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  • What Should I Do if My Assets are Frozen?

    What Should I Do if My Assets are Frozen?

    In April 2022, Swiss prosecutors announced that they would release around 400 million Swiss francs which had been frozen in a Swiss bank account for several years. The money belonged to five unidentified people who were being investigated by Swiss authorities on suspicion of money laundering. The original investigation concerned 14 people, among them members of the late former Egyptian President Hosni Mubarak’s circle. More than 210 million francs had been released at an earlier phase of the investigation. Prosecutors concluded after eleven years that there was not enough evidence to support claims that those under investigation were involved in organised crime and money laundering.

    Having property and/or assets frozen due to targeted sanctions or being investigated or prosecuted for criminal activity such as money laundering, fraud, terrorist financing, or other organised criminal activity can not only affect you personally, but also your family, employees, business partners, and suppliers. In this article, we explain what a freezing order/injunction is and what you can do to have the order lifted.

    What is a freezing order?

    A freezing order, also known as a Mareva injunction, is a court order which prevents the defendant from dealing with, or disposing of, property or assets mentioned in the order. It is important to note that, as confirmed in the Court of Appeal decision in Crowther v Crowther [2020] EWCA Civ 762, a freezing order is not meant to provide the applicant with security for their claim, instead, its purpose is to prevent a defendant from evading justice by disposing of an asset so that a future judgment against them cannot be satisfied.

    Freezing orders are not handed down lightly. They are known as the “nuclear weapon” of the law (Bank Mellat v Nikpour (1985) FSR 87) and the court will only use its discretion to grant a freezing order if it is just and convenient to do so.

    A freezing order can be made without you receiving any prior notice (known as ex-parte). It is important to understand that the injunction does not mean that you have been found liable or that your assets no longer belong to you. However, your day-to-day life will likely be immediately impacted by the order. Therefore, the first thing you must do is contact a solicitor who is experienced in the variation and discharging of freezing orders. They will examine the details of the injunction and advise you on what you can and cannot do with your assets.

    Within a week or so of the order being granted, you will be required to attend a hearing known as a ‘return date’. In practice, it is up to you to provide reasons that the injunction should be varied or discharged. Unless there is a clear reason for the injunction to be lifted, for example, it has been made against the wrong person, strategically it can be beneficial to allow the freezing order to remain in place whilst your solicitor gathers the evidence required to make a robust challenge. The priority at this stage is securing access to funds to pay your day-to-day living expenses and legal fees.

    What type of assets can be frozen?

    Most types of assets can be frozen, including cars, stocks and shares, property, art, cryptocurrency, business assets, and bank accounts. The order covers existing assets and those acquired whilst the freezing order is in place.

    A freezing order can apply within the UK and/or in specific foreign countries. It is even possible to obtain a worldwide freezing injunction.

    How are third parties affected by freezing orders?

    One of the main reasons the courts require vigorous evidence when it comes to granting freezing orders is that third parties such as banks, insurance companies, suppliers, and business partners (to name but a few) can be negatively affected.

    If a third party possesses assets which are subject to a freezing order they must comply with the injunction and ensure they do not allow the person subject to the order to commit a breach. Breaching the freezing order can result in a fine, asset seizure or imprisonment, not to mention the reputational damage if details of the breach are reported in the media.

    How can I have a freezing order varied or discharged?

    A freezing injunction can be varied or discharged either by consent or via a court application.

    Consent

    The freezing order may allow parties to agree to vary its terms or discharge it. The main benefit to variation or discharge by consent is that it is less expensive than making an application to the court and negotiations can remain confidential.

    Your solicitor will advise you as to whether the terms of the freezing injunction allow for variation or discharge by consent. If the claimant unreasonably withholds consent and an application to the court is required, the judge may order the claimant to pay your legal costs if you win your case.

    Application to the court

    The court can vary or discharge a freezing order following an application by you or a third party affected by the injunction because:

    • The claimant has not done what the court required them to do when granting the freezing order, for example providing the required information and authorisation to your bank to ensure you can access reasonable funds to cover living expenses.
    • The terms of the injunction are deemed oppressive.
    • The claimant is delaying pressing ahead with their claim. Lord Justice Glidewell stated in the case of Lloyds Bowmaker Ltd v Britannia Arrow Holdings [1988] 1 W.L.R. 1337, that “a plaintiff who succeeds in obtaining a Mareva injunction is in my view under an obligation to press on with his action as rapidly as he can so that, if he should fail to establish liability in the defendant, the disadvantage which the injunction imposes on the defendant will be lessened so far as possible.”
    • The claimant has not provided full disclosure to your legal team.

    When applying for a freezing order the claimant will normally be required to provide a ‘cross-undertaking’ (promise) to financially compensate you and any third parties affected by the freezing injunction should it turn out it was improperly obtained.

    Wrapping up

    Varying or discharging freezing orders requires your solicitor to engage in smart tactics and the ability to successfully do this only comes with experience. For example, putting a claimant on notice that you plan to sue for damages as evidence shows that the injunction should not have been granted often motivates the claimant to consent to a variation or discharge. Therefore, swiftly instructing an experienced litigation solicitor is key to dealing with all legal aspects of a freezing order.

