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Sanctions - the strange case of the Russian bank and the bankrupt. And "reasonable cause to suspect"


Judgement has been handed down in the latest part of the saga between Vneshprombank LLC and Lyubov Kireeva, the trustee in bankruptcy for Georgy Bedzhamov and Bedzhamov himself. The case raises some fascinating issues relating to sanctions arising from the invasion of Ukraine by Russia.

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This is a very strange application to be heard in a civil trial.

Bedzhamov is bankrupt in Russia. This case involving his trustee in bankruptcy and a bank is "long running and hard fought litigation" according to the judge.

The application is for declarations as to whether there is reasonable cause to suspect that A1 LLC (“A1”) – a company which has to date funded the bank in this litigation - is owned or controlled by a designated person or persons within certain UK Regulations.

Bedzhamov also seeks directions for the future conduct of these proceedings in light of any such declarations, including directions as to the payment and receipt of the outstanding costs order in favour of the Trustee and any future orders made in favour of the Trustee or the bank.

Bedzhamov's case turns on whether

1) The designation of persons (Messrs Fridman, Khan and Kuzmichev) who were major shareholders in A1 until March 2022 and
2) Its sale (or – Mr Bedzhamov would say – apparent sale) shortly after that designation mean that AI's funding of the bank's action was in breach of sanctions.

Bedzhamov’s position is, in essence, that the litigation cannot now proceed smoothly without a determination as to whether there is reasonable cause to believe that A1 is owned or controlled by Designated Persons If A1 is owned or controlled by Designated persons, then payments in the course of the litigation to the Trustee and the bank may benefit such persons and are therefore prohibited under the 2019 Regulations. The position of the Trustee and the is that no such determination is necessary, alternatively that the determination should only be made at the point which funds fall to be paid.

So what is actually in issue is who would receive the funds if the bank and the Trustee were successful and if it's going to be AI would such a payment be in breach of sanctions.

The bank and the trustee informed the court and Bedzhamov that AI was no longer funding the litigation and that its place had been taken by Cezar Legal Consulting Agency
LLC. Bedzhamov was suspicious and said that he believed that Cesar and its third party backer are Russian companies and, as a result, further investigation would be required to establish if the same sanctions issue arose.

The case arises out of the ownership of real property in the UK by various companies owned or controlled by various people, mostly Russian. It is all very complicated.

The salient point, for this report, is that cases in English courts (this is not the only one) are being held up because one party says that the winner will not keep the spoils but will hand them off to a litigation funding company and that, to do so, would be an offence under sanctions.

The full report is here: https://www.judiciary.uk/wp-content/uploads/2024/05/Vneshprombank-v-Bed…