In response to Russia’s annexation of Crimea and its activities in Ukraine, a series of complex sanctions were imposed by the European Union. These sanctions were codified in instruments such as the Russia (Sanctions) (EU Exit) Regulations 2019. The legal framework of these sanctions includes extensive provisions for asset freezing, prohibitions on financial transactions, and restrictions on access to international markets.
I was recently instructed to advise on the sale of an intestate estate, and on the merits of the administrator’s right to disperse such assets. Upon a very cursory view of the papers, everything seemed to look rather standard. That was until I properly sat down and gave the papers some attention.
I realised there was a gap in the Russia (Sanctions) (EU Exit) Regulations 2019 (“the Regulations”).
It is to be acknowledged that the facts of most probate matters can be something of a minefield, involving various jurisdictions, rights, and claims to estate property. This is, of course, ‘normal’ in the world of probate.
With that in mind, this particular matter stood out from the rest. The facts:
The deceased died without leaving a will meaning he was intestate. The father of the deceased and only living relative resided in Russia, was a Russian citizen, and was not on the sanctions list. The property, in the United Kingdom, was left intestate as there was no will. A successful application was made under the Administration of Estates Act 1925, granting the father the right to administer, and a duty to collect and obtain, the estate. Subsequently, he also held the intestate property in trust.
The decision was made to sell the property. At the point of sale, there was an amendment to the Regulations which included a prohibition for the benefit of a designated person or a ‘person connected with Russia’. The buyer and instructing solicitors raised concerns: could they legally represent the administrator in the transaction? Is the administrator a ‘person connected with Russia’ because he lived there and was a Russian citizen?
This, in effect, left the property in ‘limbo.’
Not to mention, that the father was the administrator and the only living relative left that could administer the estate. What would happen with the property?
I had more questions than answers and found myself going down a rabbit hole. This was, and quite rightly so, a head-scratcher!
Nevertheless, the most important question was when Parliament drafted the Regulations, what was the intention? Was it to exclude all Russian citizens or just those on the sanctions list?
Statutory and Judicial Interpretation of the UK Sanctions Regime:
The administrator was not on the sanctions list, but could he be considered a designated person?
Part 2 of the Regulations, sets out the designation criteria which considers whether a person is designated by the Secretary of State and includes:
An ‘involved person’ means a person who:
- Is involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty, or independence of Ukraine;
- Is owned or controlled directly or indirectly by a person who has been involved;
- Is acting on behalf of or at the direction of a person who is or has been involved; or
- Is a member of, or associated with, a person who is or has been so
On its face, the administrator didn’t fall into any of the above, and there was no other way of interpreting the wording other than the literal way; the way in which it reads. However, was it possible for a Russian citizen to be considered involved in destabilising Ukraine by living there and paying taxes to the State, indirectly funding the Ukraine war?
It, therefore, seemed necessary to have a look at the judicial interpretation of the wording. The Court of Appeal’s October 2023 judgment in Mints v. PJSC National Bank Trust [2023] EWCA Civ 1132.(“Mints”) found, obiter, that Vladimir Putin could be deemed to control everything in Russia. Therefore, the designation criteria could indirectly apply to the whole of Russia. If this interpretation was correct, it would have wider implications on the sanction’s regime, however, the judgemnt was criticised for not being practical. Furthermore, The Court of Appeal found that the government itself seems to have been unable to accurately interpret the Regulations. There
appears to be a gap in the Regulations in dealing with Russian citizens and whether they are considered to be indirectly an ‘involved person’ by living in Russia.
The High Court delivered judgment in Khan v Secretary of State for Foreign, Commonwealth, and Development Affairs [2024] EWHC 361 (Admin) (“Khan”). The case involved a challenge by Ms Anzhelika Khan to her designation. Ms Khan was sanctioned on the basis that she was “associated with” her husband who was on the sanctions list. The Court considered whether designation was likely to further the statutory purpose of the sanction’s regulations, i.e., to further the purpose of dissuading the Government of Russia from destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty, or independence of Ukraine.
Turning back to my original question, what was the intention when Parliament drafted the Regulations? Was the intention to exclude all Russian citizens or those on the sanctions list?
In Khan Regulations were stated as having the intent to:
“Dissuade those who are explicitly listed or connected to those who are listed, including those who have been designated by the Secretary of State”.
Nevertheless, it appeared the administrator fell outside of this, despite living in Russia and being a Russian citizen, he was neither designated nor on the sanctions list.
In any event, if the administrator was considered designated or indirectly an ‘involved person’, instructing solicitors could not represent him. The duties and obligations to administer the estate would be secondary and more than likely these assets would be frozen which happened in the case of Khan.
Further, in section 18C of the Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 provides that:
Trust services
18C
- A person must not provide trust services to or for the benefit of a designated
- A person must not provide trust services to or for the benefit of a person connected with Russia unless pursuant to an ongoing arrangement to which those services were provided immediately before 16th December 2022.
The ‘trust services’ in section 18C(7) states:
‘the creation of a trust or similar arrangement, the operation or management of a trust or similar arrangement and acting or arranging for another person to act as a trustee of a trust or similar arrangement, where the ‘trustee’, in relation to an arrangement similar to a trust, means a person who holds an equivalent similar position to a trustee of a trust’.
This would prove difficult for the administrator and those instructing as the mere administrator duties are similar in arrangement to those of a trust. It is unlikely that it would be interpreted otherwise.
Whilst one will never know the Court’s approach on these particular facts, it is clear from the judgment in the case of Mints that the Regulations are ambiguous and it is clear that there is a gap in the Regulations. With only a handful of cases before the Courts, this is an area that will continue to develop.
In comparison, in the United States, the application of OFAC (Office of Foreign Assets Control) regulations to estate transactions involving designated or blocked persons requires specific licenses, creating a more structured but flexible framework that can adapt to unique estate scenarios. Comparatively, the EU framework, while similar in intent, often varies in execution, leading to a patchwork of enforcement across member states. There needs to be a more cohesive approach to sanctions enforcement in estate administration, particularly in jurisdictions with significant international ties like the United Kingdom.
Conclusion
Having undergone many amendments in such a short period of time the Regulations are still playing catch up with the ever-changing sanctions. In considering the judicial interpretation being a Russian citizen, does not prohibit someone from administering an estate in the United Kingdom. The question is whether they are designated or connected to a designated party and if they are an ‘indirectly involved person’.
As we continue to navigate the intricate landscape shaped by the Russia (Sanctions) (EU Exit) Regulations 2019, it is crucial to stay up to date with the changes and developments in this area. Looking ahead, the legal community must advocate for clearer guidelines to prevent ambiguities that complicate estate administration.
Furthermore, as geopolitical tensions evolve, so too will the implications for international law and estate management. We must be proactive in shaping discussions and policies that ensure fairness and legal clarity.
