Category: Blog

United Kingdom: The Largest Sanctions Package Since 2022

The United Kingdom (UK) has issued its largest sanctions package since 2022, targeting 107 additional individuals and businesses to hinder Russia’s war effort, disrupt military supply chains, and cut off financial support to the Kremlin. The UK is also targeting North Korea’s involvement in the conflict, sanctioning Defence Minister No Kwang Chol and other senior officials for their alleged role in the conflict. The UK has condemned Vladimir Putin’s deployment of North Korean military as “cannon fodder” in his conflict against Ukraine.

The sanctions primarily target Russia’s military supply chains, specifically manufacturers and suppliers of machine tools, electronics, and dual-use goods, such as microprocessors used in weapons systems. These suppliers, located in China, India, Turkey, Thailand, and Central Asian countries, are said to play a vital role in Russia’s war machine. China is the major provider of these goods, and the new measures aim to limit its ability to continue supporting Russia’s military.

Crackdown on Foreign Financial Institutions

For the first time, the UK is utilising new powers to target foreign financial institutions that aid Russia in evading sanctions. This includes Kyrgyzstan-based OJSC Keremet Bank, which has allowed financial transactions to help Russia’s war effort. 13 Russian targets have also been sanctioned, including LLC Grant-Trade, its owner Marat Mustafaev, and his sister Dinara Mustafaeva, who have been smuggling superior European technology into Russia.

The UK is also intensifying sanctions on Russia’s energy industry, focusing on Russia’s shadow fleet, a network of boats shipping Russian oil in violation of sanctions. An additional 40 oil tankers have been sanctioned, raising the UK’s total to 133, the most in Europe. These tankers have transported $5 billion in Russian oil in just six months, and the new restrictions aim to further restrict Russia’s access to critical energy revenue.

Targeting Russian Oligarchs and Economic Backers

The UK is cracking down on Russian oligarchs, sanctioning 14 new “Kleptocrats” who play a strategic role in Russia’s economy. Among them is billionaire Roman Trotsenko, worth £2.2 billion. These restrictions target individuals who benefit from and support Putin’s government, separating Russia’s elite from the global financial system.

Financial and Trade Sanctions in European Union

Restricting Financial Transactions and Crypto Asset Providers

The EU strengthened financial sanctions to stop Russian attempts to avoid restrictions. This includes banning transactions with international financial institutions and crypto asset providers that enable sanctions evasion and fuel the Russian war effort. Furthermore, three banks related to Russia’s SPFS financial messaging system have been sanctioned, two in Belarus and one in China.

The energy sector remains a top priority, with further limits on Russian crude oil and petroleum product storage in EU free zones. The package also expands restrictions on Russian crude oil projects, including the Vostok oil project, limiting Russia’s ability to increase energy production. Furthermore, export restrictions on software used in oil and gas exploration make it more difficult for Russia to maintain and expand its fossil fuel industry.

Expanded Trade and Export Controls

Trade restrictions have also been expanded to include direct limits on Russian aluminium imports, which will be phased out by 2026. Minerals, chemicals, steel, glass products, and fireworks that may be used in the military have all been subject to additional export restrictions. The package further tightens dual-use export controls, adding 53 additional organisations to the list of those backing Russia’s military-industrial complex, including 25 in China, India, Turkey, Kazakhstan, the United Arab Emirates, Uzbekistan, and Singapore.

Transportation Industry Sanctions

The transportation industry will face additional constraints, including a ban on third-country airlines conducting domestic flights in Russia and new rules to prevent Russian ownership of more than 25% of EU road transport enterprises, in order to eliminate gaps that could be used to evade sanctions. Furthermore, full transaction sanctions have been imposed on important Russian ports and airports that handle military items, oil, and sanctioned materials.

Combatting Disinformation and Propaganda

The EU has also taken measures to tackle disinformation, banning eight Russian media outlets, including EADaily, Fondsk, Lenta, NewsFront, and Strategic Culture Foundation, for allegedly spreading pro-Kremlin propaganda. These measures are intended to hinder Russia’s capacity to influence public opinion and justify its conflict against Ukraine.

Finally, the package enhances enforcement and anti-circumvention efforts by imposing stronger due diligence requirements on EU corporations and their foreign subsidiaries to prevent them from indirectly supplying prohibited goods to Russia. It also improves information exchange among EU member states and international allies to prevent sanctions evasion.

Conclusion

In what will be seen by many as a complete role reversal, OFAC is likely to relax sanctions against Russia while the UK and EU move in the opposite direction, tightening restrictions. French President Emmanuel Macron’s visit earlier this week and British Prime Minister Keir Starmer’s visit to the U.S. today highlight European efforts to persuade President Trump to maintain the course set by his predecessor. Whether they will succeed remains an open question.

What is certain, however, is that the UK and Europe will continue to adopt a robust and aggressive stance towards Russia. With sanctions being the most forceful foreign policy tool short of military action, they are likely to remain the primary instrument of European pressure. This divergence will have lasting implications for sanctions enforcement, creating new challenges for businesses navigating an ever increasing and potentially contradictory Western sanctions regime.

