OFSI licences and legal fees

In her latest Sanctions Monitor article, Angelika Hellweger of Rahman Ravelli details a case where the issue of an OFSI licence for legal fees was a central issue.

In Claim N0: BVIHC (COM) 2022/0007: AO ALFA Bank (Claimant) and Kipford Ventures Ltd (Defendant), the High Court of Justice in the British Virgin Islands (BVI) discussed the Office of Financial Sanctions Implementation’s (OFSI’s) delay in granting a licence application for legal fees. Furthermore, it noted that a party’s right to a fair hearing might be violated when other banks are “over-complying” when it comes to sanctioned parties and do not accept payments from a sanctioned party, even though a licence has been lawfully granted.

The Case

Alfa-Bank applied for a freezing order against Kipford in the BVI in 2021. When Alfa-Bank was sanctioned in 2022, its lawyers applied for a licence to receive legal fees. The licence was both filed with OFSI in the UK and with His Excellency the Governor in the BVI. The BVI granted the licence within four months, but OFSI had not granted it six months later, in September 2022.  The BVI court noted “The reasons for OFSI’s delay is wholly unclear.  The Governor and OFSI are both emanations of the British State, so one would expect them to liaise to reach the same conclusion on the self-same set of facts”.  The court noted that the question of OFSI’s liability for wasted costs may need to be considered at some point.

Although the licence had been granted in the BVI, difficulties in obtaining representation also continued as the law firm’s bank did not want to open an account and did not want to accept monies from Alfa-Bank, although the licence had been granted by the Governor of the BVI. The judge thus also questioned the decision by the law firm’s bank that it would not receive even licensed funds. The court made a few notable remarks in relation to the right to a fair trial in this regard:

• At common law, every person ‘should have unhindered access to the constitutionally established courts of… civil jurisdiction for the determination of disputes as to their legal rights and liabilities’.
• That [the bank’s] refusal to open an account or to receive payment from the claimant as aforesaid arguably interferes with the claimant’s said rights.
• That it may affect the defendant’s rights [….] to a fair hearing within a reasonable time of the determination of its civil rights and obligations.
• That by the said refusal to open an account and receive payment from the claimant [the bank] may be interfering with the due administration of justice in this Territory and guilty of contempt of court.

Conclusion

The observation of the BVI court is in line with what UK lawyers seeking licences for legal fees were experiencing on a daily basis over the past months. Licences were  granted after a substantial delay and the current waiting time to have legal fees authorised was  more than six months. Such delay may (respectively might have) hinder(ed) a party’s access to justice and, specifically, the designated person’s access to the courts, which is a fundamental right protected by the common law as well as under the Human Rights Act 1998. It is thus a welcome relief for lawyers and law firms that OFSI has very recently issued General Licence (GL) INT/2022/2252300 which authorises the payment of legal fees by people and entities designated under the Russia or Belarus sanctions regimes to law firms and counsel until 28 April 2023. UK law firms or UK counsel engaged in providing legal advice to a Designated Person (DP) under either of the above regimes can now^[1] receive payment from a DP without having to apply for a specific licence, provided that the terms of the General Licence are met.^[2]

However, it is not clear from guidance issued by OFSI whether the General Licence has retrospective effect and whether the backlog of pending “old” licence applications will be immediately cleared. Therefore, in order to protect the position in matters where a lawyer has already applied for a specific licence, it might be prudent to confirm with OFSI first whether the lawyer is able to immediately receive payment.

^[1] The General License expires on 28 April 2023. The current term of the licence is therefore 6 months.
^[2] The GL distinguishes between legal fees ‘pre-designation’ (Part A) and ‘post-designation’ (Part B).

• There is a £500,000 (inc. VAT) cap on the amount that can be claimed for legal work carried out in satisfaction of a prior obligation (e.g. where a law firm or barrister is engaged before the designation of the person / entity).
• A cap of £500,000 (inc. VAT) on overall fees for legal work started post-designation with reporting obligations showing that all fees which have been paid are reasonable.
• Where applicable, these 2 caps can also be combined. For any fees above these caps, a specific licence must be sought.