Sanctioned Russians appeal to EU courts

Sanctioned Russians appeal to EU courts
20 oligarchs have been sanctioned, but most of them claim they are not guilty of any wrongdoing. Now they are going to court to try and get the sanctions lifted. A case brought by the sister of Alisher Usmanov has already started. / Image: bne IntelliNews.
By bne IntelIiNews June 10, 2022

Some 20 Russian billionaires are set to contest sanctions imposed on them by the EU following Russia’s invasion of Ukraine. Those challenging their appeals include oligarch and former Chelsea FC owner Roman Abramovich, Alfa-Bank co-founder Mikhail Fridman and petrochemicals executive Dmitry Konov.

In response to Russia’s invasion of Ukraine, western countries have introduced successive waves of sanctions against Putin’s regime and those considered to be its beneficiaries. In addition to sanctioning Russian companies and exports, the EU has hit over 1,000 Russian individuals with asset freezes and travel bans. Superyachts and luxury mansions of Russia’s billionaires have been seized in countries across Europe as many have fled Russia seeking safe havens for themselves and their wealth elsewhere.

Those disputing their sanctions will have just over two months to prepare and lodge their appeals. It may, however, be difficult for the complainants to get legal representation in Europe given that most leading law firms have stopped working with sanctioned Russians to avoid reputational risk.

“The vast majority of cases will have very limited prospects of success,” Irish lawyer Carsten Zatschler told Bloomberg.

The oligarchs

There are some big names among those appealing their sanctions. Mikhail Fridman, the London-based banking tycoon, reportedly described the sanctions against him as “unfair” and “useless”. He argued that oligarchs like him had little influence over the Kremlin.

The oil magnate Gennady Timchenko also appears to be among the oligarchs appealing against the EU sanctions. However, unlike the majority of the oligarchs on the various sanctions lists, Timchenko can be considered “close to Putin” and openly declares himself to be one of Putin’s close friends. The two men grew up together in St Petersburg and Timchenko worked with the president there in the 1990s. It was also reportedly Putin who granted Timchenko an oil export licence and a Russian newspaper declared Timchenko and his friends the Rothenberg brothers “Kings of State Contracts” in a feature that detailed the billions of dollars of work they had been awarded by the state.

One of the oligarch cases that is already underway was brought against the EU by Saodat Narzieva and Gulbakhor Ismailova, sisters of the metals and tech tycoon Alisher Usmanov. The sisters were included in the EU sanctions list in April after a report from the Organized Crime and Corruption Reporting Project (OCCRP) and the Guardian newspaper, among others, claimed they were acting as intermediaries for their billionaire brother.

Usmanov was labelled one of “Putin’s favourite oligarchs” by the EU. Narzieva was identified as an ultimate beneficiary owner (UBO) of dozens of firms and bank accounts linked to her brother’s business that held hundreds of millions of dollars. Ismailova was found to be the sole owner of Usmanov’s superyacht, the biggest in the world and worth $600mn.

But an investigation by bne IntelliNews cast doubt on the basis of EU sanctions against Saodat Narzieva, a gynaecologist and obstetrician based in Tashkent. The OCCPR and Guardian reports were based on some incomplete banking document leaks that contained little information. Indeed, the OCCPR acknowledged the paucity of hard evidence in the very title of the report: “Sanctioning an Oligarch Is Not So Easy: Why the Money Trail of Alisher Usmanov, One of Russia’s Wealthiest Men, Is Difficult to Follow.”  

Nevertheless, the accusations in the report that would never pass for evidence in a court of law were enough to cause the EU to include the two women in the April round of sanctions. Now that decision and that evidence will be used in court in a case brought by Narzieva at the end of April.

Since then, the Guardian has written a second article confirming most of the evidence unearthed in bne IntelliNews’ investigation. Narzieva only owned 0.3% of the shares in Usmanov’s USM Holding company and never had executive powers nor signing authority over the bank accounts. Usmanov was clearly named as the principal shareholder in all the companies at the time Narzieva owned her shares in the same companies, the bank documents say, seen by bne IntelliNews.

