NGO, MPs Concerned Over UK Sanction Enforcement

Published: 20 March 2024

Palace of Westminster Houses of ParliamentUKPalace of Westminster, which hosts the UK Parliament, where MPs discussed the effectiveness of UK sanctions against Russia. (Photo: Hartmut Schmidt Heidelberg, Wikimedia, License)

By Selma Mhaoud

U.K. parliamentarians as well as civil society activists have questioned the effectiveness of sanctions because of the government’s exemptions granted to sanctioned individuals - some associated with the Russian government - in order to pay for personal expenses some may call lavish.

Such concerns were raised at last week's parliament Foreign Affairs Committee hearing, where MPs expressed dismay at the large amounts that some sanctioned oligarchs can access to pay for their "basic needs," thanks to so-called ‘licenses’ issued by the Office of Financial Sanctions Implementation (OFSI).

The OFSI policy is “to limit expenses to the U.K. median wage and to not allow designated persons funding, for example, private education or private healthcare,” according to David Reed of the Sanctions Directorate, Foreign, Commonwealth and Development Office.

However, not only have private healthcare, private education and personal staff been approved, one sanctioned individual has even applied for concert, theater or museum tickets to be included into the exemptions.

Scottish National Party MP Brendan O'Hara noted that people in the U.K. might find large allowances “pretty strange” and people in Ukraine “absolutely outrageous.”

Conservative MP Alicia Kearns highlighted during the hearing the cases of Mikhail Fridman and Petr Aven, two Russians who were sanctioned for having supported the Kremlin.

Kearns noted that OFSI had approved an annual allowance of 760,000 pounds (US$966,778) to Fridman, while Aven was permitted 60,000 pounds ($76,324) per month for his “basic needs.”

“60,000 pounds a month seems to be quite an egregious figure,” Kearns commented.

A U.K. government spokesperson declined to comment on specific cases but explained to OCCRP that licenses can be granted for basic needs, such as insurance payments, utility bills, and property management fees, with strict monitoring and penalties or criminal prosecutions for violations.

But recent cases suggest that the interpretation of "basic needs" may differ for wealthy persons.

When Anzhelika Khan, the wife of Ukraine-born German Khan, whose fortune is estimated at $7.55 billion, challenged in court her 2022 designation, the court’s judgment revealed that her “basic needs” included private healthcare and the costs of a private school for her kids.

“Ms Khan and her family had, at the time the evidence was finalized, been granted no less than 18 specific licenses. These have included licenses for private healthcare, six licenses for return flights to overseas destinations (generally to see Mr Khan), private school fees, staff salaries and redundancy pay to former staff members” the judge said.

Similarly, over the years OFSI granted to Mikhail Fridman licenses worth about 1.38 million pounds.

Spotlight On Corruption, a U.K.-based anti-corruption organization, also emphasized concerns about the potential misuse of the licensing regime, stressing that “there is a real risk that the licensing regime could undermine the effectiveness of financial sanctions on Russia.”

“While licenses can mitigate the unintended consequences of sanctions for innocent third parties, they shouldn’t be used to soften the blow for oligarchs looking to maintain their luxury lifestyles,” Dr Helen Taylor, senior legal researcher at Spotlight on Corruption told OCCRP on Wednesday.

“There have been really troubling examples of lax licensing decisions to allow frozen funds to pay for everything from private school fees to personal staff,” she said.

Taylor added that in July 2022, the Westminster Magistrates’ Court ruled that funds frozen in response to suspected sanctions evasion could still be used by Russian billionaire Petr Aven to pay for what many would view as luxury expenses, such as theater trips, after OFSI issued such licenses.

An OFSI’s annual report reveals that of the 149 specific licenses in place across all sanctions regimes in the U.K. in 2021 and 2022, 30% were to cover “basic needs.”

While OFSI decides whether or not to issue a license, it may only authorize activity that falls within the licensing reasons set out in the regulations. In addition to basic needs, these reasons include, but are not limited to, legal fees and expenses, prior contractual obligations and extraordinary expenses and situations.