Business and financial institutions, especially those operating across multiple jurisdictions, must be vigilant in fulfilling their reporting responsibilities and developing more rigorous screening procedures.

To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

How Sanctions Are Increasing Risks for Indian Businesses

India’s dependence on Russian oil – accounting for roughly 35% of its crude imports in 2024 – puts its refiners in a precarious position. Regulatory pressure has intensified, particularly concerning compliance with the G7 oil price cap. Previously, Indian companies relied on indirect payment mechanisms, but with increasing scrutiny of financial institutions handling Russian transactions, compliance risks are now significantly higher.

In January 2025, the US Treasury Department blocked over 180 entities, including shipping companies and oil traders, aiming to disrupt Moscow’s revenue streams. A key focus of these measures is the so-called “shadow fleet” – a network of tankers circumventing restrictions to transport Russian crude.

Unlike primary sanctions, which impose restrictions on US persons and entities within the US, secondary sanctions target non-US businesses that engage with sanctioned persons or in sanctioned activities. While these entities may not be subject to US jurisdiction, they risk severe consequences, such as losing access to the US financial system, being restricted from dollar transactions or facing operational disruptions.

For Indian businesses, the ripple effects of sanctions breaches extend beyond oil. Financial institutions, logistics providers, and insurers are reassessing their exposure to Russian trade. In October 2024, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned 19 Indian private sector entities and two individuals for facilitating transactions that bypassed US restrictions on Russia, by supplying technology and dual-use equipment for military use. Among them, Bengaluru-based Emsystech faced asset freezes and was banned from US-linked transactions for exporting electronic components to Russian entities. These measures resulted in banking restrictions and loss of access to US dollar transactions, severely disrupting its global operations.

Given the extraterritorial reach of these measures, companies must implement real-time sanctions screening and legal oversight to mitigate exposure. Compliance is no longer optional – it is essential.

Risks for Indian Companies

Indian companies face two major risks amid evolving sanctions: supply chain disruptions and compliance challenges in international payment systems and dollar transactions.

1. Supply Chain Disruptions

Sanctions on logistics networks and shipping firms are affecting industries beyond energy, including manufacturing and pharmaceuticals. Restrictions on Russian oil shipments have forced major Indian refiners to scramble for alternative suppliers, increasing costs and uncertainty. In January 2025, Bharat Petroleum Corporation Ltd (BPCL) reported a shortage of Russian oil cargoes for March deliveries due to new US sanctions that blocked Russian oil producers and vessels, forcing BPCL to source oil from the Middle East at higher costs.

Beyond oil, businesses reliant on Russian raw materials and industrial components face similar disruptions. Shipment delays, payment processing hurdles, and sudden supplier blacklisting can cause production slowdowns.

To mitigate supply Chain Risks, companies must implement due diligence mechanisms to screen suppliers, partners and financial institutions. At its most basic level, this involves screening against global sanctions lists including OFAC’s Specially Designated Nationals (SDN) List, the EU’s Consolidated Sanctions List, and the UK’s Office of Financial Sanctions Implementation (OFSI) List.

2. International Payment Systems and Dollar Transactions

With Western authorities increasing oversight, Indian banks and financial institutions processing payments for Russian oil face heightened risks. Any dollar-based payment involving a sanctioned entity falls under US jurisdiction, potentially leading to financial penalties or restrictions.

In response, Indian refiners are exploring alternative payment methods. Some refiners have started settling Russian oil imports in Chinese renminbi, reducing reliance on the US dollar. Additionally, Russia has proposed a BRICS cross-border payment system to facilitate transactions in local currencies and strengthen economic ties within the BRICS bloc.

However, these alternatives come with their own set of legal and regulatory challenges. Even non-dollar transactions may violate sanctions depending on the jurisdictions, transactions and entities involved.

The Cost of Non-Compliance for Indian Businesses

Without a robust sanctions compliance policy, Indian businesses face serious legal, financial, operational, and reputational risks. Violations of sanctions laws can result in significant penalties, including fines and, imprisonment.

An added complexity is that evolving sanctions regimes can lead to commercial disputes. In May 2023, India’s GAIL took Gazprom to the LCIA after supply disruptions linked to sanctions on a German Gazprom subsidiary. These types of disputes can cause major financial losses.

With sanctions evolving rapidly, Indian businesses must act now to protect their global operations. Strengthening compliance programs, reassessing procurement strategies, and seeking expert legal advice can prevent financial penalties and disruptions.

At Eldwick Law, we offer tailored solutions to help businesses navigate the complex sanctions landscape. Contact us today to safeguard your business and ensure full compliance with international regulations.

Introduction

On 20 December 2024, Mr Simon Birt KC (Sitting as a Deputy Judge of the High Court) handed down judgment in the King’s Bench Division (Commercial Court) case of Alimov v Mirakhmedov [2024] EWHC 3322 (Comm).

