Studies in ownership and control

Two recent court cases demonstrate the new reality of sanctions compliance, writes John Gibson.

Sanctions compliance, in the UK, US and the EU, has undergone a profound metamorphosis. What was once largely a screening exercise has become a high-stakes assessment of ownership, control and influence, often carried out under time pressure and using incomplete information. Banks, traders, shipowners and insurers are increasingly required to form judgements about who truly stands behind a counterparty, and to justify those judgements if challenged.

This marks a clear departure from earlier assumptions about how sanctions compliance was intended to operate. As Cockerill J observed in PJSC National Bank Trust v Mints [2023] EWHC 118 (Comm), sanctions regimes were originally framed on the basis that compliance was ‘not intended to require complex investigations’, because the sanctions list would generally identify the persons targeted.

Two English Commercial Court decisions handed down in July 2025 illustrate the breadth of these challenges. In LLC EuroChem North-West-2 and another v Société Générale SA and others [2025] EWHC 1938 (Comm) and Tonzip Marine Ltd v 2Rivers PTE Ltd [2025] EWHC 2036 (Comm), the court examined sanctions compliance decisions taken at very different points on the investigative spectrum. Considered together, each case demonstrates how English courts approach ownership and control both as a matter of definitive legal determination and as a question of reasonable commercial judgement.

EuroChem: Forensic reconstruction of control

The EuroChem litigation arose from the refusal by Société Générale and ING to honour six on-demand bonds worth over €280 million, issued in connection with the construction of a fertiliser plant in Russia. When the project stalled following the imposition of EU sanctions, EuroChem called on the bonds. The banks declined to pay, contending that payment would breach EU sanctions because EuroChem was owned or controlled by an EU-designated person, Mr Melnichenko

The dispute turned on the interpretation of ‘owned, held or controlled’ under EU Regulation 269/2014. EuroChem argued that Mr Melnichenko had divested himself of ownership before designation. The banks argued that, notwithstanding formal restructuring, he retained decisive influence over the group.

Although the case was decided under EU law, the concept of ownership and control closely mirrors that in the UK sanctions regime. Regulation 7 of the Russia (Sanctions) (EU Exit) Regulations 2019 provides that an entity is owned or controlled where it is reasonable to expect that a person could, directly or indirectly, ensure that its affairs are conducted in accordance with their wishes. The scope of this concept has been contentious in English case law. The current position, following Hellard v OJSC Rossisky Kredit Bank [2024] EWHC 1783 (Ch), identifies four forms of control, including actual present de facto control and potential future control. The EuroChem analysis focused on actual de facto control.

The court undertook an extensive forensic examination of EuroChem’s ownership and governance. This went well beyond formal shareholdings, with the court analysing complex trust arrangements, the role of trustees and protectors, and the extent to which ostensibly independent decision-makers acted in practice on Mr Melnichenko’s wishes.

Contemporaneous internal documents were critical. Annual reports describing Mr Melnichenko as the group’s ‘ultimate beneficial owner’, the circulation of internal budgets to him for approval, and evidence of his continued involvement in strategic decisions all undermined the claim that control had been relinquished. The court was prepared to infer control from patterns of conduct and influence, even where formal legal rights had ostensibly been surrendered.

The court adopted a purposive approach to sanctions law. It emphasised that asset-freeze measures would be ineffective if designated persons could evade them through cosmetic restructurings. Complex trust structures, front persons and family members were not treated as neutral features, but as indicators of control when assessed cumulatively. The decisive question was whether Mr Melnichenko was able, in fact, to exercise decisive influence over the group’s affairs.

The court was prepared to infer control from patterns of conduct and influence, even where formal legal rights had ostensibly been surrendered.

Practical indicators of de facto control

The judgment is instructive for compliance professionals, as it highlights lines of enquiry that may be relevant when assessing whether control persists despite formal divestment. These include witness evidence from senior management as to who is perceived to be ‘at the top’ of the organisation, whether decision making genuinely changed after designation, and whether day-to-day operations continued as before.

The court scrutinised trust structures closely, including whether discretionary beneficiaries were replaced by close associates who acted as proxies rather than independent actors. Timing also mattered. Documents purporting to evidence divestment were assessed against the chronology of sanctions designation, with backdated or hurried arrangements viewed sceptically. The absence of any credible alternative locus of control within the group was treated as a powerful indicator that control had not, in reality, moved.

