European Union Court Lets Two Russian Oligarchs Off The Sanctions Hook – Export Controls & Trade & Investment Sanctions

Washington, D.C. (April 26, 2024) – The
General Court of the European Court of Justice recently overturned a determination by the European
Union’s (EU) executive body, the European Council (EC or
Council), to sanction two prominent Russian oligarchs in connection
with their alleged support of the Russo-Ukrainian conflict. In
reaching this decision, the General Court accorded almost no
deference to the prerogatives of the EC, making it clear that
sanctions are subject to a searching judicial review.

Under this decision, which is subject to a potential appeal, the
Council cannot sanction an individual on the sole basis of his or
her prominence in Russia or close relationship with the Russian
government. This judicial action contrasts sharply with those of
the courts in the United States and the United Kingdom, which have
repeatedly rebuffed challenges to the imposition of foreign
policy-related sanctions.

The General Court’s decision pertained to Mikhail Fridman
and Petr Aven, who are major shareholders of Alfa Group, a
conglomerate that includes the Russian giant Alfa Bank. In February
2022, the Council froze all their assets within the EU. Under EU
law, two groups of people are subject to sanctions in connection
with the Ukrainian conflict: (i) those who support actions and
policies that undermine or threaten the territorial integrity,
sovereignty and independence of Ukraine; and (ii) those who support
Russian officials involved in Ukraine-related policy making or
obtain a benefit from such decision-makers.

The Council based its decision to sanction Messrs. Fridman and
Aven on publicly available information, not classified
intelligence. Giving no deference to the Council’s decision,
the General Court undertook, in essence, a de novo review
of the evidence supplied by the Council and concluded that it fell
short. The court rejected the Council’s evidence item by
item.

First, the court refused to assume that Fridman and
Aven are supporters of Russian policy on Ukraine simply because
they are close friends and regular Kremlin guests of the president
of the Russian Federation. In the court’s view,
“proximity” to power does not imply support of the
Kremlin’s policies. Nor is there an obligation for prominent
Russians to publicly criticize Russian policy to avoid the
imposition of EU sanctions. Second, the fact that both
individuals received support from the Russian president before the
2014 Russian involvement in Crimea for their business ventures did
not mean that they benefited from the Russian president for
purposes of EU sanctions law. Third, the court declined to
infer that Fridman and Aven were supporters of Russian policy
because they visited Washington in 2018 to lobby against
continuation of sanctions imposed on Moscow after the events of
2014. In the court’s view, what happened in 2018 was too
removed in time from the 2022 events for such an inference.
Fourth, the court ascribed no significance to Mr.
Aven’s sending in 2019 a public letter to the Russian president
asking him to intercede with a pending domestic arbitration matter
because, under Russian law, every citizen can directly petition the
country’s president for help.

While this decision may have limited immediate impact on Messrs.
Fridman and Aven personally because they remain subject to
additional EU sanctions orders, other targets of EU sanctions may
read the decision as an irresistible invitation to bring their own
judicial challenges. If this General Court decision does not prove
to be an outlier, it means that within the EU there is meaningful
judicial review of decisions to impose sanctions.

The United Kingdom has taken a very different approach. In
February 2024, its Court of Appeals rejected an appeal by Eugene Shvidler, who was
placed on the sanctions list in February 2022 on the basis of his
ties to Roman Abramovich, a fellow oligarch who is closely
associated with the Russian president. Even though Mr.
Shvidler’s connection to the Russian government is somewhat
attenuated, the court upheld the sanctions against him. The court
concluded that judicial review is governed by the
“proportionality” test. There is an express recognition
under this test that courts are “less-well placed” than
Britain’s democratically elected leaders to decide issues at
the heart of that country’s foreign relations and/or national
security. A British judge reviewing such a decision will not step
into the shoes of the government decision-maker and remake the
decision. The court contrasted this approach with the more rigorous
“rationality” test for judicial review, under which, even
“if the relevant decision-maker has had regard to all relevant
factors and has reached a decision which cannot be said to be
irrational, it remains open to the court to conclude that the
measure in question fails to strike a fair balance and is
disproportionate.” In other words, a British judge will
generally not second-guess a national security-based decision to
impose sanctions, even if efficacy of the sanctions or the fairness
of a given case is legitimately open to question.

Likewise, a judicial challenge to a sanctions order is unlikely
to succeed in the United States. Under the International Emergency
Economic Powers Act, 50 U.S.C. § 1701 et seq., the
president enjoys extraordinarily broad powers to impose sanctions
to respond to “any unusual and extraordinary threat, which has
its source in whole or substantial part outside the United States,
to the national security, foreign policy, or economy of the United
States.” As one court noted more than 20 years ago,
sanctions “are an important component of U.S. foreign policy,
and the President’s choice of this tool . . . is entitled to
particular deference.” Presidents Obama, Trump and Biden have
repeatedly invoked this law to impose sanctions on Russian persons
and entities in response to events in Ukraine. While there are in
theory pathways to challenge a determination under the IEEPA on
constitutional and administrative grounds, such lawsuits almost
uniformly fail. Oleg Deripaska found this out when he tried to
overturn his placement on a U.S. sanctions list. An appellate court
in Washington, D.C. deferred to the U.S. government’s judgment
that Mr. Deripaska’s prominent role in the Russian energy
sector “contribute[d] to the situation in Ukraine” and
properly subjected him to U.S. sanctions.

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