The primary issue for the Court to address was whether the English Court had jurisdiction over a claim involving various Kazakh parties, living in the UK, UAE, and Kazakhstan.

The Claimant, Mr Yermek Alimov is a businessman with expertise in Kazakhstan’s energy sector and the former head of two Kazakh energy companies, AstanaEnergoServices JSC and Karaganda Energo Tsentr LLP (a private energy company which owned the Karagndiskaya TETs 3 power station and provided energy to the city of Karaganda). The four Defendants comprised of three Kazakh bitcoin miners: Mr Abdumalik Mirakhmedov (“D1”), Mr Rashit Makhat (“D2”), Mr Andrey Kim (“D3”) and fourth Cypriot-based company, Genesis Digital Assets Limited (“Genesis”), then the largest cloud bitcoin-mining company in the world.

The Facts

In summary, Mr Alimov said that in around April 2017 Genesis and D1-D3 entered into a joint venture agreement to develop bitcoin mining in Kazakhstan. Genesis were to own 50% and D1-D3 50%. D1-D3 were responsible for finding a cheap source of energy, acquiring the land and buildings near the energy source and readying that land and buildings for bitcoin mining. Genesis was to prepare and install the technological equipment needed for bitcoin mining, and incorporate the new bitcoin mining factories in Kazakhstan into its existing bitcoin infrastructure in Europe.

In seeking to find that cheap source of energy, D2 and D3 contacted Mr Alimov in around May 2017. There were then said to have been a series of meetings in May 2017 between D1-D3 and Mr Alimov, in which Mr Alimov proposed various energy sites in the city of Karaganda which would be suitable for D1-D3’s energy needs.

Ultimately, Mr Alimov says that he met D1 in London on 10 June 2017 where he alleges to have reached an oral agreement on which the claim is largely based. Mr Alimov says that he and D1 (acting with the authority of D2 and D3) agreed that Mr Alimov would receive a 35% share in the Defendants’ joint venture corporate vehicle, as well as 35% of the bitcoin obtained, in exchange for Mr Alimov providing the energy infrastructure needed to mine bitcoin. The Court described and defined this as the “London Agreement”.

Mr Alimov sought to bring a breach of contract claim under Article 228 of the Civil Code of Kazakhstan before the High Court in London. D1 disputed jurisdiction, claiming that he had relocated to the UAE, while D2 and D3 argued that the dispute was governed by Kazakh law and should be heard there.

The Claimant was required to satisfy three conditions in order to obtain permission to serve proceedings on a foreign defendant outside the jurisdiction: (1) that there is a serious issue to be tried on the merits in relation to the foreign defendant(s); (2) that there is a good arguable case that the claim falls within one or more of the jurisdictional ‘gateways’ set out in the applicable rules; and (3) that England & Wales is clearly the appropriate forum for the trial. However, the burden of proof rested on the Defendants to demonstrate that there exists an alternative forum, in this case, Kazakhstan, that is more appropriate than England & Wales for the resolution of the dispute

The Applicable Law

The Claimant relied on CPR PD 6B gateways, specifically para. 3.1(1) (D1 domiciled in England) and para. 3.1(3) (proper parties D2 and D3), as well as para. 3.1(6) (contract made in England). In determining the issue, the Court referenced Kaefer Aislamientos SA de CV v AMS Drilling Mexico SA de CV [2019] EWCA Civ 10, which clarified that a “good arguable case” requires sufficient evidence to warrant trial, not certainty of success. It also cited Goldman Sachs International v Novo Banco SA [2018] UKSC 34, affirming that a claim based on a contract formed in the jurisdiction is valid if backed by plausible evidence. The court found the Claimant had a good arguable case but concluded the dispute over the London Agreement necessitated a full trial rather than summary determination.

The Claimant sought to rely on the Companies Act 2006, specifically section 1141, to argue that service could be effected at a registered address for D1 in England, notwithstanding that D1 had relocated abroad. However, the Court concluded that section 1141 of the Companies Act did not establish an independent basis for service, particularly in instances where the defendant no longer resided within the jurisdiction. The Court further rejected the Claimant’s reliance on this provision for service at the registered address, stressing that it did not provide a separate or novel rule for jurisdiction. Service was ultimately deemed valid solely because D1 had not fully established his residence in Dubai at the relevant time, meaning the London addresses remained applicable for service purposes.

The Court also found that the Claimant’s assertion that D1 had authority to bind D2 and D3 to the London Agreement under Kazakh law was unsupported, as Kazakh law requires specific formalities, such as a power of attorney, which the Claimant could not produce. As a result, there was no real prospect of success on this point. However, the Court allowed the Claimant’s amendment to plead ratification, noting that even if D1 lacked authority, D2 and D3 had subsequently ratified the agreement by requesting the transfer of the sub-station and factory and making payments of bitcoin. The issue of ratification had a plausible evidential basis, and the claims against D2 and D3 therefore demonstrated a serious issue to be tried under the para. 3.1(6) gateway.

