Frozen but enjoyed? A quick guide to asset freezing

An Oligarch’s yacht sets sail

Why isn’t Britain actually seizing the yachts, jets, mansions – or football clubs of Putin’s mates, when EU countries are getting much tougher?

Already we’ve seen news that Russian billionaire Alisher Usmanov’s 512-foot yacht was seized by German authorities in Hamburg. But the UK seems to be pulling it’s punches – allowing Roman Abromovich for example, the time and space to sell a £3 billion football club.

So what’s going on?

Basically our rules differentiate between an asset freeze and sequestration of assets.

A UK asset freeze prohibits those in possession or control of the designated person’s economic resources to ‘deal’ with them, make them ‘available’ to the designated person, or make them ‘available for the benefit’ of the designated person.

But, ‘dealing with economic resources’ generally means using them to obtain funds, goods, or services in any way.

Crucially, however the regulations say in para 3.1.3 that, “the everyday use by a designated person of their own economic resources for personal consumption is not prohibited.”

So: these conditions don’t bar the designated person from making use of assets – staying in a property, travelling in a vehicle, sailing around, flying around or lounging around in the Director’s box.

The details are set out in the Sanctions and Anti-Money Laundering Act 2018. Here’s the key bit of guidance (from OFSI general guidance).

3.1 Asset freezes

3.1.1 What do they do?

Where the financial sanction is an asset freeze, it is generally prohibited to:

• deal with the frozen funds or economic resources, belonging to or owned, held or controlled by a designated person

• make funds or economic resources available, directly or indirectly, to, or for the benefit of, a designated person

• engage in actions that, directly or indirectly, circumvent the financial sanctions prohibitions.

The funds and economic resources are to be frozen immediately by the person in possession or control of them.

An asset freeze does not involve a change in ownership of the frozen funds or economic resources, nor are they confiscated or transferred to OFSI for safekeeping.

3.1.2 What must you do?

If you know or have ‘reasonable cause to suspect’ that you are in possession or control of, or are otherwise dealing with, the funds or economic resources of a designated person you must:

• freeze them

• not deal with them or make them available to, or for the benefit of, the designated person, unless:

– there is an exception in the legislation that you can rely on; or

– you have a licence from OFSI

• report them to OFSI …

Reasonable cause to suspect refers to an objective test that asks whether there were factual circumstances from which an honest and reasonable person should have inferred knowledge or formed the suspicion. …

3.1.3 Asset freezing terminology

Funds generally means financial assets and benefits of every kind, including but not limited to:

• cash, cheques, claims on money, drafts, money orders and other payment instruments

• deposits with financial institutions or other entities, balances on accounts, debts and debt obligations

• publicly- and privately-traded securities and debt instruments, including stocks and shares, certificates representing securities, bonds, notes, warrants, debentures and derivatives contracts

• interest, dividends or other income on or value accruing from or generated by assets

• credit, right of set-off, guarantees, performance bonds or other financial commitments

• letters of credit, bills of lading, bills of sale

• documents showing evidence of an interest in funds or financial resources

• any other instrument of export financing.

Economic resources generally means assets of every kind – tangible or intangible, movable or immovable – which are not funds, but may be used to obtain funds, goods or services. This includes but is not limited to:

• precious metals or stones

• antiques

• vehicles

• property

Goods generally means items, materials and equipment.

Crypto assets – Statutory definitions of “funds” and “economic resources” are wide, as referenced above.

Crypto assets are considered to be covered by these definitions and are therefore caught by the financial sanctions restrictions.

Dealing with funds generally means moving, transferring, altering, using, accessing, or otherwise dealing with them in any way which would result in any change to their volume, amount, location, ownership, possession, character, destination or other change that would enable the funds to be used, including portfolio management.

Dealing with economic resources generally means using the economic resources to obtain funds, goods, or services in any way, including, but not limited to, by selling, hiring or mortgaging them.

Making available funds or economic resources, directly or indirectly, to a designated person – If funds are made available (directly or indirectly) to a designated person, or economic resources are made available (directly or indirectly) that would likely be exchanged, or used in exchange, for funds, goods, or services, this may constitute a criminal offence.

Making available funds or economic resources for the benefit of a designated person – If funds or economic resources are made available for the benefit of a designated person and they obtain, or are able to obtain, a ‘significant financial benefit’, this may constitute a criminal offence. In this case, ‘financial benefit’ includes the discharge, in whole or in part, of a financial obligation for which the designated person is wholly or partly responsible.

So: the regime sets conditions on individuals and legal entities that have control or possession of that person’s assets, but it does not appear that this would restrict the person simply making use of them. As Russian war crime multiply, surely this has now got to change. Not least to pay for reparations.