English Court rules on first sanctions de-listing case under the Sanctions and Anti-Money Laundering Act 2018

Synopsis

In a recent judgment, the English High Court for the first time ruled on a sanctions de-listing case under Section 38 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”). Following the UK’s departure from the EU, SAMLA sets out the framework for the UK’s autonomous sanctions regime and permits individuals and entities to challenge their UK designations through: (1) a ministerial review process under Section 23 of SAMLA; and (2) a court review process based on judicial review principles under Section 38 of SAMLA.¹

The case shows that those seeking to overturn their designations face a high bar, and it provides useful insight into the approach the Courts will take in reviewing sanctions designations.

The Facts

LLC Synesis (“Synesis”) is a Belarusian company that developed and sold Kipod, a surveillance software capable of using CCTV to track people and vehicles. Synesis entered into a contract with the Belarusian Republican System for Monitoring Public Safety to provide cameras and its facial recognition technology in train stations and other public areas.

The EU designated Synesis in December 2020 and, at the end of the Brexit transition period, Synesis was placed on the UK’s sanctions list under the Republic of Belarus (Sanctions) (EU Exit) Regulations 2019 (the “Belarus Regulations”) on the basis that it provided the Belarusian Ministry of Internal Affairs with the capability to track civil society and pro-democracy activists through its work with the Republican System for Monitoring Public Safety.²

Ministerial review

On 18 January 2022, Synesis applied for ministerial review of its designation under Section 23(1) of SAMLA. It argued that there was no reasonable ground to suspect that Synesis was an “involved person” (the threshold necessary for sanctions to be imposed). The Secretary of State reviewed the position and upheld Synesis’ designation on the basis that there was reasonable ground to suspect that Synesis had been involved in serious human rights violations and abuse and the repression of civil society or democratic opposition in Belarus by supplying the technology which could contribute to these activities.

Application for judicial review

Synesis initiated a court review under Section 38 of SAMLA of the minister’s decision on the following three grounds:

1. that the Secretary of State did not have a “reasonable ground to suspect” that Synesis’ technology was used by the Belarusian authorities in the manner claimed;
2.  that the measure imposed was ultra vires because the Secretary of State either exceeded the powers conferred upon it or the action frustrated the purpose of the SAMLA; and
3.  that the measure imposed was disproportionate and pursued no legitimate aim.

Section 38(4) specifies that in determining whether the decision should be set aside, the court must apply judicial review principles.

Judgment

The threshold

Mr Justice Jay observed during the trial and in his judgment that the real point of contention between the parties was whether there were “reasonable grounds” to suspect that Synesis was an “involved person” under the Belarus Regulations.

The Court held that the statutory threshold of “reasonable grounds to suspect” refers to a state of mind rather than a state of affairs and is part objective and part subjective. The decision-maker must consider all the material or information known to him or which ought to have been within his knowledge following reasonable inquiry. Such material or information is not limited to evidence that would be admitted in a court of law—the decision-maker is entitled to take hearsay, allegations, or “intelligence” into account. The weight to be given to such information and material is for the decision-maker to assess, although the Court will normally expect that at least some recognition has been given to its inherent quality.

“Reasonable grounds to suspect” does not import a standard of proof, but entails the “assessment or evaluation of the available information and material, the drawing of inferences from all the circumstances, and then the acquisition in good faith of a state of mind once that exercise has been completed”.³ The decision-maker has reasonable grounds to suspect once he has “considered all the material in the round,” including possible links between various strands of information and the inferences to be drawn from them, and has come to a view.

Standard of review

The Court held that it cannot stand in the shoes of the decision-maker when conducting a review exercise under Section 38 of SAMLA. Instead, its role is to examine whether the decision-maker’s decision was either based on no evidence or was irrational. In doing so, there is a broad margin of appreciation afforded to the Secretary of State since it involves the making of expert judgments in an area of government policy.

In this case, the Secretary of State was entitled to have reasonable grounds to suspect even without the information and material relating to the arrest of civil rights activists. Kipod is a “find and track” surveillance system. It does not function on the basis of an algorithm which permits the “mass recognition” of persons. Instead, someone has to make a decision to place a “person card” onto the system, and once that has been done the algorithm takes over.

Given the political situation in Belarus, the Court held that it was reasonable to infer that the Belarusian Republican System for Monitoring Public Safety had used Kipod in a targeted manner rather than in an effort to carry out mass surveillance. Thus, it was reasonable for the Secretary of State to conclude that the Kipod system “could contribute” to a relevant activity under the Belarus Regulations, in particular “the repression of civil society and democratic opposition in Belarus.”⁴

Grounds 2 and 3

The Court held that if the first ground fails, Grounds 2 and 3 must also fail.

The Court found that the second ground was a mere extension of the first and added nothing to it. On the final ground, the Court rejected the idea that proportionality is for the Court to determine rather than the decision-maker.

Comment

This decision illustrates the difficulty in trying to contest a sanctions designation through judicial review. The Court in this case gave a wide latitude to the Secretary of State in deciding which sources of information should be considered and the weight placed on the individual pieces of information. While in this case Synesis’ designation challenge failed, it will be interesting to see how the Courts will approach cases with different facts where there are stronger arguments that the person in question should not be considered an “involved person” under relevant UK sanctions legislation.

The U.S. Perspective

The outcome for Synesis will not be a surprise to those familiar with sanctions investigations and designations in the United States, where there is a limited history of successful judicial challenges to sanctions designations generally and to agency denials of delisting petitions in particular.  A recent, prominent example involves Oleg Deripaska, a Russian “oligarch” who was added to the U.S. Treasury Department’s Office of Foreign Assets Control’s (“OFAC”) Specially Designated Nationals and Blocked Persons List (“SDN List”) in 2018.  In 2019, Deripaska filed a lawsuit in the U.S. District Court for the District of Columbia against the Treasury Department seeking his removal from the SDN List, arguing that the sanctions were applied to him arbitrarily and violated his right to due process under the U.S. Constitution.  In March 2022, the U.S. Court of Appeals for the District of Columbia Circuit upheld the district court’s decision denying Deripaska’s claim, finding that, among other things, OFAC had a sufficient basis to impose sanctions on Deripaska.  On further appeal to the U.S. Supreme Court, Deripaska’s petition for writ of certiorari was denied in October 2022.

Individuals or entities seeking removal (i.e., de-listing) from the SDN List can explore administrative remedies from OFAC by filing a written request for reconsideration.  Generally, once such administrative remedies are exhausted, designated parties may seek judicial review of their case in federal court.  The relevant standard of review to challenge an OFAC designation derives from the Administrative Procedure Act (“APA”) and is highly deferential to governmental agencies.  Under the APA, the court will set aside OFAC’s designation decision only if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” (5 U.S. Code § 706).  Therefore, where the Treasury Department presents an adequate basis to justify its determination, courts will deny the designated party’s application for de-listing.  A designated party may be able to bring a challenge against OFAC on additional grounds, however, by seeking protection under the U.S. Constitution, such as: (i) First Amendment challenges based on vagueness or overbreadth; (ii) Fourth Amendment protections against unreasonable seizure of property; and (iii) Fifth Amendment right to due process. 

Dechert regularly assists clients in proceedings facing various sanctions authorities, including challenges to sanctions designations. 

The authors are grateful to Yan Shen Tan, trainee solicitor in London, for his valuable contribution to this OnPoint.

Footnotes

1. Before commencing the court review process, a claimant must have first sought ministerial review.
2. As set out at [14] of the judgment.
3. At [73] of the judgment.
4. At [90] of the judgment.