In applying the law, the Court followed the principles of forum non conveniens – that a court may stay proceedings in favour of a more appropriate forum – to determine the most appropriate forum for the dispute. The Judge relied on Spiliada Maritime Corp v Cansulex Ltd [1987] A.C. 460, which established that courts must assess whether there is an alternative forum that is clearly more appropriate for the trial based on factors such as location, convenience, and fairness.

Court’s Decision

The Claimant sought to have the dispute heard in England, arguing that the London Agreement took place in this jurisdiction, and the Defendants could therefore be served here. In prior decisions, English courts had asserted jurisdiction on the grounds of the location of the parties or the alleged breach of contract within the jurisdiction. In this case, the overwhelming factors – the location of the relevant events, the Defendants’ domicile, and the evidence – were tied to Kazakhstan. The Claimant’s claim for jurisdiction in England was based primarily on an oral agreement allegedly formed in London, but the Court found that the connection to Kazakhstan outweighed any link to England.

Key considerations included:

1. Location of Events: The alleged breach of contract and the relevant events primarily took place in Kazakhstan, where the Bitcoin mining project was located, and where the majority of the business and infrastructure was situated.
2. Location of Evidence and Witnesses: Most of the evidence, including documents and testimony, was expected to come from Kazakhstan.
3. Parties’ Connections to Kazakhstan: The Defendants all had substantial business and personal ties to Kazakhstan, making the country the natural venue for the resolution of the dispute.

The Court’s decision in this matter contrasts with another recent FSU-related jurisdictional dispute in January 2025 – Magomedov & Ors v TPG Group Holdings (SBS), LP & Ors [2025] EWHC 59 (Comm). In Alimov v Mirakhmedov, the Court found a serious issue to be tried under the CPR PD 6B gateways and allowed the Claimant’s ratification claim to proceed, citing a plausible evidential basis. The Court similarly stressed the absence of a substantial link to England and concluded that Kazakhstan was the more appropriate forum, given the dispute’s closer ties to that jurisdiction. By contrast, in Magomedov, the Court determined that there was no serious issue to be tried and declined jurisdiction in England due to insufficient connections with that forum.

Importantly, the Court found that there would be no real risk of substantial injustice in the claim being heard in Kazakhstan. Following Município de Mariana v BHP Group (UK) Ltd [2022] EWCA Civ 951, the Court reiterated that the mere possibility of a different outcome in a foreign jurisdiction, or the application of different procedural or substantive rules, does not constitute substantial injustice. As Kazakhstan is the clearly more appropriate forum, the Claimant must accept the rules and procedures of that jurisdiction, as outlined in Connelly v RTZ [1998] AC 854, without the ability to bypass local legal provisions to achieve a more favourable result.

Conclusion

The Court ultimately determined that Kazakhstan was clearly the more appropriate forum for this dispute. Although the Claimant had established a plausible case that the alleged agreement was formed in London, the Court emphasised that the strong connections to Kazakhstan, where almost all the relevant events and property were located, made it the natural forum for the dispute.

The case also serves as a reminder to Claimants when initiating claims involving multiple jurisdictions, and the need to carefully consider jurisdictional challenges at the outset.

Following on from my recent article on Managing Risks Related To Offshore Accounts and Tax Havens, I wanted to discuss the tax evasion offences relating to such arrangements.

In addition, this article will consider the difference between aggressive tax avoidance and tax evasion, and when that line is crossed in cases where wealth is placed offshore.

The first offences to consider are those provided for by the section 166 of the Finance Act 2016.

What are the offences under section 166 of the Finance Act 2016?

Section 166 of the Finance Act 2016 creates new offences under sections 106B, 106C and 106D of the Taxes Management Act 1970, namely:

• Failing to give notice of liability to income tax or capital gains tax.
• Failing to deliver a return.
• Failing to make an accurate return regarding offshore income, assets, or activities.

It is important to be aware that these are ‘strict liability’ offences, meaning the Prosecution does not have to show you dishonestly intended to evade paying tax, omitting to give notice or accurate information concerning offshore income, assets, or activities is enough to gain a conviction.

The offences will only apply to income tax and capital gains tax; however, all offshore income and gains are included, not just under-declared investment returns. If the total of the relevant unreported tax is under £25,000 for a particular year, no offence is committed. This signifies that in bringing in the legislation, the UK Government was not concerned with what it considers ‘minor amounts’. The offences are aimed at those who have significant income and/or assets located offshore.

The offences also do not apply:

• You were acting as a trustee of a settlement, or as executor or administrator of a deceased person, or
• You reported your offshore income or capital gains to HMRC under the Common Reporting Standard (CRS).

What are the defences available under section 166 of the Finance Act 2016?

