Sanctions: Court dismisses statutory challenge to OFSI License decision

PJSC VTB Bank (a company incorporated in the Russian Federation) -v- HM Treasury [2025] EWHC 3359 (Admin)

When PJSC VTB Bank (VTB) became designated by the UK Government in February 2022, the Government described it as “by far the single biggest financial sanction in history”. The US imposed sanctions contemporaneously, describing VTB as “a critical artery of Russia's financial system”. The EU sanctioned VTB a few weeks later, citing that its CEO had been appointed by President Putin, it had close ties to Russian intelligence, and it generated high volumes of revenue for the Russian Government.

VTB recently failed in a statutory challenge to an Amended General License decision issued by the UK Office of Foreign Sanctions Implementation (OFSI). VTB had challenged the Amended General Licence, which related to VTBC’s administration, on six public law grounds of unlawfulness. Three of the challenges were procedural, challenging how the decision was taken. Three were substantive, challenging the content and effect of the decision.

The Administrative Court held that, in issuing the Amended License, OFSI had acted for correct and relevant statutory purposes.

The decision reflects the scope and extent of discretion afforded to Ministers and those exercising delegated powers on their behalf in the context of sanctions regulations and sanctions enforcement.

The background facts

VTB is Russia's second largest bank. It is majority-owned by the Russian Government. It became sanctioned by the UK Government and internationally in February 2022, following the Russian invasion of Ukraine.

Those sanctions extended indirectly via an asset freeze to VTB’s UK subsidiary VTB Capital plc (VTBC, itself an investment bank), who was an Interested Party in this case. The effect of the sanctions was to render VTBC insolvent, and it entered into administration in December 2022. It participated in the Court proceedings by its court-appointed Joint Administrators (JAs).

On 1 March 2022, shortly after the designation of VTB and the asset freeze on VTBC, OFSI issued a General Licence to permit VTBC to make payments for (a) its 'basic needs', (b) routine holding and maintenance charges and (c) legal fees.

OFSI also permitted third parties to receive those payments and banks to process them. The General Licence was subject to requirements for VTBC to notify OFSI of any such payments and to keep accurate records of them. It also provided that:

“the permissions in this licence do not authorise any act which the person carrying out the act knows, or has reasonable grounds for suspecting, will result in funds or economic resources being dealt with or made available in breach of the Russia Regulations, save as permitted under this or other licences granted under the Russia Regulations”.

On 1 April 2022, in consequence of the sanctions, VTBC's directors applied to the Insolvency Court for an order placing the company into administration. OFSI amended the General Licence on the same day to include a new provision permitting VTBC to make certain payments in relation to the insolvency proceedings. This was intended to permit the proposed JAs to conduct the administration. After the US Office of Foreign Assets Control (OFAC) granted an equivalent license, the Insolvency Court granted the application and appointed the JAs in December 2022.

The JAs spent the next 18 months consulting with VTB and other creditors with a view to progressing VTBC’s administration consensually. Amongst other proposals was that the claims of sanctioned creditors, such as VTB, would be deferred behind the claims of non-sanctioned creditors.

The JAs produced a scheme of arrangement which they considered to be in the best interests of the company’s creditors as a whole and which would ensure an orderly winding up of VTBC. In May 2024, OFSI amended the General License to allow for the proposed scheme of arrangement to be carried out. The matter was listed for the Court to sanction the scheme if it was approved by sufficient creditors.

At this point, in September 2024, although it had not previously raised any objections, VTB announced it was going to vote against the scheme. VTB also instructed English solicitors to advise it.

Although negotiations ensued between the JAs and VTB, from October 2024, VTB took direct enforcement action over VTBC assets in Russia as well as taking successful action against a company that owed VTBC significant amounts.

The JAs kept OFSI informed of developments and sought amendments to the General License so that they could apply to the Court to make distributions in accordance with the Amended License and the proposed scheme of arrangement.

In January 2025, OFSI agreed to amend the License as proposed to prevent VTB from making a double recovery, stepping ahead of other creditors and/or profiting from statutory interest in the administration. As a result, because the estimated value of its interest in the VTBC administration had been reduced in accordance with the deductions provided for in the Amended Licence, VTB no longer had the power of a blocking vote to veto the scheme. The scheme accordingly passed with the necessary majorities at the creditors’ meeting at the end of January 2025.

The statutory challenge

Pursuant to s.38 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), a designated person may apply to the Court to decide whether a ministerial sanctions designation should be varied or revoked. The relevant principles for dealing with such an application are those applying to a judicial review.