Moreover, Narzieva only owned non-voting shares for less one year between 2013 and 2014, but they were bought back by her brother in the months after the annexation of Crimea before the main sanctions regime was imposed on Russia and eight years before any sanctions against Usmanov were mentioned.

Likewise, the yacht was transferred to Ismailova in the form of a trust also years before the sanctions regimes were imposed as part of a plan by Usmanov to share some of his wealth with his close family. The Guardian reported that the ownership change of the yacht was never hidden and all the relevant authorities were informed of the transaction.

The others

Not all those contesting their sanctions have clear links to the Kremlin, however.

Dmitry Konov, the former CEO of petrochemicals manufacturer Sibur, is also appealing against the sanctions against him. Konov, who was interviewed by bne IntelliNews after the company opened a major new facility in Siberia, has received acclaim for modernising Sibur and turning it into a high-performing petrochemicals player, and its IPO was highly anticipated before the war wrecked those plans. When Konov joined Sibur in 2004, revenue stood at around $3bn; by 2021 that figure had grown to $16bn.

Konov was also credited with improving Sibur’s ESG standards. Under his stewardship, the company’s ESG rating was upgraded by MSCI from BBB to BB in 2021. Konov also made it onto the ICIS list of top senior executives with the biggest impact on their companies and the industry, alongside managers from the likes of Dow and Solvay.

Sibir has been linked to the Kremlin via Kirill Shamalov, an executive on the board who is responsible for government relations, amongst other things. Shamalov was also married to one of Putin’s two daughters and was accused of nepotism after he received a stake in the company worth millions of dollars for which he paid a mere $100.

However, another investigation by bne IntelliNews revealed the nature of the deal:  Shamalov along with several other directors agreed to personally take on millions of dollars of the company’s debt but forego dividend payments that were used to pay the debt down. The $100 was a token payment to take control of the shares from which the dividend payments were made and which were also the millions of dollars of debt. The deal was part of a restructuring and many other managers chose not to take the option and cash out instead.

Industrialist and former EuroChem director Andrey Melnichenko is also understood to be among those contesting sanctions. He was sanctioned by the EU on the grounds that he is “one of the leading businesspersons involved in economic sectors providing a substantial source of revenue to the Government of the Russia”.

But the Ukraine-born Melnichenko claims to have "no relation to the tragic events in Ukraine" as well as "no political affiliations". bne IntelliNews has followed Melnichenko’s career from the beginning and interviewed him many times over the years. He got his start by setting up MDM Bank, which was catapulted into the top tier of Russian banks as the biggest of the medium-sized banks that survived the 1998 financial crisis. The leading oligarch-controlled banks in the first tier were all wiped out by that crisis.

In the noughties Melnichenko changed tack and began investing heavily into industry, with EuroChem as his biggest project. As profiled by bne IntelliNews, the company’s new facility in Murmansk is one of the biggest phosphorus-based fertiliser producers in the world and has a 60-year development plan – longer than the natural lifespan of Melnichenko himself. Throughout his long career Melnichenko has had no obvious contact or beneficial deals or money from the state. He himself told bne IntelliNews that he keeps as far away from politics as he can.

Despite the claims of the apolitical oligarchs that they are being unjustly punished and have committed no crimes, getting the sanctions lifted will be very difficult, say experts. The sanction decisions are political in nature and not based on the justice system, so the usual rules of right and wrong do not apply.

Moreover, if any of the claimants win their cases, the EU could potentially keep them under sanctions by “re-designating” them and imposing sanctions for new reasons. That has already happened to former Ukrainian President Viktor Yanukovych, who won multiple court cases to have sanctions overturned only to be sanctioned anew on fresh grounds on several occasions.