Upgraded Sanctions by the UK - Halfway Point Review
In a significant ruling, the UK Supreme Court has underscored the factors it considers when assessing the proportionality of sanctions designations, following the established test in Bank Mellat v HM Treasury (No 2). The decision, which stems from the Shvidler and Dalston Projects cases, highlights four key factors that courts must take into account.
- The Importance of the Objective: The court first evaluates whether the sanctions' objective is sufficiently important to justify limiting fundamental rights. In the Shvidler case, deterring Russian aggression was recognized as a legitimate and significant objective.
- Rational Connection: The measure must be rationally connected to its objective. Even if a single designation might not immediately change state behaviour, its cumulative symbolic and deterrent effect supports proportionality.
- Least Intrusive Means: The court considers whether a less intrusive alternative measure could achieve the same objective. If less restrictive options could be used, this weighs against proportionality.
- Fair Balance: Ultimately, the court weighs the severity of the consequences against the importance of the objective to determine if a fair balance has been struck between individual rights and community interests. This requires a nuanced exercise balancing private liberty against public foreign policy aims.
The Supreme Court's judgment also emphasized several contextual principles. These include the judicial role and margin of appreciation, the focus on policy objective vs. individual impact, and the appellate review nuance.
On 29 July 2025, the UK Supreme Court dismissed two appeals challenging sanctions imposed under the UK's Russia regime. The penalty was imposed on a UK company, Markom Management Limited (MML), following a breach that occurred in February 2018. MML facilitated a payment to a person designated under UK Russian sanctions rules.
The Office of Financial Sanctions Implementation (OFSI) issued a penalty notice seven years after an initial self-report by MML. The tardiness and duration of OFSI's investigation merit consideration, as it took nearly three years for an investigation to start and nearly seven years to reach a conclusion.
On 31 July 2025, OFSI imposed a £300,000 penalty on MML. However, OFSI determined that MML was ineligible for a reduction in penalty for voluntary disclosure, but no explanation was provided for this decision.
The majority of the Supreme Court concluded that the sanctions imposed were proportionate, while Lord Leggatt issued a dissenting judgment. Lord Leggatt described the designation of Eugene Shvidler by the UK Government as "Orwellian" and argued that no fair balance was being struck between Shvidler's individual rights and the interests of the community.
It is possible that Lord Leggatt's dissenting views will be adopted as arguments in future sanctions designation challenges. The details of the enforcement case were not provided in the article.
- In the context of the UK Supreme Court's ruling on sanctions against Markom Management Limited (MML), the court's decision to impose a £300,000 penalty on MML for facilitating a payment to a person designated under UK Russian sanctions rules aligns with the fourth key factor highlighted in the Shvidler case, as the court sought to balance individual rights with community interests and consider the severity of consequences against the importance of the sanctions' objective.
- In the course of the UK Supreme Court's decision on the appeal of sanctions imposed on MML, the court's failure to provide an explanation for MML's ineligibility for a reduction in penalty for voluntary disclosure may raise questions about the proportionality of sanctions enforcement, particularly regarding the principle of fair balance between individual rights and the community's interests, as advocated in the Shvidler case.