If you can show you took reasonable care when submitting your return or had a reasonable excuse for failing to comply with your UK tax obligations, you will have a defence. But this does not mean you automatically escape conviction. The Courts will consider your circumstances, ability, knowledge, and experience. So, if you are wealthy, educated, with access to considerable support in terms of professional advisors, you will need to provide a persuasive and detailed argument that you took reasonable care or had a reasonable excuse.

The offences under section 166 and the crime of tax evasion and tax fraud (discussed in a previous article) are relatively straightforward in terms of what the Prosecution must prove. And although a defence can and often is built on the lack of dishonest intent by the Defendant, there is another grey area where a defence to tax evasion/fraud can be plucked from – was the Defendant engaging in tax evasion or aggressive tax avoidance, the latter of which may or may not be illegal? An example of this can be found in the 2015 HSBC scandal.

What was the HSBC scandal involving offshore accounts and tax avoidance?

Section 166 was introduced following the public outcry regarding the revelation that the UK- headquartered bank, HSBC, allegedly helped those holding offshore Swiss accounts, undertake tax avoidance and evasion. The International Consortium of Investigative Journalists (ICIJ) unearthed evidence of the bank providing large amount of untraceable bricks of cash in foreign currencies, colluding with clients to conceal ‘black accounts’ from tax authorities, and using “how to avoid the European Tax Savings Directive” information as a marketing strategy.

In her article, The Relationship Between Offshore Evasion and ‘Aggressive’ Tax Avoidance Arrangements: The HSBC Case, Iulia Nicolescu states that aggressive tax avoidance and tax evasion are seen as broadly the same in the court of public opinion. The Government is also alive to this and has sought to separate out the definitions of ‘tax avoidance’ and ‘tax planning’ as illustrated below.

Clarifying tax terminology

Tax evasion is always illegal. It is when people or businesses deliberately do not declare and account for the taxes that they owe. It includes the hidden economy, where people conceal their presence or taxable sources of income.

Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter – but not the spirit – of the law. Most tax avoidance schemes simply do not work, and those who engage in it can find they pay more than the tax they attempted to save once HMRC has successfully challenged them.

Tax planning involves using tax reliefs for the purpose for which they were intended, for example, claiming tax relief on capital investment, or saving via ISAs or for retirement by making contributions to a pension scheme. However, tax reliefs can be used excessively or aggressively, by others than those intended to benefit from them or in ways that clearly go beyond the intention of Parliament. Where this is the case it is right to take action, because it is important that the tax system is fair and perceived to be so.”

Aggressive tax avoidance is frowned upon by the Government and cases may be heard in court to decide whether the avoidance is manipulating the law in a way that does not represent the Government’s intentions towards tax. However, following the HSBC scandal, only one person was prosecuted. HMRC admitted that putting together a court case took years, and it was quicker and cheaper to try to recoup the lost tax rather than prosecute the bank.

Wrapping up

If you feel after reading this article that there are no clear answers when it comes to tax evasion offences and offshore accounts other than what is provided for under section 166 of the Finance Act 2016, that is because unambiguous law regarding tax avoidance is difficult to create. Governments must tread a fine line between collecting revenue and assuring the public that high-net-worth people are paying their fair share, and the need to encourage investment and not send the wealthy, with their considerable spending power and already high tax contributions, fleeing to more tax-friendly shores.

Being investigated or prosecuted for tax fraud or tax evasion is incredibly serious, and if you are convicted, you could go to prison. Our Tax Fraud Solicitors have extensive experience in successfully defending complex tax fraud cases and will provide the advice and representation you need to manage an HMRC investigation or prosecution.

To discuss any points raised in this article, please call +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

Note: This article does not constitute legal advice. For further information, please contact our London office.

What is a crypto wallet?

Crypto wallets do not store physical currency. Instead, it contains the digital passkeys you use when signing for crypto transactions and provides an interface that allows you to access your crypto assets. A crypto wallet also makes blockchain accessible, by entering in long keys which previously, you would have had to do yourself.

A straightforward way to think of a crypto wallet is to imagine a piece of software that finds all your bits of crypto asset data scattered across a database by using your public address. Once collected all the assets that belong to you, it totals up the amount and presents it on an app interface.

Crypto wallets come in two forms, custodial and non-custodial.

• Custodial wallets – an exchange where you can buy and sell cryptocurrency holds the passkey to your wallet on your behalf.
• Non-custodial wallets – you, as the user, have complete control over your passkey and direct interaction with the blockchain.

There are also two types of crypto wallets.

• Hot wallets – where your wallet is kept on an application or platform residing on the internet.
• Cold wallets – where your wallet is stored offline, sometimes in a physical device such as a thumb drive.

Both options differ in experience and security levels. For example, cold storage may offer more security as it is offline; however, most hot storage options are free to use.

How does a Crypto Wallet Freezing Order work?

The Economic Crime and Corporate Transparency Act 2023 introduced CWFOs and Crypto Wallet Forfeiture Orders CWForOs. CWFOs closely model Account Freezing Orders (AFOs) which was introduced by the Criminal Finances Act 2017.

