Since the start of the war in Ukraine, the UK has imposed draconian economic sanctions on over 1,600 individuals. The focus has shifted from obvious targets – Putin and his entourage – to a wider net, including people of Russian heritage who have lived outside Russia for many years, the justification for their selection becoming amorphous.
The businessman Mikhail Fridman is a case in point. He has lived in London since 2013, yet in March 2022 was sanctioned on the basis that he is a ‘pro-Russian oligarch’. In the face of a lack of evidence to sustain that claim, the case against him was rewritten and broadened. As with many others, his continued sanctioning rests on a claim that he has somehow benefited from the Putin regime because he owns some valuable Russian assets.
The effect of sanctioning an individual (called a designated person or DP) is severe. Their assets are frozen and others are banned from providing them with economic resources. The government accepts that the epithet of ‘draconian’ is deserved and that the restrictions entail significant restrictions on a DP’s human rights. However, it contends that the severity is mitigated by the role played by the Office of Financial Sanctions Implementation (OFSI). OFSI is empowered to grant licences to or in relation to a DP to allow them to carry out activity that would otherwise be prohibited under the sanctions regime; work that allegedly makes the regime humane.
Unfortunately, OFSI has been overwhelmed by licence applications. Its Annual Review covering April 2021 to August 2022 reveals that its predominant workstream covers applications for what it calls ‘basic needs’ licences. OFSI’s general guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018, published in August 2022, defines basic needs, insofar as they relate to an individual, as ‘expenses which are necessary to ensure that designated persons or financially dependent family members are not imperilled’.
Specifically in relation to licensing and Russia, OFSI’s review notes that ‘of the 642 licence applications received under the Russia regime in the first six months, the majority of the applicants requested licences under the prior obligations, basic needs and legal fees licensing grounds’. Both the prior obligations and legal services derogations have since received general licences from OFSI. However, OFSI has failed to address the basic needs category in a similar fashion.
The impact of this is that DPs are unable to lawfully pay for food, accommodation, transport or any other basic need for themselves or any of their dependants, without applying for and being granted a specific licence by OFSI. Given the notoriously slow response times for the determination of licence applications, DPs face delays lasting many months before they are granted a licence. These delays partly explain why the UK government has been criticised for the excessive severity of the UK sanctions regime against DPs.
What has OFSI done to salvage itself from the avalanche of licence applications for basic needs, or prevent DPs from being imperilled?
The judgment in Fridman, delivered on 26 October, reveals that as early as May 2022 OFSI must have realised it was in a crisis with no prospect of it being able to manage Russia-related licence applications within a reasonable time unless it drastically reduced the workload. It started a mass recruitment drive and pending that bearing fruit, issued internal guidance, whereby a substantial proportion of basic needs applications were to be waved through without any scrutiny. This policy remained secret until court disclosure obligations in Fridman made its disclosure mandatory.
This guidance, called the Basic Needs Framework, divides the concept of basic needs into ‘core needs’ and anything which exceeds them. For core needs, a monthly lump sum allowance should be permitted equivalent to the London median wage (though in my firm’s experience certain additions or deductions will be made based on the designated person’s individual circumstances). Proposed expenditure above that baseline should be scrutinised for excessive requests. The framework provides specific guidance in relation to matters such as security and cases where the grant or refusal of a licence carries ‘presentational risk’ for OFSI. However, generally, the framework holds that an application intended to maintain a standard of living enjoyed prior to designation is likely not to be a basic need. This is clearly bad news for household staff employed by such an oligarch; cooks, cleaners and gardeners are likely to lose their jobs.
Why does OFSI not issue a general licence for personal basic needs which permits a capped monthly allowance equivalent to the London median wage? Any amounts in excess of this allowance could then be applied for under a specific licence. OFSI issued 33 general licences after the Russian invasion up to 24 August 2022, according to its review. General licences issued to date have including for water and sewage, prior obligations, legal services and Companies House (to name a few). However, none of these address DPs’ personal basic needs.
DPs who have made their home in this country and quietly obeyed all its laws should not be deprived of the means to live a basic lifestyle. Unfortunately, this has too often been the result, in the face of a government determined to sanction an ever-widening category of individuals, and OFSI failing to manage its licensing system adequately.
OFSI deserves credit for its attempts to lessen the resultant injustices by promulgating the above framework. But this is not enough and it is overdue for OFSI to follow the logic of its own actions, by giving blanket permission to DPs to spend money on essentials by issuing a general licence. Anything short of that implies a deliberate policy to operate an oppressive scheme ultimately designed to force DPs to leave the country.
Tasha Benkhadra is an associate at Corker Binning, London