The news that HM Treasury’s Office for Financial Sanctions Implementation (OFSI) had issued a licence or licences to allow a UK law firm help a sanctioned Russian, Yevgeny Prigozhin, sue the founder of the investigative website Bellingcat for defamation[1], for apparently claiming that the Russian was the founder and leader of the notorious Wagner Group – something that the Russian subsequently freely admitted, intrigued me.
Having previously been responsible for such licences, drawing them up and advising on whether the Minister should sign and authorise them, there seems to me to be three obvious questions –
- What test or tests did OFSI undertake before agreeing to grant, or recommend the granting of, the licence(s)?
- What due diligence did the law firm undertake, as surely it would have been obvious that the Russian was, indeed, founder and head of the Wagner Group, and that he and it had a reputation that would be unlikely to be damaged by anything Bellingcat said about him (although, obviously, the lawsuit was seemingly aimed at quietening and bankrupting the defendant)?
- At what level was the licence(s) authorised? I have noted that versions of UK General Licences available online are just signed “OFSI”[2]. One would have thought a licence, particularly where it involved a potentially highly sensitive matter, would (or should) be authorised and signed (or authorised) by a minister, and would (or should) be backed up by a detailed explanatory brief explaining the need and justification for the licence.
According to hacked emails and documents, with their client prevented by the sanctions from travelling to the UK, the law firm was apparently given permission for lawyers to travel to St Petersburg to discuss the case and coordinate strategy. It is also reported that Prigozhin paid his lawyers in London using a wire transfer from Russia, with the UK bank, quite rightly, initially refusing to release the funds due to sanctions.
Certainly, in my experience in the Isle of Man, I would consider any application, research the background and seek any available evidence for or against the case for a licence, and seek advice from any other relevant department or agency. I would also discuss the application with the applicant – which was normally a law firm, for example, seeking permission to deal with some assets or financial aspect.
My bottom line, as I remember often parroting, was that, whatever the point of the application, no benefit should flow, directly or indirectly, to the sanctioned person.
Some applications were relatively straightforward. For example, where the family of a sanctioned person required the release of some frozen funds to cover essential living expenses (referred to as “basic needs”).
If I considered that a licence was appropriate and necessary, then a detailed explanatory memorandum would be prepared to accompany a draft of the proposed licence. This would be submitted to a meeting of the Treasury board or, if necessary, the Minister alone. In any case, if approved, the licence would be signed by the Minister. This remains the case[3].
I am not aware of the internal processes of OFSI, but find it hard to believe that, given the potential for an inappropriate licence causing acute political embarrassment (as the current case has done), that an appropriate minister would not have to formally approve, if not actually sign, the original of a licence. As a former official myself (despite having perhaps stuck my neck out once or twice), I would have wanted the cover of the minister’s approval, which would have been reinforced by the confidence from knowing that the matter had been properly investigated and explained and justified, at least to my satisfaction.
Is it that OFSI is intended to be a cut-out, providing political protection for ministers in the event of any embarrassing decision? However, do not those same politicians frame the policies that OFSI follows? Hence, the responsibility still falls on the political masters.
In the case of the licence(s) in favour of Yevgeny Prigozhin, my first thoughts were that the argument would have been that the action was necessary in the name of natural justice, that no financial benefit was flowing to the applicant (and any resulting damages would be frozen while the sanctions were in force), and it was for the courts to decide whether the case should be heard?
While, until recently, Prigozhin had always denied any links with the Wagner Group, there seems likely that there would have been enough information and evidence available in the public domain to undermine that position (even without seeking advice from the bodies with which OFSI would have access).
I know it is said that no-one should be denied legal representation, no matter how reprehensible they may appear, and that the law firm involved had the good grace to withdraw their services following the invasion of Ukraine last year. However, the case does have the appearance of the type of “lawfare” that had become all too common, with those with deep pockets using the too-amenable English courts (Bellingcat, I believe, is based in the Netherlands, but the case was not being brought there, but rather against its founder, Elliot Higgins, who lives in the UK) to quieten inconvenient critics or journalists. This, sadly, is nothing new, as anyone with memories of Robert Maxwell will acknowledge. In any case, even with the case struck out in May 2022, Higgins was left with an estimated £70,000 in legal costs.
On 27 January 2023, a minister at HM Treasury, the Exchequer Secretary, responded to an urgent question in the House of Commons in which he referred to “reasonable legal fees”[4]. As I had speculated, he argued that “it is right that the relevant court, rather than the Government, should decide the outcome of a case on the substantive merits”, and referred to the right to access to justice. Nevertheless, the minister did say the HM Treasury was undertaking an internal review of their approach[5].
The head of the law firm involved has been quoted as saying that they had “at all times complied fully with their legal and professional obligations”. This is certainly true, but also underlines the risk inherent in granting licences, in particular where contentious litigation is likely to be involved. Once granted, those benefiting from the licence, are properly given legal cover for their actions, regardless of what critics may subsequently say.
Would I have recommended the granting of a licence in similar circumstances? Notwithstanding the, no doubt correct, arguments put forward in Parliament, while putting both sides of the argument clearly, I am bound to say that my inclination would have been to recommend not granting the licence. Perhaps this is what OFSI did for the Prigozhin application. Ultimately, for me, it would be for my Minister to make the final decision (though, I have to say, to my best knowledge, they always followed my recommendation). Again, perhaps this was the case with the Prigozhin application, with a minister opting to grant a licence. No doubt, if a licence had been refused, and given the client’s effectively unlimited funds, a challenge would have made though the courts (apparently, the law firm involved had considered suing the UK bank that had initially stopped funds coming to it from Russia).
Perhaps, the case underlines the need to crack down on the use (or overuse) of strategic litigation against public participation (SLAPP) cases in the English courts. On 26 January 2023, the Chair of the Parliamentary Communications and Digital Committee called on the Ministry of Justice, HM Treasury and the Department of Culture, Digital, Media and Sport to tackle to use of SLAPPs, and referred specifically to “the Treasury…apparently helping sanctioned Russian paramilitary owners pursue libel cases against UK journalists….[and] called for clarity on how this was allowed to happen and how we can ensure it never happens again”.[6]
Ray Todd
28 January 2023
[1] https://www.opendemocracy.net/en/prigozhin-government-russia-ukraine-hack-libel-slapp/
[2] For example, General Licence INT/2022/2252300 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1114563/General_Licence_INT20222252300.pdf
[3] For example, see https://www.gov.im/media/1376093/general-trade-licence-regarding-russia-amended-iom-2022-gtl001-01.pdf
[4] See HM Treasury guidance at https://www.gov.uk/guidance/licences-that-allow-activity-prohibited-by-financial-sanctions
In October 2022, OFSI published a new General Licence provided for a UK legal firm or UK Counsel that had provided legal advice to a person designated under either the Russia or Belarus regime: https://ofsi.blog.gov.uk/2022/10/28/legal-fees-general-licence/
[5] https://hansard.parliament.uk/Commons/2023-01-25/debates/54EFDF55-C956-45FC-8500-C47444EAF09F/WagnerGroupSanctionsRegime
[6] https://committees.parliament.uk/committee/170/communications-and-digital-committee/news/175652/lords-committee-calls-for-action-on-slapps
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