  • Are Targeted Sanctions Effective In Dealing With Rogue States?

    Are Targeted Sanctions Effective In Dealing With Rogue States?

    As the war in Ukraine continues, sanctions imposed by Western governments and the impact of hundreds of companies pulling out of the country are starting to negatively affect the daily life of the Russian people. Prices are increasing, shortages are being reported, and the rouble has plummeted.

    Never before has such a large, modern economy been cut off from most of the world so swiftly. Unfortunately, there is ample proof that state and even UN sanctions are not effective in coercing a government deemed to be breaking international law to change its behaviour. What sanctions are extremely good at achieving is punishing innocent civilians. The horror placed upon ordinary Iraqi people following crippling sanctions in response to Saddam Hussain’s invasion of Kuwait in 2003 led to sanctions being focused more on individuals and companies rather than the misbehaving state itself. These are known as smart or targeted sanctions and they are also being used by Western governments, including the UK, to punish Russia. Evidence shows, however, that targeted sanctions also achieve little in relation to dealing with rogue states. Worse still, innocent people can become caught up in freezing orders and other sanction tactics whilst the individuals targeted often use their wealth and power to avoid most of the negative consequences.

    Before looking at the details of the sanctions imposed by the British Government on Russia, it is useful to define what sanctions actually are.

    What are sanctions?

    Sanctions are a range of measures put in place by individual governments, regional groups (for example the European Union or the African Union) or the United Nations to achieve one or more of the following:

    • Prevent escalation of or settle conflicts.
    • Curtail nuclear proliferation.
    • Deal with terrorism and human rights violations.

    Types of sanctions include:

    • Economic – impose commercial and financial penalties, for example levying import duties and/or blocking exports of certain goods.
    • Diplomatic – reducing or recalling diplomats or cancelling high-profile international meetings.
    • Sport – preventing the sanctioned country’s athletes from competing in international events.
    • Targeted/smart sanctions – imposes travel bans and asset freezing orders on individuals, companies, or other entities such as terrorist organisations.
    • Military sanctions – these are used as a last resort and can involve targeted military strikes and arms embargoes.

    Russians affected by UK sanctions following the invasion of Ukraine

    The UK has long been criticised for turning a blind eye to international money laundering within its territories. Many Russian oligarchs have invested heavily in UK luxury homes, businesses, and even football clubs. Following the invasion of Ukraine, the UK, alongside the EU and US, imposed sanctions on hundreds of members of the Russian regime, including wealthy Russian oligarchs such as Chelsea FC owner Roman Abramovich and ex-Arsenal shareholder, Alisher Usmanov as well as others who are considered to be close to the Kremlin, for example, former Russian president Dmitry Medvedev and Defence Minister Sergei Shoigu, plus a further 386 members of the Russian parliament.

    The problem with imposing targeted sanctions on Russian oligarchs

    Countries such as the US have had sanctions in place against many Russian billionaires since the annexation of Crimea in 2014. These appeared to do nothing to deter President Vladimir Putin from a full-scale invasion of Ukraine eight years later. This may be because despite being once close to the Kremlin, most of the recognised oligarchs now seem to have little influence, or even contact with President Putin and his inner circle.

    In 2000, at a meeting with 21 business tycoons, President Putin made himself abundantly clear regarding his attitude to the oligarchs – they could remain in business but they were to stay out of politics. And he backed this up with action – Mikhail Khodorkovsky, once Russia’s richest man as head of oil giant Yukos and a fierce critic of the President, spent 10 years in prison for tax evasion and theft after funding opposition parties.

    With Mr Khodorkovsky’s fate still fresh in their minds, almost all oligarchs now stay well clear of politics. Although some have condemned the war, none have directly criticised President Putin. Mikhail Fridman told Bloomberg that “to say anything to Putin against the war, for anybody, would be kind of suicide.”

    It seems, therefore, that although imposing sanctions on the business and personal interests of oligarchs may appease the public by giving the impression that those who made billions out of the collapse of the USSR are finally being penalised, in reality, they no longer have any ability to influence the Kremlin’s actions. And even if they did, a 2019 paper concerning the effectiveness of targeted business sanctions concluded:

    “Through empirical analysis, significant evidence was found in support of the hypothesis that targeting military interests will result in more successful outcomes than targeting other interest groups or comprehensive sanctions. Evidence regarding the targeting of business interests presented a far less compelling case of this line of sanctioning’s efficacy relative to comprehensive sanctions.”

    Final words

    Although more research is required to judge the effectiveness of smart sanctions, the initial evidence does not appear promising. Furthermore, smart sanctions are even less likely to achieve the aim of the government or group that imposes them if they are not targeting people and/or business interests that can actually influence the rogue state’s leadership. I will leave the final word to Mohamed ElBaradei, an Egyptian law scholar and diplomat, former Director-General of the International Atomic Energy Agency, and Nobel Peace Prize recipient:

    “People talk about smart sanctions and crippling sanctions. I’ve never seen smart sanctions, and crippling sanctions cripple everyone, including innocent civilians, and make the government more popular.”

    Written by Waleed Tahirkheli

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