High Court Rejects Russian Bank's Judicial Review Challenge To OFSI Licence Amendments

The High Court has dismissed a judicial review challenge brought by VTB Bank (the Bank), Russia's second largest bank, to amendments made by the Office of Financial Sanctions Implementation (OFSI) to a General Licence issued under the UK's Russia sanctions regime:  PJSC VTB Bank v HM Treasury [2025] EWHC 3359 (Admin).

The amendments arose in the context of the administration of VTB's UK subsidiary, VTB Capital plc (VTBC). VTBC's administration was addressed by a General Licence which, from 2024, permitted distributions to the Bank on a “frozen” basis, with funds held in blind trusts. The disputed amendments introduced a new deductions mechanism in calculating sums due to the Bank, reflecting the impact of enforcement steps taken by the Bank in Russia in relation to VTBC-connected assets.

The UK's Russia sanctions regime provides the right to seek review of certain decisions, in which the court must apply the principles applicable in judicial review. The Bank contended that OFSI had used the licensing power for an improper purpose - effectively to alter outcomes in the insolvency and remove the Bank's ability to block a proposed scheme of arrangement. It also argued that the amendments were irrational and procedurally unfair and that the amended licence unlawfully interfered with its rights under Article 6 of the European Convention on Human Rights (ECHR).

The decision will be of interest to financial institutions for its guidance on: (i) the interaction between the UK's Russia sanctions regime and insolvency law; (ii) the scope of OFSI's licensing powers under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) and the Russia (Sanctions) (EU Exit) Regulations 2019 (the Regulations); and (iii) whether relevant ECHR rights are engaged by licensing decisions as opposed to designation decisions.

This decision is an interesting example of OFSI exercising its licensing powers swiftly and in response to a designated person seeking to counteract the effects of UK sanctions through its activities abroad. From a practical perspective, the judgment confirms that OFSI's licensing powers can, in effect, be used to calibrate the terms on which a designated person participates in an insolvency - where that is aimed at ensuring an orderly process and limiting collateral harm to non-designated creditors - without readily being characterised as an improper attempt to rewrite insolvency outcomes. As such, the judgment illustrates the breadth of OFSI's powers to issue and amend General Licences, provided this is done consistently with the (similarly broad) purposes of the relevant UK sanctions regime. It also signals that challenges to licence amendments will be assessed by orthodox public law principles (including the high threshold for irrationality), and that OFSI's guidance on advance engagement with relevant stakeholders is aspirational and can be balanced against other considerations, such as asset-preservation concerns and the need for urgency.

We consider the decision in more detail below.

Background

The Bank became a designated person under the UK's Russia sanctions regime in February 2022. VTBC, its UK subsidiary, was also caught by the asset freeze resulting from the designation and entered administration in December 2022. Shortly after designation, OFSI granted a General Licence permitting VTBC to make payments for basic needs. 'General Licences' can be issued by OFSI "under such conditions as HM Treasury deems appropriate" where this will best support the government's policy priorities. They differ from licences granted to particular persons (commonly referred to as 'specific licences'), which can be applied for from OFSI but may only be granted where a relevant statutory licensing ground is met.

In April 2022, OFSI amended the licence to permit VTBC to make and receive payments where its affairs were under the control of an insolvency practitioner and conducted for the benefit of creditors.

The joint administrators planned to distribute VTBC's assets to creditors via a creditors' scheme of arrangement. The scheme contemplated that the Bank could participate in distributions on a “frozen” basis, with payment deferred until non-sanctioned creditors had been paid. In May 2024, OFSI amended the General Licence to facilitate implementation of the proposed scheme.

In September 2024, on the day before the scheme meeting, the Bank indicated it would vote against the scheme, meaning it would not pass. The following month, the joint administrators became aware that the Bank had taken enforcement steps in Russia in relation to VTBC-connected assets, including seizing cash and obtaining freezing orders. They told OFSI that, if the administration could not be progressed in a timely manner, these steps risked placing the Bank in a materially better position than other (non-sanctioned) creditors, given its ability to act freely in Russia and the potential knock-on effect on recoveries within the UK administration.

