CL-2022-000456 - [2025] EWHC 1938 (Comm)

Article 2(2) prohibits making funds or economic resources (as explained above) available to designated persons – “directly or indirectly”. The inclusion of the word “indirectly” is critical to Article 2(2). If it only prohibited direct transactions, it would not serve the intended purpose. Necessarily, therefore, it also prohibits indirect transactions, which would make funds or economic resources indirectly available to designated persons.

The significance of the prohibition on making funds “indirectly” available was highlighted by the European Court of Justice in SH v TG Case-168/17 (ECLI:EU:C:2019:36), which dealt with the equivalent provision in the EU’s Libya sanctions, at [51]-[52]:

“[51] It should be noted that the prohibition laid down in that provision on making funds or economic resources available to any person on the list of persons targeted by the restrictive measures is framed in particularly broad terms, as evidenced by the use of the words ‘directly or indirectly’, and therefore encompasses all the acts necessary under the applicable national law if that person is in fact to obtain full power of disposal in relation to the funds or economic resources concerned (see, to that effect, judgments of 11 October 2007, Möllendorf and Möllendorf-Niehuus, C-117/06, EU:C:2007:596, paragraphs 50 and 51; of 29 June 2010, E and F, C-550/09, EU:C:2010:382, paragraphs 66 and 74, and of 21 December 2011, Afrasiabi and Others, C-72/11, EU:C:2011:874, paragraphs 39 and 40).

[52] The broad and unambiguous terms of that provision apply to any mode of making available an economic resource and therefore also to any act which flows from the execution of a contract imposing mutual obligations and which has been agreed in exchange for payment of pecuniary consideration (judgment of 11 October 2007, Möllendorf and Möllendorf-Niehuus, C-117/06, EU:C:2007:596, paragraph 56).”

Once again, the Court emphasised the breadth of the provision, this being required in order to achieve the intended purpose of the Regulation.

It is in relation to indirect transactions that ownership and control become relevant to Article 2(2). If an entity – typically, a company – is owned or controlled by a designated person, there is a risk that any funds or economic resources that are available to that entity will thereby become available to the designated person that owns or controls it. This is explained in the EU Council “Best Practices” document, at paragraph 68, as follows:

“68.

If the ownership or control is established…, the making available of funds or economic resources to non-listed legal persons or entities which are owned or controlled by a listed person or entity will in principle be considered as making them indirectly available to the latter, unless it can be reasonably determined, on a case-by-case basis using a risk-based approach, taking into account all of the relevant circumstances, including the criteria below, that the funds or economic resources concerned will not be used by or be for the benefit of that listed person or entity.”

Similarly, the Syria FAQ document states in answer to question 9:

“The concept of making funds or economic resources available indirectly to or for the benefit of a designated person refers to a situation in which funds are made available to a person or entity who or which is directly or indirectly owned or controlled by a listed entity. (Footnote: ⁶)

…

If ownership or control is established on the basis of appropriate due diligence, the making available of funds or economic resources to non-designated legal persons or entities which are owned or controlled by a listed person or entity will in principle be considered as making them indirectly available to the latter, unless it can be reasonably determined, on a case-by-case basis using a risk-based approach, taking into account all of the relevant circumstances, that the funds or economic resources concerned will not be used by or be for the benefit of that designated person or entity.”

The 2020 Opinion and the 2021 Opinion adopt and expand on what was said in the Syria FAQ document. In particular, they state that, if a designated person controls an entity, it can be presumed that the control extends to all the entity’s assets. The 2021 Opinion cites both the Syria FAQ and the 2020 Opinion in setting out the position as follows (in answer to Question 1.2):

“As generally parent companies exercise control and direction over the activities of their subsidiaries, in the Commission’s view, once control by a designated person over a non-designated entity is determined, it can be presumed that the control also extends to the subsidiaries and the assets of the non-designated entity. This presumption can be rebutted on a case-by-case basis by the EU Subsidiary, if it can demonstrate that some or all of its assets are outside the control of the parent entity, or that the latter is, in fact, not controlled by the designated person.

It follows that making funds or economic resources available to such a subsidiary would amount to making them indirectly available to the designated person, unless it can be reasonably determined, on a case-by-case basis using a risk-based approach, taking into account all the relevant circumstances, that the funds or economic resources concerned will not be used by or be for the benefit of that designated person.”

The existence of this presumption is also apparent from the jurisprudence of the European Court of Justice. In particular, in SH v TG Case-168/17, the Court expressly stated at [62] that all that is required is the possibility that funds may be passed to the designated person:

“[62]… in order for funds to be regarded as being made indirectly available to a person whose name is on the list…, it must be possible for those funds to be passed on to that person or for that person to have the ability to dispose of them, in the light, inter alia, of the existence of financial or legal links between the beneficiary of the funds and such a person.”

The Firewall Guidance is also helpful on this point. It states:

“If a designated person has control over an entity, there is a rebuttable presumption that the control extends to all assets owned by the latter. Such assets must be frozen. Otherwise, designated persons could circumvent the asset freeze imposed on them by continuing to have access to funds or economic resources through the non-designated third parties that they control. In a similar vein, the making available of funds or economic resources to a non-designated entity, which [is] controlled by a designated person, amounts to making them indirectly available to the latter.”

Firewalls are relevant to this, because they can enable an entity that would otherwise be affected by Article 2(1) or 2(2) to continue to trade, by: (i) removing the designated person from day-to-day operations; and (ii) ringfencing its assets so as to prevent its funds or economic resources from being made available to a designated person. Effective firewalls will negate the presumption that would otherwise follow from the entity being controlled by the designated person.

None of this was really in dispute before me. It follows that Article 2(2) prohibits making funds available to an entity that is owned or controlled by a designated person, subject to it being shown that the funds would not be used by or for the benefit of that designated person – in particular, because of a firewall.

Once again, therefore, the issue of ownership and control is central. If either ownership or control is established, it is necessary to consider whether the presumption is displaced; for which the firewall measures implemented by EuroChem AG may be relevant, at least as regards EuroChem AG.