Sanctions Synopsis: October 2026 Edition

By Tamara Davis and Leonore Carron-Desrosiers and reviewed by Mikhail Vishnyakov.

The past few months brought notable sanctions developments, including:

The Supreme Court ruled that payment obligation to Irish companies under letters of credit was prevented by sanctions until the necessary authorisations were obtained.
The High Court ruled that liquidators can consent to the assignment by a sanctioned company of its right to prove in a liquidation.
The High Court discharged a worldwide freezing order following a failure to fortify a cross-undertaking in damages due to sanctions.
OFSI imposed a penalty of £4.7m on Citibank as UK government strengthens sanctions enforcement.

If any of the topics are of interest, please do not hesitate to reach out.

Supreme Court rules that payment obligation to Irish companies under letters of credit was prevented by sanctions until the necessary authorisations were obtained

On 25 March 2026, the Supreme Court held that payments under letters of credit connected with the arrangement of aircraft leases for Russian persons or for use in Russia were prohibited by the UK sanctions regime and that, in any event, it is a defence for a non-paying party to have reasonably believed non-payment was required for sanctions compliance.

The case concerned 22 letters of credit issued in connection with aircraft leases between Irish-incorporated aircraft lessors (the “Lessors“) and two Russian airlines. The issuing bank was Sberbank Povolzhsky Head Office (“Sberbank”), a branch of the UK-sanctioned Russian bank Sberbank PJSC whilst UniCredit Bank GmbH, London Branch (“UniCredit“) acted as confirming bank and was obliged to make payment upon presentation of compliant demands.

In March 2022, following the termination of the aircraft leases, the Lessors submitted demands under the letters of credit. However, concerned that payment might contravene the UK-Russia sanctions regime, UniCredit declined to make payment until it had obtained licences from OFSI and the Export Control Joint Unit.

In particular, UniCredit contended that payment constituted the provision of funds “in connection with” an arrangement making aircraft available to persons connected with Russia or for use in Russia and was therefore prohibited by regulation 28(3)(c) of the Russia (Sanctions) (EU Exit) Regulations 2019. Accordingly, UniCredit contended that it was prohibited under regulation 28(3)(c) from making payments under the letters of credit until it obtained a licence to do so, because whilst the beneficiaries of the payments were Irish-incorporated entities, the aircraft leases were arrangements making aircraft available to persons connected with Russia or for use in Russia and therefore any payments made under the associated letters of credit would constitute the provision of funds “in connection” with those arrangements.

UniCredit further relied on section 44 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) which excludes liability in civil proceedings for acts or omissions done in the reasonable belief such acts are undertaken in compliance with the Amended Regulations.

In October 2022, UniCredit obtained the necessary licences to permit the payment to the Lessors and arranged the payment under the letters of credit. The Lessors contended that regulation 28(3) did not prohibit payment under the letters of credit and therefore UniCredit had not been required to obtain a licence before making payment. Accordingly, the Lessors claimed interest for the period of non-payment, i.e., from the dates of the demands in March 2022 until the licences were obtained in October 2022

The issues before the Supreme Court were therefore: (i) whether payment under the letters of credit was prohibited by regulation 28(3)(c), such that UniCredit had been entitled to withhold payment pending the grant of the necessary licences; and (ii) whether the Lessors were entitled to recover interest for the period of non-payment.

The Supreme Court rejected the Lessors’ position for the following reasons:

the aircraft leases constituted “arrangements” within regulation 28(3)(c) because their object and/or effect was to make aircraft available to two Russian airline companies for use in Russia. This characterisation was not retrospectively altered on the subsequent termination of the leases, nor does regulation 28(3)(c) require the relevant arrangement to remain ongoing at the time the funds are provided;
payment under the letters of credit was therefore prohibited unless and until the necessary UK licences were obtained. UniCredit’s payment obligations were therefore suspended pending completion of the licensing process, with the result that statutory interest could not accrue during that period; and
in any event, even if regulation 28(3)(c) had not prohibited payment without a licence, UniCredit would have been entitled to rely on section 44 of SAMLA because it had reasonably believed that making payment without a licence would contravene the sanctions regime.

The judgment can be found here: UniCredit Bank GmbH, London Branch (Respondent) v Constitution Aircraft Leasing (Ireland) 3 Ltd and another (Appellants) – UK Supreme Court

The High Court rules that liquidators can consent to the assignment by a sanctioned company of its right to prove in a liquidation.