Against that backdrop, the joint administrators suggested that one option would be for OFSI to amend the General Licence so that any distributions to the Bank (via the relevant “blind trust” arrangements) would be subject to deductions reflecting (in broad terms) the value of assets affected by the Russian enforcement activity and certain amounts owed to VTBC by entities said to be under the Bank's control. 

In light of this, OFSI's licensing team sought urgent approval from its senior decision-makers to amend the General Licence "to prevent [the Bank] from making a double recovery, stepping ahead of other creditors, and/or profiting from statutory interest in the administration". Approval was granted and OFSI issued the amended licence on 8 January 2025 (the Amended Licence).

At the creditors' meeting on 30 January 2025, the Bank voted against the scheme. However, applying the deductions mechanism meant that the Bank no longer had sufficient voting power to block it, and the scheme was approved. The joint administrators then applied to the court for a distribution to be made in accordance with the Amended Licence. The Bank subsequently commenced judicial review proceedings challenging the Amended Licence.

High Court decision

The court dismissed the judicial review application, rejecting all six public law grounds on which the Bank challenged OFSI's Amended Licence. The court's reasoning was as follows.

Improper purpose

The Bank's principal case was that OFSI had exercised its licensing powers for an improper purpose, contrary to the principle in R v Minister of Agriculture and Fisheries ex p. Padfield [1968] UKHL 1.

The Bank argued that the joint administrators had asked OFSI for a “sanctions solution” to enable them to “force” the scheme of arrangement through. In its submission, the Amended Licence diluted the value of the Bank's interest in the insolvency (through the deductions mechanism), removing its veto and producing outcomes that could not have been achieved under ordinary insolvency law. Its position was that the sanctions regime should not be used to confer an advantage between private parties, nor to extinguish rights (which amounts to expropriation) as opposed to merely freezing assets. 

The court rejected that characterisation, reiterating that the Padfield principle focuses on the purpose of the exercise of a power and not on its effect. It treated the power to vary a licence (Regulation 66(5)) as ancillary to the wider sanctions regime, and therefore assessed the Amended Licence by reference to the purposes of the Regulations and SAMLA. It held that the specified purposes of the Regulations include (among other things) encouraging Russia to cease its conduct in Ukraine and promoting the payment of compensation by Russia for the effects of the invasion, aligning with SAMLA's foreign policy objectives.

The court also addressed the function of the licensing power under the Regulations, referring to several cases which have now commented on this, including  Celestial Aviation Services Ltd v UniCredit Bank GmbH [2024] EWCA Civ 628 (see our briefing  here), in which the Court of Appeal described licensing as a mechanism to mitigate the unintended consequences of broadly framed sanctions. The court also referred to  Fridman v HM Treasury  [2023] EWHC 2657 (see our briefing  here), in which the High Court observed that an exercise of a licensing power may have a purpose of mitigating the impact of the sanctions regime on unsanctioned third parties. In the court's view, that included facilitating an orderly insolvency process and limiting collateral damage on unsanctioned creditors.

Against that backdrop, the court held that the conditions in the Amended Licence were directed at enabling an orderly administration, permitting only limited participation by the Bank on a frozen basis, and addressing the impact on unsanctioned creditors of steps taken by the Bank outside the UK. There was nothing to suggest any purpose behind the Amended Licence that thwarted, impeded or frustrated the statutory purposes of the UK's Russia sanctions regime. Many of the Bank's true complaints were characterised by the court as going to the effects or consequences of the Amended Licence, rather than purpose. 

Article 6 of the European Convention on Human Rights (ECHR)

The Bank argued that the Amended Licence unlawfully interfered with its Article 6 rights by “usurping” the Insolvency Court's role and preventing its position as creditor from being determined in accordance with ordinary insolvency law, which it said was incompatible with its right of access to court.

