The dispute arose from six on-demand bonds governed by English law that were issued by the defendant banks (Societe Generale and ING) in favour of EuroChem North-West-2 (EuroChem NW2) for the construction of a fertilizer plant in Russia. Following Russia's invasion of Ukraine in February 2022, the EU imposed sanctions on Andrey Melnichenko, founder of the EuroChem Group, in March 2022 and subsequently on his wife in June 2022.

When EuroChem NW2 claimed payment under the bonds in August 2022, the banks declined due to EU sanctions concerns. EuroChem NW2 subsequently assigned the proceeds to EuroChem AG in December 2024, prompting this litigation.

The court addressed several critical questions under Council Regulations 269/2014 and 833/2014:

• Whether EuroChem entities were "owned or controlled" by the Melnichenkovs for sanctions purposes
• Whether the bonds were frozen under Article 2(1) of Regulation 269
• Whether payment was prohibited under Article 2(2)
• The effectiveness of corporate "firewall" measures, i.e. safeguards to prevent a sanctioned person from exercising control, in effecting sanctions compliance

Purposive interpretation of "Control"

The court adopted a purposive approach to interpreting "belonging to, owned, held, or controlled" under Regulation 269, emphasising that sanctions regimes must be interpreted to achieve their intended effect. The judgment considered supplementary EU materials, CJEU decisions, and national court precedents.

Discretionary trusts and ownership

Significantly, the court held that a beneficiary under a discretionary trust can be considered the "owner" of trust assets (alternatively, is the person to whom the assets belong or is their holder) for EU sanctions purposes. This interpretation applies even if the position does not align with English or Bermudian law (noting that Firstline Trust, the purportedly discretionary trust at issue, is subject to Bermudian law). In the end, despite Mrs Melnichenko being the sole discretionary beneficiary of the Firstline Trust as of March 2022, the court found that Mr Melnichenko effectively always remained the discretionary beneficiary under the trust and therefore fell to be regarded as the "owner" of the Firstline Trust assets, including EuroChem AG, under Articles 2(1) and 2(2) of Regulation 269.

Firewall measures: Limited effectiveness

Whilst acknowledging the effectiveness of firewall measures implemented by EuroChem AG in insulating the company and its European subsidiaries from Mr Melnichenko's influence within the EU, the court noted their limited effect beyond EU borders, and especially in countries where sanctions are not applicable and the firewalls have no effect. The judgment found that Mr Melnichenko retained actual control over MCC EuroChem and its Russian subsidiaries.

National competent authority determinations

The court accorded significant weight to determinations by National Competent Authorities (NCAs) in France, Italy and other jurisdictions, finding these sufficient to establish ownership and control for sanctions purposes.

• The bonds were subject to asset-freezing under Article 2(1) of Regulation 269
• Payment to EuroChem NW2 was prohibited under Article 2(2)
• Payment under the bonds would be illegal under French and Italian law
• The assignment of bond proceeds did not circumvent the sanctions regime

• Corporate structure analysis: The decision emphasises the need for thorough analysis of de facto control arrangements, looking beyond formal corporate structures to examine actual influence and decision-making power.
• Trust arrangements: The ruling clarifies that discretionary trust beneficiaries may be treated as "owners" for sanctions purposes, potentially affecting many offshore corporate structures.
• Firewall limitations: Whilst firewall measures remain important compliance tools, their effectiveness is limited to jurisdictions where they can be legally enforced and monitored.

NCA determinations: The judgment confirms the weight courts will give to NCA determinations, reinforcing their importance in sanctions compliance strategies.

The EuroChem judgment represents a significant development in EU sanctions jurisprudence, particularly regarding the interpretation of ownership and control tests. The decision underscores the courts' willingness to look through complex corporate arrangements to identify the ultimate controllers of sanctioned entities, whilst highlighting the practical limitations of structural measures designed to achieve sanctions compliance.

For legal practitioners advising on sanctions compliance, the judgment reinforces the importance of comprehensive due diligence and the need to consider both formal ownership structures and practical control arrangements when assessing sanctions exposure.

The judgment can be found here