Indirect Transactions Involving Frozen Assets under Regulation (EU) No 269/2014

Comment on General Court judgment in Case T-102/23

Introduction

In a noteworthy judgment, the General Court (First Chamber) addressed the issue of indirect transactions involving frozen assets under Regulation (EU) No 269/2014 (OJ 2022, L 193, p. 133). The case (T-102/23) provides important guidance on the scope of the prohibition on disposal and the concept of indirect transfers of economic resources.

Background

The applicant, the Russian company OOO SBK Art, was established in December 2021 by Russia’s largest bank, OAO Sberbank (“Sberbank”). Its sole purpose was to hold depositary receipts and convertible bonds in the Netherlands-based Fortenova Group TopCo (“Fortenova Group”). At the relevant time, Sberbank indirectly held 100% of the applicant through two Russian subsidiaries, SBK Uranium and SBK Aktiv.

On 21 July 2022, Sberbank was added to the EU sanctions list. Consequently, all its assets – including its indirect participation in Fortenova Group – were frozen pursuant to Article 2 of Regulation (EU) No 269/2014, as they qualified as economic resources within the meaning of Article 1(d) of that Regulation. In December 2022, the applicant itself was also included in the sanctions list.

The applicant repeatedly requested its delisting. In support of this request, it relied on a purchase and assignment agreement under which Sberbank had agreed to transfer its shares in SBK Uranium and SBK Aktiv to an investor based in the UAE. However, due to late payment by the purchaser, the agreed purchase price was not transferred until 31 October 2022.

The Council rejected the delisting requests, prompting the applicant to bring an action before the General Court seeking annulment of the listing measures.

The Court’s Conclusions

The judgment is of particular interest for the following reasons:

1. Relevant point in time for assessing affiliation with a sanctioned person

The Court held that the affiliation of an asset – and, consequently, the decision to freeze it – must be assessed at the time the beneficial owner is included in the sanctions list.

Notably, the Court did not address whether future prospects of acquiring ownership (the German concept of Anwartschaftsrecht) could lead to a different legal assessment.

2. Clarification of the concept of “holding or controlling” an asset

The Court confirmed that assets held or controlled by a sanctioned person through a chain of subsidiaries constitute economic resources within the meaning of Article 2 of Regulation (EU) No 269/2014 and are therefore subject to freezing.

In the present case, it was undisputed that the depositary receipts and convertible bonds in Fortenova Group constituted economic resources. Since Sberbank indirectly held 100% of the applicant via two controlled subsidiaries, it exercised control over those assets. As a result, they clearly fell within the scope of the prohibition on disposal.

3. Prohibition on indirect transactions involving frozen assets

The Court further clarified that the prohibition on disposal applies not only to direct transactions but also to indirect transactions involving frozen assets. This includes, as in the present case, the sale of shares in subsidiary companies if such a transaction results in the indirect transfer of frozen economic resources.

Disposal of frozen assets is only permissible where a specific exemption applies, such as that provided for in Article 6b(2b) of Regulation (EU) No 269/2014. Under this provision, a competent authority of a Member State may authorise the release of certain frozen economic resources until 31 October 2022, provided that they are necessary for an ongoing sale or transfer of property rights directly or indirectly owned by a sanctioned entity in a legal person established in the Union.

The applicant argued that this exemption was not applicable, as the transaction concerned the sale of shares in a Russian company, which were neither located in the EU nor themselves frozen.

The Court rejected this argument. It held that the decisive factor was that the transaction would result in the indirect transfer of assets located in the EU, particularly given that the applicant’s sole purpose was to hold securities in an EU-based company. In light of the objectives of the prohibition on disposal, transactions leading to an indirect transfer of frozen economic resources must also be regarded as prohibited.

Accordingly, either the seller or the Emirati investor would have been required to obtain authorisation from the competent authority in the Netherlands prior to carrying out the transaction.

As no such authorisation was obtained, the sale had no legal effect within the EU. It infringed Regulation (EU) No 269/2014 and must therefore be considered invalid under EU law.

Implications for Practice

This judgment underscores that any transaction involving frozen assets, even indirectly, must be carefully assessed under Regulation (EU) No 269/2014. Parties should always examine whether prior authorisation from a competent Member State authority is required.

An appeal against the judgment is currently pending before the Court of Justice, meaning that the legal issues raised remain subject to further clarification. We will continue to monitor developments closely.

Please do not hesitate to contact us for further advice on cross-border transactions, particularly those involving Russian parties or frozen assets.