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By John Helmer, Moscow

Last week a Vienna, Austria, court ruled that US government charges against Ukrainian oligarch Dmitry Firtash are unsubstantiated and unlawfully motivated by political scheming. Next up for the rule of evidence and of law — the European Court of Justice in Luxembourg must judge whether European Union (EU) sanctions against Russia are unsubstantiated and unlawfully motivated by political scheming.

Last year, starting on July 31 and extending through December, the UK and EU announced what were called sectoral sanctions against several Russian companies and banks. These include the oil companies Rosneft, Lukoil, Gazpromneft, and Surgutneftegaz; gas producers Gazprom and Novatek; state-controlled banks Sberbank, VTB, Gazprombank, Vnesheconombank (VEB), Bank of Moscow, and Russian Agricultural Bank; and more than a dozen other companies, some state-controlled , some controlled by individuals who have also been sanctioned. For the full sanctions lists up to date, including those of the US and other countries, click to open.

The EU added individual designations, sectoral sanctions, and rationales through three stages. At each stage, the published EU rationale attempted to tie the sanctions target to the conflict in Ukraine. At first, on March 21, 2014, the EU claimed “sanctions are not a question of retaliation; they are a foreign policy tool, not a goal in themselves, but a means to an end. Our goal is to stop Russian action against Ukraine, to restore Ukraine’s sovereignty – and to achieve this we need a negotiated solution”. Then on April 29: “sanctions are not punitive, but designed to bring about a change in policy or activity by the target country, entities or individuals. Measures are therefore always targeted at such policies or activities, the means to conduct them and those responsible for them”. At that point in time, before the sectoral sanctions targeted at oil companies and banks, the focus of the EU campaign was on “illegal annexation of Crimea and [sic] Sevastopol” and on “steps by the Russian Federation to destabilise the situation in Ukraine”.

By Stage-3 in July, the EU sanctions were aimed at stopping Russian access to EU capital markets; the trade in arms and related material to Russia; exports of dual-use goods and technology for military use in Russia or to Russian military end-users; exports of energy-related equipment and technology to Russia, particularly for deep water oil exploration and production, Arctic oil exploration or production, and shale oil projects in Russia.

The new rationale carried implicit condemnation of Russia for the MH17 catastrophe. According to the official release, the sanctions against oil companies and banks were “meant as a strong warning: illegal annexation of territory and deliberate destabilisation of a neighbouring sovereign country cannot be accepted in 21st century Europe. Furthermore, when the violence created spirals out of control and leads to the killing of almost 300 innocent civilians in their flight from the Netherlands to Malaysia, the situation requires urgent and determined response. The European Union will fulfil its obligations to protect and ensure the security of its citizens. And the European Union will stand by its neighbours and partners.” Here’s the full text.

The test of lawfulness for sanctions, according to the highest court in the UK, the Supreme Court, is a combination of reasonableness of evidence, due process in testing the evidence, and the relationship between the declared purpose and announced sanction. In its ruling on the sanctions applied by the British Government against the Iranian Bank Mellat, the Supreme Court ruled “the direction [for sanctions] was irrational in its incidence and disproportionate to any contribution which it could rationally be expected to make to its objective. I conclude that it was unlawful. .. the Bank is entitled to succeed on the ground that it received no notice of the Treasury’s intention to make the direction, and therefore had no opportunity to make representations. The duty to give advance notice and an opportunity to be heard to a person against whom a draconian statutory power is to be exercised is one of the oldest principles of what would now be called public law.” For more, see.

Jack BeatsonOn November 20, Rosneft went to the UK High Court in London to obtain an injunction to halt the government’s application of criminal penalties in the sanctions against the company, while it prepared legal challenges in both the High Court and in the European Court of Justice (ECJ). The ECJ case had commenced on October 9. In its first judgement, the High Court rejected the injunction. “The provisions here,” ruled Lord Justice Sir Jack Beatson (right), “could have been more precise and clearer, but in my judgment they do not come near reaching the required threshold for invalidity either at common law or EU law.” Here is the first ruling, dated November 27, 2014.

