Vneshprombank LLC v Georgy Ivanovich Bedzhamov

Under the Russia (Sanctions) (EU Exit) Regulations 2019, the funds or economic resources subject to the asset-freeze prohibitions must in fact be owned, held or controlled by a designated person. A person’s knowledge or reasonable cause to suspect is a separate mental element. It does not itself extend the prohibition to property which is not in fact subject to designated-person ownership or control.

“Reasonable cause to suspect” is an objective, evidence-based and fact-sensitive test. The court must assess the evidence in the round, including material which undermines suspicion, while avoiding speculation and unreliable assumptions based solely on complex corporate structures.

The judgment concerned an application arising during long-running litigation between Vneshprombank LLC, its Russian bankruptcy trustee and Georgy Bedzhamov. A1 LLC had funded the claimant and trustee’s litigation. Following the designation of A1’s former major shareholders and purported disposals of their interests, Bedzhamov sought declarations concerning whether A1 remained owned or controlled by designated persons under the Russia (Sanctions) (EU Exit) Regulations 2019.

The central questions were whether the Regulations were engaged merely where there was reasonable cause to suspect ownership or control, and, if so, whether the evidence established such reasonable cause. A further proposed question was whether ownership or control had in fact been proved.

1. Construction. The application was dismissed. Regulations 11 to 15 prohibit dealing with funds or economic resources which are in fact owned, held or controlled by a designated person. The words “knows, or has reasonable cause to suspect” impose the required mental element; they do not replace the factual requirement of designated-person ownership or control.
2. That construction followed the natural language of the Regulations and avoided an impermissible extension of criminal liability. The contrary construction would criminalise dealings with property which was not in fact owned or controlled by a designated person and would shift the burden of proof in a manner inconsistent with the strict interpretation of penal legislation.
3. The legislative history reinforced that conclusion. The 2019 Regulations continued the relevant EU and pre-Brexit regime without substantive change. The earlier regime separated factual ownership or control from the knowledge or reasonable-suspicion requirement.
4. Reasonable cause to suspect. Although unnecessary to the primary construction issue, the court considered the evidence. It held that, if that test had governed the prohibition, it would have been satisfied. The evidence included a reasonable basis to suspect a joint arrangement between the former shareholders, uncertainty about the timing and terms of the transfers, the unusual sale to a longstanding employee, evidence suggesting nominee ownership, and inadequacies in A1’s financial evidence.
5. The test required an objective and genuinely reasonable evidential foundation. The evidence had to be assessed fairly and in the round, including undermining material. Speculation, press reports and generalised assumptions arising from corporate complexity were insufficient.
6. The court declined to decide whether A1 was in fact owned or controlled by designated persons. That issue had not been properly raised in the application and would have been inappropriate to determine on the hoof. A declaration concerning reasonable cause was also refused because, following the primary construction, it lacked utility.