As of 24 April 2024, Prosecutors and enforcement authorities in England and Wales can apply to a Magistrates’ Court for a CWFO where they have reasonable grounds to suspect cryptoassets held in a crypto wallet administered by a UK-connected crypto service provider represent the proceeds of unlawful conduct or are intended for use in unlawful conduct.

A subsequent CWForO can be made if the Court is satisfied, on the balance of probabilities, that the crypto assets connected with the wallet are the proceeds of criminal conduct or intended to be used for criminal purposes.

As is the case with AFOs, it is likely that most applications for CWFOs will be granted at the first hearing. This is because:

1. Magistrates seldom question an enforcement agency’s assessment regarding whether the Respondent’s assets relate to criminal conduct, and
2. In the case of crypto wallets, Magistrates are unlikely to have the technical knowledge to challenge the enforcement agency’s conclusions.

Holding a non-custodial wallet in cold storage can hamper the effectiveness of CWFOs as the wallet may not be connected to a UK service provider. However, cold and non-custodial wallets can still be identified over the on/off ramp interactions with (centralised) service providers.

Another challenge to the effectiveness of CWFOs is the rise of Decentralised Exchanges (DEX) and privacy first Blockchain protocols. These could make the successful application of CWFOs practically impossible.

Can CWFOs be granted without notice?

Yes, they can be granted without notice to the owner of the wallet or any other affected party.

How can a Solicitor help?

If the CWFO has been granted without notice, it is unlikely you will be aware of its existence until it is served on you. At this point, you need to contact an experienced Corporate Crime Solicitor immediately. They will work swiftly to gather the relevant evidence regarding the use and origin of the crypto assets. In addition, your Solicitor will collate and present this evidence in a way that can be understood by a Magistrates’ bench which may comprise of mostly lay people.

Although the standard of proof a CWFO application (reasonable grounds to suspect) is incredibly low and therefore likely to lead to a without notice application succeeding, obtaining a CWForO requires a higher standard of proof (balance of probabilities). Your Solicitor will contact and build a relationship with the enforcement agency or Prosecutor so they can develop an understanding as to why they suspect your crypto assets have been used for or gained through criminal activity and the actions they plan to take to continue their investigations.

If the CWFO remains in force whilst the investigation takes place, your Solicitor will focus on building a robust case aimed at convincing the investigator or the Court that the suspicion upon which the CWFO was granted is unsustainable.

Final words

Lack of judicial knowledge and confidence is the greatest difficulty facing clients and legal professionals alike when it comes to successfully challenging an application for a CWFO. Therefore, you, as the client need to instruct a Solicitor who understands the new and specialist area of crypto assets to ensure legal arguments and evidence supporting a challenge is presented in plain English and an understandable format, thus giving it the best chance of success.

To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

Note: The points in this article reflect the law in place at the time of writing, 21 December 2024. This article does not constitute legal advice. For further information, please contact our London office.

What is a tax haven?

When asked about tax havens, most people think of sunny Caribbean Islands. However, Hong Kong, Gurney, Jersey, Luxenberg, and the Isle of Man are all well-known tax havens and none of these countries are renowned for their good weather. Another misconception about tax havens is that they are a product of recent capitalism and globalisation. In fact, historians have found evidence of the ancient Greeks using isolated islands for tax haven purposes.

Regardless of the climate and modernity, what tax havens have in common is they offer low or no tax liability to foreign businesses and people to attract external investment. There is no strict definition of a tax haven; however, the Organisation for Economic Cooperation and Development (OECD) states that they all have the following common factors:

• No, or low tax on relevant income.
• Strict financial privacy laws.
• Little transparency.

The most cited research on tax havens is the Hines-Rice paper, created by James R. Hines Jr. and PhD student Eric M. Rice. It states that the differences in tax havens meant it was impossible to provide a blanket definition, beyond the requirement for low effective tax rates.

Is it illegal to have an offshore account in a tax haven?

Despite their shady reputation, placing funds in an offshore account in a known tax haven is perfectly common and can be completely legitimate. Examples of a legal use of offshore accounts include:

• You are an ex-pat or dual-citizen of the country where the account exists and any income entering the account is properly declared for tax purposes.
• You own a business that operates in the country where the account sits, and you declare any income to HMRC. The same applies to any commercial or rental property that you rent out.
• You declare any interest on the funds contained in the account to HMRC.

You do need to be careful and seek regular, professional advice when operating an offshore account because, similar to tax evasion and tax avoidance, the line between legal and illegal when it comes to depositing money in a tax haven is easily crossed.

When is using an offshore account in a tax haven illegal?

If you are using an offshore account based in a tax haven to conceal income or assets that you would normally have to pay tax on, you could be committing tax fraud or tax evasion.

