UK: Variation Of Petr Aven Freezing Orders Quashed

The High Court of England and Wales (Collins Rice J) has overturned a decision to vary rather than set aside two AFOs obtained by the National Crime Agency ("NCA") against two UK-registered companies providing domestic and security services to Petr Aven, who was sanctioned by the UK on 15 March 2022, following his being sanctioned by the EU on 28 February 2022.

The decision clarifies that a court deciding whether to set aside or vary an AFO must apply an approach that takes into account all the circumstances (including factors to consider when the applicant is sanctioned) and that is faithful to the statutory wording.

Background

In or around the date of Mr Aven's sanction(s), the NCA was alerted to "unusual" activity in nine UK bank accounts held by persons connected to Mr Aven, including accounts of the Companies. The NCA obtained AFOs from the Magistrates Court in accordance with the Proceeds of Crime Act 2002 ("POCA"), immediately freezing the funds in each of the nine bank accounts. Under POCA, AFOs may be obtained if there is a reasonable basis to believe that money held in the account is suspected to be the proceeds of crime or intended for use in unlawful conduct ("the threshold question").

The Companies obtained a licence from the Office of Financial Sanctions Implementation ("OFSI") to allow certain funds to be released, without breaching sanctions, for "basic needs" of the Aven family. Whilst the OFSI granted this licence, it did not have any practical effect because it post-dated the applicable AFOs.

The Companies applied to have the AFOs set aside or varied, "simply to allow the licence to take effect". The NCA objected on the basis that variation of the AFOs to achieve this purpose would expose the accounts to complete drainage of assets. The District Judge refused to set the AFOs aside and instead varied the AFO to allow the transactions set out in the OFSI licence. In reaching his decision, the Judge drew an analogy between the AFO provisions and statutory regimes under the Sexual Offences Act 2003 and Civil Procedure Rule 3.1(7), and in doing so found that it was a necessary requirement for the set-aside of an AFO that there has been a change of circumstances. Both the Companies and the NCA applied to the High Court to have the decision judicially reviewed.

Judgment - challenge to refusal to set aside AFOs

Collins Rice J observed that, as when deciding whether to make an AFO, a court deciding whether to set an AFO aside must consider the threshold question, taking into account all the circumstances.

Collins Rice J held that, as was agreed between the parties, the District Judge made an error of law by his unexpected analogy which was unsustainable and read into the POCA a restriction on the court's powers which did not exist. The Companies and Mr Aven (an interested party to the case) argued that the error was fatal, whilst the NCA argued that the erroneously stated test was not what the District Judge applied, and in any case, there was no proper basis for setting aside the AFOs. Collins Rice J considered that the error, and unsubstantiated conclusion, were a powerful indication that the decision was unsustainable, and rejected the NCA's argument; the applicants' reasons for set-aside engaged fact-sensitive and evaluative matters which had yet to be answered.

Judgment - challenge to variation of AFOs

This aspect of the judgment was "largely theoretical, or at least conditional", in light of the above. In her judgment, Collins Rice J considered that a variation application does not engage the threshold question. Instead, under s.303Z5 POCA: (a) the court is directed to the purpose of enabling a person by or for whom the account is operated to meet reasonable living expenses or carry on a trade, business, profession or occupation, and (b) the court has a duty to exercise its power with a view to ensuring, so far as practicable, that there is no undue prejudice to the possibility of taking further steps under POCA leading to the forfeiture of the frozen funds.

The above requires close attention to the factual matrix and an evaluative decision considering all the circumstances, including any decision not to set aside an existing AFO or vary it in other material respects. Collins Rice J considered that the District Judge had not completely or correctly grappled with the statutory language in this regard.

With specific reference to sanctioned individuals, Collins Rice J emphasised that the decision of OFSI to grant a licence and the decision of a court to vary an AFO are entirely distinct. The existence of an OFSI licence does not bind a court when deciding on a variation, nor does it limit the court's powers, or absolve the court of its duty to make its own assessment. The court should consider whether the applicant is able to meet their living expenses with any assets not subject to AFOs, and whether OFSI licences, not yet applied for, could permit such use of assets.

Comment

There are two significant messages arising from Collins Rice J's judgment.

First, a court deciding whether to set aside or vary an AFO must apply an evaluative, fact-sensitive and all-circumstances exercise that is loyal to the statutory language. The message was emphasised in strict terms; whilst this may be seen as a reaction to the District Judge's unusual approach, Collins Rice J's observations do not overreach in the opposite direction, and may lead to the courts being reticent about structuring their own discretion in this area. The observations underscore that set-aside and variation applications can be complex and costly. Importantly, the court must also consider reasons for an existing decision not to set aside or vary, especially where, as in the present case, the variation and set-aside applications are interrelated.

Second, the fact that an applicant seeking set-aside or variation has been sanctioned does not alter this approach but instead supplies further, important factors for consideration in the evaluative exercise. For example, the court will consider whether an alternative to varying an AFO is the applicant seeking an OFSI licence in respect of assets not subject to the AFO. A variation of an AFO requires a potentially costly and complex application to court, whereas an OFSI licence requires an administrative application to a government department. Whilst the latter is not straightforward, it may in many cases be an advisable alternative to try before seeking a variation of an AFO.

The judgment can be viewed here.

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