In this case, the OFSI decision to issue the Amended License was potentially challengeable under s.38 because it amounted to an exercise of delegated ministerial powers. VTB challenged the decision on six public law grounds of unlawfulness. Three of the challenges were procedural, challenging how the decision was taken. Three were substantive, challenging the content and effect of the decision. VTB sought to have the Amended License set aside.

The three procedural challenges were:

• Ground 1: procedural unfairness, in that OFSI failed to provide VTB with an opportunity to make representations prior to the making of the Amended Licence, while it allowed and considered representations from the JAs.

• Ground 2: a failure to comply with OFSI's own published policy aim of engaging with 'relevant stakeholders' before making licensing decisions.

• Ground 3: OFSI did not fulfil its duty to take into account all relevant considerations and to disregard all irrelevant ones.

The three substantive challenges were:

• Ground 4: OFSI acted in exercise of its licensing powers for an improper purpose.

• Ground 5: an irrationality challenge.

• Ground 6: pursuant to Article 6 of the ECHR (the right to a fair and impartial hearing), the Amended Licence was an unlawful interference with PJSC’s right to have its interest in the insolvency determined according to insolvency law and ultimately by the Insolvency Court.

The Administrative Court decision

Improper purpose

The Court firstly addressed the principal challenge, being Ground 4, which related to the nature of OFSI’s statutory powers. VTB accepted that OFSI had the power to issue the Amended License but contended it did so for an improper extraneous purpose.

In essence, VTB argued that OFSI acted for the improper purpose of 'loading the dice' in favour of the scheme and, specifically, of the JAs' preferred outcomes. It contended that sanctions should not be used to confer a litigation advantage on one private party (the JAs) against another (VTB) on issues of private (insolvency) law – especially since the scheme would largely or wholly extinguish VTB’s entire rights and interests as a creditor in the administration.

The Court dismissed these arguments. The purposes of the Amended License were the same as for the earlier versions of the License, namely: (i) the overarching purpose of the Sanctions Regulations (to put pressure on Russia and end the war in Ukraine); (ii) the purpose of VTB’s designation and the imposition of sanctions (to disable those who support the Russian regime from deploying and enjoying their assets); and (iii) the purpose of the licensing power as exercised (enabling orderly insolvency administration and limiting the impact on undesignated creditors). These were correct and relevant statutory purposes.

There was no evidence that these were not OFSI’s true purposes in issuing the Amended License. To the extent that PJSC complained of the consequences of the Amended License, there was an inescapable logic that the protection of one set of creditors in an insolvency would necessarily be at the expense of the rest.

Article 6

As to the Article 6, challenge, the Court stated that the Amended License decision was not directly decisive of VTB’s civil rights. The legally operative administrative decision affecting rights was the anterior sanctioning decision. Whilst sanctions could have a prolonged and potentially devastating effect, s.38 was the mechanism provided by Parliament for ensuring court oversight of decisions relating to sanctioning, and for ensuring compliance with Article 6. The Court concluded there was no breach of Article 6.

Irrationality

The challenge to two provisions in the License on the ground of irrationality failed. The premise of both provisions was the (rational) decision to respond to VTB’s actions that were designed to maximise its interest in the VTBC administration at the expense of unsanctioned UK creditors. Both provisions were sensibly tailored to dealing with the dangers flagged, and effective to do so. Their intention was to secure the continuing application of the sanctions regime to VTB’s participation in the VTBC insolvency in the strictly limited and conditional manner provided for in the Amended Licence.

Procedural unfairness

Grounds 1 and 2 failed. Where a statutory power was to be exercised, what was required by way of procedural fairness depended on the statutory context and the circumstances of the proposed exercise.

The Regulations imposed no express statutory duty to consult. What fairness required of OFSI by way of pre-decision consultation in this case had to take account of the history of the matter.

Taking into consideration the context of the matter, the Court found that VTB was fairly consulted in substance, and afforded a fair opportunity for engagement, throughout the process of the JAs' conduct of the administration, including by being put fairly on notice as soon as licence review had to become a live prospect.

Relevant/irrelevant considerations

Finally, the Court was not satisfied that no reasonable decision maker would have concluded that it had all the relevant information it needed to make the Amended License. OFSI was, on the facts, entitled to conclude that further factual inquiries were unnecessary in order to render its decision making rational.

Comment

The Court took the view that OFSI intended to ensure that VTBC’s unsanctioned creditors should be as far as possible protected from the consequences of the insolvency and enabled to settle their claims against VTBC.

It was never any part of OFSI's policy intention to relieve PJSC and other sanctioned creditors of any of the effects of the sanctions in the process, other than to the minimum extent necessary to make VTBC's assets available to unsanctioned creditors in as swift and orderly a matter as possible under Court supervision.