Aven v Council (T-301/22) and Fridman v Council (T-304/22)

Introduction

The EU and many other countries impose financial sanctions on individuals. These people, who are often wealthy businessmen with ties to particular governments, are “designated” under the relevant sanctions regime. The consequences of such designation are usually dire and, usually, any challenge to such a designation will be extremely difficult.

However legal challenges are possible in the EU and other jurisdictions, and sometimes succeed. A recent example is the case of Mikhail Fridman and Petr Aven, who have persuaded a lower court of the EU to overturn their designation by the EU Council. There may be lessons in this case for all those affected by the current Russian sanctions regime in particular. 

Background

Mikhail Fridman and Petr Aven are both Russian nationals and shareholders in Alfa Group, a major Russian conglomerate which includes Alfa Bank, one of Russia’s largest banks.

The EU Council first imposed sanctions on Russian individuals and businesses in response to Russia’s invasion of Crimea in 2014 under Decision 2014/145/CFSP. Following the invasion of Ukraine in February 2022, G7 global partners including the UK, US and EU imposed further swingeing sanctions on individuals and businesses said to be closely connected to Russia. This saw a rapid expansion in the individuals and businesses subject to sanctions: these were designed to disable Russia’s access to the benefits of trading with G7 economies, and frustrate its efforts to fund a long running war in Ukraine.

Mr Fridman and Mr Aven were designated under the EU sanctions regime on 28 February 2022 on the basis they had allegedly provided material financial support to President Putin and the Russian government, or otherwise supported Russian actions which undermined the sovereignty of Ukraine. The grounds relied on for this step were Articles 2(1)(a) and 2(1)(d) of the Decision. The EU had described Mr Fridman and Mr Aven as being:

1. Some of Vladimir Putin’s “closest oligarchs” who regularly met with Mr Putin;
2.  “engaged in the Kremlin’s efforts to lift Western sanctions… to counter Russian aggressive policy against Ukraine”; and
3. Active supporters of the destabilisation of Ukraine.

At the same, time, the Secretary of State for Foreign, Commonwealth and Development Affairs included Fridman and Aven on the UK’s equivalent sanctions list (the “UK Consolidated List”).

The impact of being placed on the EU Sanctions List was that the assets (and funds) of the subjects  were frozen, and a travel ban was put in place limiting their freedom of movement. On 14 September 2022, the EU Council extended these restrictions until 15 March 2023.

Proceedings and Positions of the Parties

Mikhail Fridman and Petr Aven (each an “Applicant” and together the “Applicants”) commenced proceedings before the CJEU on 17 June 2022. Judgment was handed down by the General Court in Aven v Council (T-301/22) and Fridman v Council (T-304/22) on 10 April 2024 (the “Judgments”). The Judgments were materially identical, and covered the same grounds.

Each of the Applicants had disputed their inclusion on the EU Sanctions List pursuant to the criteria in Articles 2(1)(a) and 2(1)(d) of the Decision. Fridman and Aven disputed that they had provided material or financial support to Vladimir Putin or the Russian state in connection with the war in Ukraine, or that they had supported (or were responsible for) actions or policies which undermined the sovereignty and independence of Ukraine (Paragraphs 19 and 27 of the Judgments).

The EU Council maintained that Fridman and Aven continued to be associated with Mr Putin, and were associated with others who were placed on the EU Sanctions List (and the UK Consolidated List). The EU Council maintained that Fridman and Aven had supported, and continued to materially and financially support, the Russian government in their actions which undermined Ukraine’s independence, and that therefore it was appropriate for each of them to have been placed on the EU Sanctions List pursuant to Articles 2(1)(a) and 2(1)(d) of the Decision.

Judgment

The General Court handed down their judgments in Aven v Council and Fridman v Council on 10 April 2024. Its principal findings were that:

1. While there was proximity between the oligarchs and Vladimir Putin, the EU Council had failed to demonstrate sufficient evidence that Mikhail Fridman and Petr Aven provided material or financial support to the Russian state, or were involved in actions which undermined Ukraine’s national security, independence and sovereignty. Accordingly, there was no substantive basis for including Fridman and Aven on the EU Sanctions List in February 2022, or extending such restrictions until March 2023, pursuant to Articles 2(1)(a) and 2(1)(d) of the Decision (Paragraphs 68-69 and 86 of the Judgments).
2. The EU Council had therefore not satisfied the grounds under Articles 2(1)(a) and 2(1)(d) of the Decision for including Fridman and Aven on the EU Sanctions List (Paragraphs 67 and 87 of the Judgments).
3. The decision to place Fridman and Aven in February 2022 on the EU Sanctions List was not justified, and should therefore be annulled (Paragraphs 70, 74 and 88 of the Judgments).

