ASK MAT – X2 Russian designated persons own minority stakes in company – is the company sanctioned?

ASK MAT –

• If two or more designated persons are each minority shareholders in a non-designated person, but their aggregate ownership amounts to more than 50% of that non-designated person, should that non-designated person be considered as being owned by a designated person for the purpose of the Russia (Sanctions) (EU Exit) Regulations 2019 (the Regulations)? 

MAT SAYS

• It’s possible, it all depends on control

In The First Instance:-

1. When assessing ownership or control, OFSI WOULD NOT aggregate different designated persons’ shareholdings in a company, UNLESS, for example,
   1. The shares or rights are subject to a joint arrangement between the designated persons, or
   2. One designated person controls the rights of another designated person. 
2. Regulation 7 sets out what is meant by a PERSON BEING OWNED OR CONTROLLED directly or indirectly by a designated person. 
   1. If each of the designated persons’ shareholdings is at 50% or falls below the 50% threshold in respect of share ownership and
      1. There is no evidence of control over the non-designated person,
      2. The non-designated person will not be subject to sanctions.
   2. However, if there is evidence of control, the non-designated person will be subject to sanctions.
3. Regulation 7 of the UK Sanctions (EU Exit) Regulations 2019 explains what it means for a person or entity to be owned or controlled directly or indirectly by a designated person. Here are the key points:
   1. Ownership:
      1. A person or entity is considered owned by a designated person if the designated person holds, directly or indirectly, more than 50% of the shares or voting rights in the entity
   2. Control:
      1. Control can be established in several ways:
         1. The designated person has the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity
         2. It is reasonable to expect that the designated person would be able to ensure the affairs of the entity are conducted in accordance with their wishes
   3. Indirect Control:
      1. This can include situations where the designated person exercises control through another entity or arrangement, such as a front company or a trust
      2. These provisions ensure that financial sanctions cannot be easily circumvented by using intermediaries or complex ownership structures
4. Read the OFSI guidance and go to question 4 
   1. https://www.gov.uk/government/publications/uk-financial-sanctions-faqs/uk-financial-sanctions-faqs

References

1. Ownership and Control: Public Officials and Control guidance https://www.gov.uk/government/publications/ownership-and-control-public-officials-and-control-guidance/ownership-and-control-public-officials-and-control-guidance
2. UK Financial Sanctions FAQs https://www.gov.uk/government/publications/uk-financial-sanctions-faqs/uk-financial-sanctions-faqs
3. 'Who calls the shots?' – FCDO issues guidance on ownership and control ... https://www.shlegal.com/insights/who-calls-the-shots-fcdo-issues-guidance-on-ownership-and-control-in-uk-sanctions-regulations
4. READ HERE AND GO TO QUESTION 4 - https://www.gov.uk/government/publications/uk-financial-sanctions-faqs/uk-financial-sanctions-faqs