For example, if you live in the UK and sell a property in the Cayman Islands and fail to declare the profit made to HMRC to avoid paying Capital Gains Tax, you could be committing an offence. This is an extremely simplistic example, the world of offshore banking, shell companies, and cross-border asset transfers is incredibly complex. It is for this reason that Governments spend a great deal of resources to unearth offshore accounts used for tax evasion.

How does the UK Government detect possible offshore tax evasion or tax fraud?

HMRC uses domestic and international intelligence to detect if a company or person is using an offshore bank account in a tax haven for illegal purposes. For example, the Organisation for Economic Co-operation and Development’s (OECD) agreement, titled the Common Reporting Standard (CRS) provides global visibility of the offshore financial accounts of taxpayers. HMRC currently receives information on around nine million accounts from over 100 jurisdictions. Other international agreements include:

• Reporting Rules for Digital Platforms, which came into force from 1 January 2024. Digital platform operators must now report information on people selling goods and services via their platform to tax authorities and sellers. 
• Crypto-Asset Reporting Framework (CARF), to be implemented for the collection of information from 2026 and its exchange from 2027. The Framework will provide automatic exchange of information on ownership of, and transactions in, crypto assets, which are not covered by the CRS. See FAQ.

Domestically, the People with Significant Control Register provides publicly available information regarding who has beneficial ownership of a particular company. And in 2022, the Register of Overseas Entities was introduced. This provides HMRC information regarding beneficial ownership on people and entities using complex offshore structures to own and benefit from UK property.

Concluding comments

Although using an offshore account in a recognised tax haven can be perfectly legal, doing so can make you vulnerable to HMRC investigations. Our Tax Fraud Solicitors have extensive experience in managing these types of situations, as well as successfully defending complex tax fraud cases.

In part two of this series of articles, we will examine the various offences linked with offshore accounts and the defences available.

To discuss any points raised in this article, please call +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

Note: The points in this article reflect the law in place at the time of writing, 20 December 2024. This article does not constitute legal advice. For further information, please contact our London office.

Carey Street Investments Ltd (In Liquidation) v Brown [2024] EWCA Civ 571

In the recent case of Carey Street Investments Ltd (In Liquidation) v Brown, the Court of Appeal ruled that the trial judge had been correct in finding that there was no evidence the director of two companies had, in breach of his director’s duties and with a view to evading corporation tax on capital gains, agreed to the transfer of two London properties to their parent companies at a substantial undervalue.

Carey Street Investments Ltd (In Liquidation) v Brown deals with two vitally essential matters directors of companies must concern themselves with, namely directors’ duties and tax law, particularly the difference between tax avoidance and tax evasion (the former being legal, the latter carrying a custodial sentence).

Before looking at the facts of Carey Street Investments Ltd (In Liquidation) v Brown, it is helpful to outline the law briefly as it relates to tax evasion.

What is tax evasion?

Tax evasion is the deliberate non-payment of tax, for example, not declaring taxable income and accepting cash-in-hand payments. This is in contrast to tax avoidance, which involves averting paying taxes through legal methods, such as setting up offshore companies or trusts to avoid paying UK taxes.

The Taxes Management Act 1970 (TMA 1970) provides for the offence of income tax evasion. Section 106A states that a person commits an offence if they are knowingly concerned about the fraudulent evasion of income tax by themselves or another person. The offence does not apply to things done or omitted before 1 January 2001.

Other ways a person can defraud HMRC or the Department for Work and Pensions (DWP) include:

• Making a false statement (whether written or not) relating to income tax.
• Delivering (or causing to be delivered) a false document relating to income tax.
• Failing to account for VAT.
• Withholding PAYE and National Insurance.
• Failing to register for VAT.
• Failing to disclose income.

Along with statutory offences, there is a common law offence of cheating the public revenue.

The majority of tax evasion offences require individuals to engage in fraudulent conduct, implying an act of dishonesty. This might involve using false invoices to decrease the taxable profits of a business or knowingly understating income in an annual return.

The test for dishonesty is:

• What was the Defendant’s actual state of knowledge or belief as to the facts?
• Irrespective of the Defendant’s belief about the facts, was their conduct dishonest by the objective standards of ordinary decent people?

Dishonesty is a key element of tax evasion offences and must be proved if the Prosecution is to achieve a criminal conviction.

The facts in Carey Street Investments Ltd (In Liquidation) v Brown

The Claimant companies were both in liquidation and owed substantial debts to HMRC. They brought a claim against the director of both companies, alleging he had transferred property to their parent companies at a substantial undervalue in breach of his director’s duties with a view to evading tax.

The claim was time-barred unless section 21 of the Limitation Act 1980 applied. Section 21 provides that generally, the limitation period for breach of trust is six years from the date of breach.

Mr Robin Vos sitting as a Deputy High Court Judge dismissed the claim.

On appeal, the Court concluded that the Deputy High Court Judge reasoned that the properties were transferred at what the Director believed were the correct market values. He therefore made findings of fact taking this into consideration. Looking at the judgment as a whole, it was clear that the Deputy High Court Judge did not proceed on the basis that there was no possibility of the Director having been dishonest. Instead, he reasoned that upon examination of the Director’s motivations as a whole, that the Director acted in a way that he believed was in the Claimant companies’ best interests.

