clear that they did not make the same concession in that case. The confirmations from OFSI referred to regarding control of NBT were made directly to Steptoe in correspondence about unrelated proceedings in which they are also acting.

Having come to the view that NBT was not controlled by any designated person, the order was made by the judge in the following terms:

(a) "Pending any change of circumstances, including any new facts of which the Trustees may become aware, or any notice or requirement from OFSI, or any new guidance from the court (including as a result of the appeal to the Supreme Court in Mints), the Trustees should deal with NBT on the understanding that it is not a designated person and is not owned or controlled by any designated person and on the basis that they have no knowledge and no grounds for reasonable suspicion that this is not the case.

(b) The Trustees should, however, undertake (to an extent that is proportionate having regard to cost) enhanced monitoring of the position of NBT, checking at least on each occasion that they are considering a distribution to creditors that there is no change in the public records on which they have relied or other matter reasonably accessible within the public domain that would or might change the position significantly from the one presented to the court."

The judge made the observation that OFSI ought to have been served with the application or at least notified of the hearing, and given the opportunity to give their view. To address that, he required the trustees to give notice of the order made to OFSI.

Application to future cases

When assessing whether a non-designated Russian entity with (non-ownership) links to a designated person should be treated as subject to their potential future de facto control, it is reasonable to apply the test which has been developed through cases other than Mints, which sets a relatively high threshold.

However, parties making these assessments must ensure that they take full account of the information available to them about the entity and the nature of any links it has with designated persons, including public records; any indications from OFSI as to how the entity should be treated where available; the content of OFSI FAQs / Guidance; UK case law commentary; and any representations from law firms instructed by the relevant entity.

Even where the control test is not made out, dealings with such entities should be considered to present a higher risk of breach of sanctions, and should be subject to enhanced monitoring with additional checks carried out at least before each further transaction to which they are party.

In uncertain cases, OFSI's view of the position is likely to be highly persuasive. Where it is not possible to ascertain OFSI's view in correspondence and a matter proceeds to litigation, OFSI should be served with the application or otherwise be provided with notice of the dispute. This may prompt engagement where that has not been forthcoming previously.

This article has been republished by the Money Laundering Bulletin.