Two months later Rosneft’s lawyers went back to the London court for two days of hearing on whether the UK court should overrule the application of the EU sanctions in the UK. Again, it was defeated, Beatson and a brother judge deciding they prefer to pass the buck. “We have accordingly formed the view that a ruling of the CJEU is of considerable importance in providing the domestic authorities with a definitive interpretation of the Regulation. This is important not only to ensure consistency between the competent authorities of the Member States but to ensure… a level playing field for all businesses operating within the EU. A second reason why we consider that these matters are best addressed by the CJEU is that even if this Court considered that it could form a clear conclusion on the matters arising, it would do so without the benefit of submissions provided to it by the institutions of the EU and by other Member States the legality of the sanctions under British and European Union law.”

For the time being the European court has decided nothing. The court records show that the Rosneft challenge comprises three cases which are running in parallel. The first, Case no. T-715/14, was filed on October 9; this was the first of the Russian corporations to attack the sanctions in the court.


Then in February of this year Rosneft filed two more cases: No. T-69/15, with commencement date of February 12, 2015, followed by Case no. T-72/15 on February 18. Why Rosneft has filed three separate cases the company spokesman in Moscow isn’t saying.

The Rosneft brief makes nine specific legal pleas, arguing that the action by the EU’s Council of Ministers “failed to provide reasons sufficient to permit a full review of either the substantive or procedural legality of the provisions”; “there has been no material produced by the Council which could or does justify the relevant measures as having a legitimate or lawful aim”; “the relevant measures are in breach of the EU’s international law obligations under the Partnership and Cooperation Agreement with Russia and/or the GATT”; the Council demonstrated “no rational connection” between the reasons announced for sanctions and “the means chosen”; the sanctions “infringed the fundamental principle of equal treatment and non-arbitrariness”; “they are not proportionate to, or have not been shown to be proportionate to, the aim pursued by the Council Decision”; they amount to “an impermissible interference with the Applicants’ fundamental rights to property and/or their freedom to conduct a business”; and they “breach of the constitutional guarantee of legal certainty, including in the lack of clarity of key terms in the relevant measures.”

Finally, there is the argument that sanctions are motivated by political scheming for regime change in Russia. This, it is argued, amounts to an abuse of EU powers because “in the absence of any explanation for the relevant measures and their nature, at least part of the purpose of the contested provision could have been to serve an aim other than the stated aim.” The full text can be read here.

Rosneft has also told the Russian press it has applied to the ECJ for disclosure orders against the EU Council for the production of hitherto secret documents, including drafts of the sanctions announcements and communications between the member governments, as well with US officials, in which the sanctions provisions were rationalized.

According to ECJ records, Sberbank mounted its legal challenge soon after Rosneft. Here is its case, T-732/14 (October 23). The bank lawyers argue there were no reasonable grounds for striking at Sberbank in relation to the published claims of “Russia’s actions destabilising the situation in Ukraine”. Sberbank was illegally deprived of its rights to defend itself; the EU failed its legal obligation to give “adequate or sufficient reasons”; and the sanction imposed on the bank is “an unjustified and disproportionate restriction of its fundamental rights including its right to protection of its business and reputation.” Here is the skeleton of the Sberbank case.

VTB filed on October 24, the day after Sberbank. This is Case No. T-734/14. VTB’s argument makes similar pleas, adding there is no link with Russian policy in the Ukraine and that the bank “is not managed by the Russian State.”

Gazpromneft filed in court soon after Sberbank and VTB; it now has two cases running: Case No. T-735/14 (November 28) and No. T-799/14 (December 5). The company’s argument attacks the sanctions on similar grounds, concluding they are illegal under EU law and treaties signed between the EU and Russia and between the EU member states because “they are not appropriate to achieve their objectives (and therefore are also not necessary) and, in any event, impose burdens that very significantly outweigh any possible benefits.”

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