The Court of Appeal concluded that it had no basis to interfere with the Deputy High Court Judge’s decision. It was also unable to contradict his decision that the Director did not deliberately organise independent valuations of the properties in question out of fear that this would confirm they were worth more than he sold them for.

Final words

Although the Court of Appeal acknowledged that a different judge may have come to an alternative conclusion on the facts, it was not for the Court of Appeal to contradict Mr Vos’s findings. This case highlights that an appeal court cannot overturn a lower court’s decision merely because it might have reached a different conclusion given the factual circumstances. Instead, there must be some mistake in the way the law was applied or the law itself to justify such a decision.

 

To find out more about how our Company Law Solicitors can help you with disputes regarding directors’ duties, tax evasion allegations, or any other company law matter, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

Note: The points in this article reflect sanctions in place at the time of writing, 30 November 2024. This article does not constitute legal advice. For further information, please contact our London office.

What are directors’ duties?

All company directors must comply with the directors’ duties set out in Chapter 2 of Part 10 of the Companies Act (CA) 2006. These are:

• To act within powers.
• To promote the success of the company.
• To exercise independent judgment.
• To exercise reasonable care, skill, and diligence.
• To avoid conflicts of interest.
• Not to accept benefits from third parties.
• To declare any interest in a proposed transaction or arrangement with the company.

Other directors’ duties may be included in the company’s Articles of Association (Articles), Shareholders’ Agreement, and Director’s Services Agreement.

Can a director be removed for breaching directors’ duties?

The first thing to remember when considering removing a director is that directors’ duties are owed to the company; therefore, it is the company that can enforce them, and its members (shareholders) cannot. Members can seek legal advice on bringing a derivative claim or a claim under section 994 of the Companies Act 2006 for unfair prejudice.

The methods for removing a director for breach of directors’ duties are as follows:

Articles of Association (Articles)

The first thing to check is the company’s Articles.

This is effectively your company’s rule book and sets out how the company should run. Articles will either be drafted so they are tailored to your specific organisation or ‘Model Articles’, which can be downloaded from the internet.

Article 18 of the Model Articles provides that a person will cease to be a director of a company if:

(a) that person ceases to be a director by virtue of any provision of the Companies Act 2006 or is prohibited from being a director by law;

(b) they are made bankrupt or similarly insolvent;

(c) a doctor states in writing that they are physically or mentally incapable of acting as a director and will be so for three months or more;

(d) they resign.

If your company has bespoke Articles, they may set out other reasons for a director’s removal, such as gross misconduct or breach of statutory duties.

It is also important to check if the company has a Shareholders’ Agreement and/or Director’s Services Agreement, as these may also provide reasons and methods for a director’s removal.

Ordinary resolution

Under section 168 of the Companies Act 2006, a director can be removed following a 51% majority vote in favour (ordinary resolution). To do this, the Board will need to send out a Special Notice of the proposed removal at a shareholders meeting. Special Notice requires that members must give notice of the meeting to the company at least 28 days before the meeting takes place.

The director is entitled to be told of the shareholders’ meeting and their proposed removal. They should be given the opportunity to make written representations to the company’s members in support of their position. They can also ask that these be read aloud in the meeting if it is not possible to circulate them beforehand. The director should also be permitted to speak at the meeting.

Removal by the Court

If shareholders make a successful application for unfair prejudice under section 994 of the Companies Act 2006, the Court has a wide range of remedies it can apply, including removing the director. However, the Courts have traditionally been reluctant to apply this remedy so it is important to talk to your Solicitor about other ways to remove the director or whether it is best to seek a declaration (see below).

Resignation

Provided the Articles, Shareholders’ Agreement, and Director’s Services Agreement do not say anything to the contrary, a Director can resign from their position at any time and are not required to give a notice period.

Removing a director in practice

In our experience, by the time a decision is made to remove a director, the relationship between them and the company’s members has completely broken down. If this is the case, rather than engage in back and forth accusations, members simply want to get the director out of the company so they can move forward. By seeking legal advice early on, removing a director can happen swiftly.

In the case of Abaidildinov v Amin [2020] EWHC 2192 (Ch), Eldwick Law Partner, Jenna Kruger, successfully advised the Claimants in applying to the Court for a declaration that the Defendant, who was a director of London Infrastructure and the holder of 42% of the company’s shares, ceased being a director of the company on 30 March 2020 following resolutions passed at the meeting of London Infrastructure Ltd’s board of directors on 3 March 2020, or alternatively on 30 March 2020.

Getting Legal Help

To find out more about how our Company Law Solicitors can help you with removing a director or any other company law matter, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

Note: The points in this article reflect sanctions in place at the time of writing, 20 November 2024. This article does not constitute legal advice. For further information, please contact our London office.