NBT, a Russian bank majority-owned by the Central Bank of Russia (CBR), sought distributions from the bankruptcies of Nikolay Fetisov and Ilya Yurov. Trustees in bankruptcy sought court approval to ensure compliance with the Russia (Sanctions) (EU Exit) Regulations 2019 (Russia Regulations), given concerns that NBT might be indirectly controlled by sanctioned individuals, including President Putin and CBR Governor Elvira Nabiullina.

The court examined:

Ownership and control: Regulation 7(4) defines control as the ability of a designated person to direct an entity’s affairs. The court emphasised that the mere possibility of being able to control does not suffice; reasonable expectation of a designated person being able to, by whatever means and whether directly or indirectly, achieve the result that the entity’s affairs are conducted in accordance with his/her wishes, must be demonstrated.

Sanctions compliance: Payments to entities owned or controlled by designated persons are prohibited unless exemptions or licences apply. Regulation 58(5), as an exemption, allows payments for obligations under the bankruptcy orders which arose prior to sanctions being imposed.

• NBT is not a designated entity under UK sanctions. The recent designation of NBT by the Office of Foreign Assets Control of the United States appears to be a broad-brush designation where 50 other Russian banks were subjected to sanctions, as opposed to a reassessment of the ability of President Putin and/or Ms Nabiullina to control NBT.
• The UK Office for Sanctions Implementation (OFSI) confirmed that NBT is not owned or controlled directly or indirectly by President Putin or Ms Nabiullina.
• The mere possibility that a designated person can control the affairs of NBT is insufficient. Regulation 7(4) requires an evaluation after considering all the circumstances to determine whether the evidence was sufficient to justify a reasonable expectation of future de facto control.
• If NBT is under the control of a designated person, any distribution made to NBT by the bankruptcies would result in funds being indirectly made available to NBT, thereby violating the Russia Regulations. However, the exemption under Regulation 58(5) is applicable, as the obligation to make the payment arose prior to the implementation of sanctions on President Putin or Ms Nabiullina.
• The court permitted distributions to NBT’s solicitors’ client account, emphasising the need for ongoing monitoring of NBT’s status.

The court permitted the trustees of the bankrupt to distribute funds to NBT via its solicitors’ client account, subject to the following conditions:

• Enhanced monitoring:The trustees must monitor developments in NBT’s status, including any changes in case law, OFSI guidance or regulatory updates.
• Flexibility in orders: The court issued directions under Section 303 of the Insolvency Act 1986, rather than a declaratory judgment, to allow for adjustments if NBT’s status changes.

• Enhanced monitoring: Trustees must continuously assess the status of creditors potentially linked to sanctioned individuals.
• Regulatory guidance: Engage with OFSI and seek court directions when in doubt.
• Exemptions: Evaluate whether pre-existing obligations qualify for exemptions under Regulation 58 and ensure that decisions are supported by robust evidence.

This decision underscores the importance of evidence-based assessments in sanctions compliance and provides clarity on the application of ownership and control tests under UK sanctions law.

The judgment can be found here.