Emma RadmoreThe High Court has considered what would be “reasonable cause” to suspect in the context of funds or economic resources being owned or controlled by a designated person for the purposes of the financial sanctions restrictions.
In the case of Vneshprombank LLC v Bedzhamov, Mr Bedhamov (B) and his Russian trustee in bankruptcy applied to the High Court for declarations as to whether there was reasonable cause to suspect that a company (A) which had been funding Vneshprombank (V) in a long running litigation between it and B was in fact owned or controlled by designated persons for the purposes of the Russian sanctions legislation. Three individuals who had been major shareholders in A had been designated and the company had apparently been sold shortly after the designations. B brought the application on the basis that if there was reasonable cause to believe that A was owned or controlled by designated persons, then payments in the court of litigation may benefit them and would therefore be prohibited.
The Court considered:
- whether the restriction engages at the point there is reasonable ground to suspect ownership or control or only once it is proved that there was in fact ownership and/or control;
- if the answer to the first question is that it engages where reasonable grounds exist, in this case were there in fact reasonable grounds to believe that A remained controlled by DPs; and
- if the answer to the first question is that ownership/control must be proved as a matter of fact, could and should the court conclude that in this case it was.
The Court looked a several cases from which it says the following uncontentious conclusions come:
- the rest of “reasonable cause to suspect” imports an “objective element requiring an evidential foundation”;
- it must be fact based and genuinely reasonable;
- it requires that on the available information a reasonable person would (not might or could) suspect that a person was designated;
- whether there are reasonable grounds needs to be considered in a round, fair-minded review, taking into account all relevant information;
- to guard against making unreliable assumptions and to be cautious about using complex corporate structures as grounds for suspicion;
- the accuracy and credibility of sources of evidence should be evaluated and verified;
- any consideration of whether the test is met must be subject to “rigorous and critical analysis”; and
- speculation as to continued control by a DP over a non-designated entity does not establish a triable case of that continuing control.
On the construction point, the Court was clear that the relevant Regulations were deliberately worded as they are, such that the restriction applies only when it is a fact that the funds are controlled by a DP and cannot logically apply to funds suspected but ultimately proved not to have been held by a DP. It referred to several justifications for this view, including that the EU Regulations from which the UK Regulations derive clearly does not ban dealing with funds in respect of which there was only reasonable cause to suspect their owner was a DP.
On the actual facts of the case, the Court was persuaded that if the test in the Regulations had been whether there was reasonable cause to suspect that A was still at the material time owned by DP then that would have been met. However, the law requires that there is both a reasonable cause to suspect that one is dealing with funds owned by a DP and that the funds are in fact owned/controlled by a DP.
The court did not in fact make a decision on the third issue, as it had not been asked to do so in the application, and did not feel it was right to open such a big issue.
Since the ownership could not be categorically proved, the Court dismissed the application.