This alert discusses two recent significant developments at either end of the UK sanctions spectrum, covering off designation (a recent Supreme Court decision providing important guidance as to the assessment of proportionality at first instance and on appeal) and enforcement (a penalty notice issued by the UK Office of Financial Sanctions Implementation (OFSI) almost seven years after an initial self-report).
Shvidler & Dalston Projects Supreme Court Decision
On 29 July 2025, the UK Supreme Court dismissed two appeals, brought by Eugene Shvidler and Dalston Projects Ltd, challenging sanctions imposed under the UK's Russia regime. In doing so, the Supreme Court provided important clarificatory guidance on how courts of different levels should approach proportionality assessments when reviewing government decisions which interfere with human rights. Persuading a court that a sanctions designation is disproportionate remains a fact specific determination but has not been made any easier by the Supreme Court's decision, which found that:
- At first instance, the court should undertake its own assessment of proportionality, rather than merely considering whether the government acted irrationally or made a procedural error.
- On appeal, a flexible approach was proposed. In some cases, it will be appropriate for appellate courts to defer to the proportionality assessment of the lower court. However, the Supreme Court identified a non-exhaustive list of circumstances in which appellate courts should conduct a fresh assessment of proportionality, particularly where the appellate court might be providing guidance for future cases or the issue at hand is one of great significance.
The Shvidler and Dalston Projects cases were widely considered test cases for the UK's sanctions regime and therefore of sufficient significance to warrant an assessment by the Supreme Court. While the majority concluded that the sanctions imposed were proportionate, Lord Leggatt issued a strongly worded dissenting judgment. In his dissent, Lord Leggatt described the designation of Mr Shvidler by the UK Government as "Orwellian" and delivered an emphatic argument that no fair balance was being struck between Mr Shvidler's individual rights and the interests of the community. It will be interesting to see whether Lord Leggatt's dissenting views are adopted as arguments in favour of future sanctions designation challenges.
OFSI Penalty Notice
On 31 July 2025, OFSI imposed a £300,000 penalty on a UK company, Markom Management Limited (MML). The penalty relates to a breach which occurred in February 2018, when MML facilitated the payment of £416,590.92 to a person designated in the UK under Russian sanctions rules. MML reported the breach to OFSI via its legal representatives in October 2018.
The tardiness and duration of OFSI's investigation merits consideration. OFSI did not commence its investigation until June 2021, with the initial delay attributed to OFSI's engagement with an unnamed third party. It took a further four years for the final penalty notice to be issued. No justification is offered for why, in a case of a single payment that was voluntarily self-reported, it took nearly three years for an investigation to start and nearly seven years to reach a conclusion. (We have written previously about the confusion and unintended consequences of other OFSI enforcement decisions here).
Also of note is the fact that, despite the self-report, OFSI determined that MML was ineligible for a reduction in penalty for voluntary disclosure. No explanation is provided by OFSI for reaching this decision.
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