The effect of the Judgments was to annul the inclusion of Fridman and Aven from the EU Sanctions List for the period February 2022 to March 2023. It is of note that the sanctions subject to the recent decision had expired prior to the decision of the CJEU, and that the two individuals remain the subject of EU sanctions, since their inclusion from March 2023 onwards has yet to be displaced under separate legal proceedings commenced by the Applicants.

Whilst the present decision may suggest that the later March 2023 sanctions decision will not withstand judicial scrutiny, the CJEU will undertake an entirely separate analysis as to whether these individuals  have, since March 2023, supported Russia’s aggression against Ukraine. The cases are presently at the initial stage, and it will be months before the issues are resolved, and all of the available evidence can be scrutinised.

Discussion

At first sight, the Judgment could be seen as a substantial blow to the EU’s attempt to impose sanctions against Russian “oligarchs” and key personnel who hold ties with Putin and the Russian regime.  We believe the General Court’s ruling could embolden other sanctioned individuals to challenge their designation on the EU Sanctions List and, perhaps, other sanctions lists, at least in the short term. It seems entirely possible that the EU Council, and other authorities, used too broad a brush in deciding what evidence was enough to justify designation of certain individuals. During the confused and chaotic circumstances of early 2022 that would not be especially surprising.  

However it would be a mistake to rush to judgment based on a single decision, subject to appeal. Context is important.   

The Judgments concerned a sanctions designation which had already expired, and considered the lawfulness of a decision on the basis of the evidence available to the EU at the time.  The findings of the CJEU as regards the March 2023 designation may effectively supersede this decision and, of course, there is quite likely to be an appeal in any event.  It is of note that the EU has succeeded in a number of high-profile challenges, including against former Chelsea FC owners Roman Abramovich and chemicals magnate Dmitry Mazepin.

The decision in Fridman and Aven appears to have been one tied closely to the evidence relied on by the EU in the initial designation, and the evidence available to the CJEU at the time of the challenge. It may be that on appeal, the question is raised as to whether the reasoning of the CJEU gave sufficient weight to the foreign policy objectives of EU sanctions policy as a whole.

The “holistic” approach to designation decision-making received support from the UK High Court recently. In July 2023, the High Court dismissed a challenge to the designation of the UK government to designate  Eugene Shvidler.  It found that the designation was justified on the basis that it struck a “fair balance” between the overall effect of the designation on Mr Shvidler and his family, and the legitimate foreign policy objective of dissuading economic and political support of the Russian regime. At the heart of the decision was the principle that “The effectiveness of any sanctions regime depends, not on the effect of a particular measure directed at a single individual, but on the cumulative effect of all the measures imposed under that regime, together with other types of diplomatic pressure.” (paragraph 137). The decision was challenged by Mr Shvidler in the Court of Appeal. On 24 February 2024, the Court of Appeal rejected the challenge, holding that “…sanctions often have to be severe and open-ended if they are to be effective” in bringing to an end the “Russia’s very serious violation of international law” (paragraph 210). However, on 14 May 2024 Mr Shvidler was granted permission by the UK Supreme Court to appeal the Court of Appeal’s judgment. It may therefore be that there are further developments in respect of UK sanctions in the near future. 

Given the enormous spike in sanctions designations since 2022 we can expect the courts in several jurisdictions to deal with more sanctions issues in the coming years. It is not necessarily clear whether the arguments typically espoused by governments, (i.e. that sanctions are ultimately governed by considerations of foreign policy and thus less subject to scrutiny on the standard public law or human rights grounds) will always prevail over the arguments typical of applicants. The applicants will argue that even in domains from which the courts have typically excluded themselves, such as international politics, there is a minimum standard of evidence for designation which has to apply to prevent injustice.  It remains to be seen whether the Fridman & Aven decision sets an important precedent in either direction.