Another notable feature of EuroChem was the role of EU national competent authorities. The defendant banks had engaged with the French and Italian authorities, both of which treated the bonds as frozen assets. The court regarded these positions as highly persuasive. Applying the principle in Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287, it held that because payment would have been unlawful at the place of performance under EU law, the bonds were unenforceable under English law. Public policy considerations reinforced that conclusion. The alignment of EU and UK public policy in this context has since been affirmed in FH Holding Moscow Ltd v AO Unicredit Bank [2025] EWHC 3111 (Comm).

From a compliance perspective, EuroChem represents the most demanding end of the investigative spectrum. It demonstrates that, in litigation, courts may expect an almost investigative reconstruction of control, drawing on internal documents, regulatory engagement and behavioural evidence over time. Notably, EuroChem itself remains undesignated despite the court’s findings on control. This tells us that absence from a sanctions list does not in itself resolve the compliance question. For banks and other regulated entities, the EuroChem case casts into relief the importance of deep ownership mapping, robust recordkeeping and early engagement with competent authorities where exposure is significant.

It is important, however, to recognise the limits of the decision. The analysis was confined to EU sanctions law and does not constitute binding authority on the interpretation of the UK regime. In particular, it did not address the subjective element under Regulation 11 of the UK Russia Regulations, which requires that a person knows or has reasonable cause to suspect that they are dealing with frozen assets. That element sits uneasily with the more abstract categories of control identified in Hellard.

Absence from a sanctions list does not of itself resolve the compliance question.

Tonzip: Reasonableness under uncertainty

Tonzip Marine Ltd v 2Rivers PTE Ltd arose in a very different, time-limited, commercial context. The case concerned a voyage charter which the shipowner refused to perform, relying on a sanctions clause. The owner contended that it reasonably believed performance might expose it to sanctions risk, because of concerns that a designated Russian individual retained influence over entities in the cargo chain.

Unlike EuroChem, the issue was not whether control was in fact exercised by the designated person, but whether the owner’s refusal to perform was justified under the contract, given the information reasonably available at the time.

The owner’s investigation was necessarily limited. It relied on sanctions screening tools such as Refinitiv World-Check, opensource reporting, and third-party intelligence suggesting that ownership had been transferred to the designated individual’s brother following designation. There was no access to internal corporate records or formal regulatory determinations. The material was ambiguous and, in places, inconclusive.

The court framed the question as one of objective reasonableness. The sanctions clause permitted refusal to perform where there was a reasonable belief that performance might expose the owner to sanctions. In the context of Russian sanctions, the court accepted that uncertainty itself can generate legitimate risk – it was not necessary to prove actual control.

At the same time, the court did not endorse a purely defensive approach. It examined whether the owner had critically assessed the available material, considered information pointing away from control, and followed a rational decision-making process. Some evidential gaps, including limited disclosure of internal deliberations, attracted comment. Even under a reasonableness standard, a demonstrable process mattered.

The court accepted that Hellard represents the current position under UK law on ownership and control, but confined its analysis to de facto control. It also cited with approval the approach to ‘reasonable cause to suspect’ in Vneshprombank LLC v Bedzhamov [2024] EWHC 1048 (Ch), emphasising that this is a question of fact and degree, requiring an evidential foundation but not certainty.

Comparative lessons

The contrast between EuroChem and Tonzip is striking. In EuroChem, the court made definitive findings about control with the benefit of extensive evidence and time. In Tonzip, it assessed a protective commercial decision taken in real time under uncertainty. This distinction has significant compliance implications. Sanctions investigations operate on different planes, depending on context. Ex post judicial determination is not the same as ex ante risk assessment.

The cases also illustrate a spectrum of informational sources. EuroChem involved internal documents and regulator engagement, while Tonzip relied on open-source intelligence and screening tools. Both are legitimate, but they serve different purposes. One supports conclusive determinations, the other reasonable suspicion.

Although both cases focused primarily on EU and UK concepts, the compliance challenge is magnified by the need to consider US sanctions, with their expansive notions of ownership and extraterritorial reach. In practice, companies operating internationally often calibrate their approach to the most restrictive plausible interpretation across regimes.

Taken together, EuroChem and Tonzip show that there is no single model of a ‘correct’ sanctions investigation. Companies must make context-specific judgements shaped by their sector, regulatory status, transaction value, and the information at their disposal.

What unites both decisions is the insistence of the court of substance over form. Whether through exhaustive forensic analysis or careful, evidence-based suspicion, decision makers must genuinely engage with the reality of ownership and control, and be able to explain how and why they reached their conclusions.

There is no single model of a ‘correct’ sanctions investigation.