The court rejected that analysis. It emphasised that the Bank was a designated person and, absent licensing, its participation in the administration remained sanctioned. The Amended Licence did not determine civil rights; it provided a limited decriminalisation permitting participation on specified terms. Nor was there any relevant genuine and serious dispute between the joint administrators and the Bank. On that footing, Article 6 was not engaged by OFSI's Amended Licence decision, although that is not to say that Article 6 is irrelevant to OFSI's decision making. 

SAMLA itself satisfies the requirements of Article 6 by providing for a sanctioned entity to be able to seek court review of the operative decisions, including undertaking its own proportionality assessment of any substantive ECHR rights said to be breached. In this situation, although not pleaded as such, the court considered the essence of the complaint related to Article 1 of Protocol 1 (A1P1) to the ECHR, namely an interference with property rights. However, the Bank did not ask the court to consider the proportionality of the decision making through this lens. The court did not therefore consider this issue in detail, but did question whether A1P1 would be engaged by the licensing decision, which on one analysis did not interfere with property rights beyond permitting limited dealings with frozen assets. In any event the court expressed its view that the sanctions/licensing framework pursues the general interest and there were a number of factors pointing to the proportionality of the decision.

Irrationality

The Bank challenged two features of the Amended Licence as irrational in terms of both process and outcome: (i) valuing deductions using historic exchange rates; and (ii) the “blind trust” condition prohibiting any “provision” with a view to a future payment or transfer to the Bank. It argued OFSI had essentially rubber-stamped the Joint Administrators' proposals, and that the “provision” wording was added late without any substantive consideration.

The court rejected both points. In the context of the Bank's stance on the scheme and its enforcement steps in Russia, OFSI was entitled to focus on ensuring any permitted participation by the Bank was decriminalised only to the minimum extent necessary to allow an orderly administration and protect non-designated creditors. The two provisions were treated as implementation/drafting choices ancillary to the rational core decision to permit a deductions mechanism, and there was evidence that OFSI had given appropriate consideration rather than just rubber-stamping proposals. The high threshold for irrationality was not made out.

Procedural challenges

The Bank raised two complaints relating to lack of proper consultation: (i) procedural unfairness, on the basis that it was not given an opportunity to make representations before the Amended Licence was issued (unlike the joint administrators), despite the significant detrimental impact on the Bank; and (ii) failure to follow OFSI's published policy of seeking to engage with relevant stakeholders before varying, suspending or revoking General Licences. 

The court rejected both grounds. It held the Bank was fairly consulted in substance and had ample opportunity to engage throughout the administration process. The Bank did not have any additional entitlement to be consulted before the January 2025 amendments were made. In the circumstances, further consultation would have caused delay and risked further asset dissipation. The court also commented that the Bank was in a position to make representations after the date of the Amended Licence, noting that OFSI has a duty to keep the exercise of its licensing powers under review and, as such, OFSI licences can be (re-)amended if fairness and effectiveness so requires. The court described the OFSI guidance on engagement as being framed in "aspirational" language which did not create any rights on a free-standing basis, and also noted an apparent distinction in the guidance between "licence users" (who would generally be notified) and "stakeholders" (with whom OFSI would seek to engage).

Failure to investigate

Finally, the Bank also alleged a breach of the Tameside duty (derived from Secretary of State for Education and Science v Tameside MBC [1976] UKHL 6), namely the obligation on public bodies to take reasonable steps to acquaint themselves with relevant information before making a decision. The Bank argued, in particular, that OFSI proceeded on adverse factual assumptions about the Bank's conduct and the risk of future circumvention without investigating those issues or seeking further information so as to be in a position to make an informed assessment.

The court treated the relevant concern as a policy risk (the consequences if the scheme failed and the Bank could participate without deductions), rather than a dispute of fact requiring detailed evidential findings about past or future conduct. Against that backdrop, and bearing in mind that a Tameside challenge is a question of rationality, the court was not persuaded the decision was outside the range of reasonable responses: the situation had changed since May 2024, but the policy objective - an orderly administration while addressing extra-jurisdictional steps affecting other creditors - remained the same. It was not irrational for OFSI to take the joint administrators' advice and representations at face value without testing them. 

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