On 4 September 2026, the High Court held that officeholders could consent to the assignment by a sanctioned entity of its contractual rights to receive proceeds from a liquidation without breaching UK sanctions legislation.

Petropavlovsk plc (“Petropavlovsk”) is an English-incorporated entity that traded in gold mining in Russia. Due to UK-Russia sanctions, Petropavlovsk entered administration in July 2022, following which its business was sold to Atlas JSC (“Atlas”), in September 2022. Pursuant to the terms of the sale, Atlas was entitled to any surplus in the administration. In July 2024, Petropavlovsk went into creditors’ voluntary liquidation.

In April 2025, Denali Corp-FZCO (“Denali”), a Dubai company, and Atlas had entered into an agreement whereby Atlas assigned its rights in Petropavlovsk’s liquidation to Denali. Two months later, Atlas was named a designated person under the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Regulations”).

In view of Atlas’ status as a designated person, the liquidators did not consent to the assignment due to concerns that such consent would breach UK sanctions legislation.

Accordingly, Denali applied under section 112 of the Insolvency Act 1986 for the liquidators to consent to the assignment. Section 112 enables a creditor to request that the Court determine any question arising in the winding up of a company. The liquidators adopted a neutral stance on the application, confirming that but for the Regulations, consent would have been readily given.

The principal issue before the Court was whether the liquidators’ consent to the assignment would breach Regulation 11 of the Regulations. Regulation 11 imposes an asset freeze on designated persons, prohibiting any person from dealing with funds or economic resources owned, held, or controlled by a designated person where they know, or have reasonable cause to suspect, that this is the case.

The Court first considered the nature of the rights assigned by Atlas. It held that the assignment did not transfer a liquidated sum by way of a dividend already declared in Petropavlovsk’s liquidation, but rather the transfer of Atlas’s contractual (but contingent) rights to receive any surplus remaining in the liquidation by way of a right to prove in Petropavlovsk’s liquidation. Accordingly, the Court found that Atlas’s rights constituted an “economic resource” rather than “funds”.

The Court further held that the liquidators’ consent would not amount to “dealing with” that economic resource for the purposes of Regulation 11 because the giving of consent did not involve the liquidators exchanging or using those rights for funds, goods, or services, nor did the consent otherwise confer any additional benefit on Atlas, which had already received the benefit of the assignment. Rather, the assignment was a transaction between Atlas and Denali to which Petropavlovsk was not a party, and the act of consent merely permitted that transaction to take effect. The giving of consent would put no assets in the hands of the designated person or allow Atlas to use those assets.

The judgment can be found here: Denali Corp – FZCO v Manson & Ors [2026] EWHC 2287 (Ch) (04 September 2026)

High Court discharges a worldwide freezing order following a failure to fortify a cross-undertaking in damages due to sanctions

On 28 July 2026, the High Court held that a sanctioned claimant could not continue to benefit from a worldwide freezing order (“WFO“) indefinitely where it had failed to provide court-ordered fortification of its cross-undertaking in damages. The Court ruled that a sanctioned party is not entitled to more favourable treatment because its status makes compliance with court orders more difficult.

On 9 February 2026, VTB Bank PJSC (“VTB“), a Russian bank designated under the UK sanctions regime, had obtained a WFO in support of proceedings in Russia. As a designated person, VTB was not permitted to deal with its UK assets without the necessary sanctions licences. Accordingly, the original WFO had required VTB to retain funds in frozen accounts as fortification for its cross-undertaking in damages.

At the return hearing on 27 February 2026, the Court ordered VTB to obtain the necessary sanctions licences and pay £500,000 into Court as fortification on the basis that the existing ring-fencing arrangements did not provide the respondents with adequate protection (the “Fortification Order”).

VTB subsequently applied to vary the Fortification Order, arguing that whilst it had applied for a licence from OFSI on 21 April 2026, the licence had not yet been granted.

The Court rejected the application, observing that a non-sanctioned party would not ordinarily have been permitted to maintain a WFO for nearly six months without providing a court-ordered fortification.

Accordingly, the Court ordered that unless £500,000 was paid into Court by 9 August 2026, the WFO would be automatically discharged. The Court of Appeal subsequently refused VTB’s application for permission to appeal and the WFO was discharged.

The judgment can be found here: VTB Bank PJSC v Kuanyshev and Anor [2026] EWHC 1983 (Comm)

OFSI imposes a penalty of £4.7m on Citibank as UK government strengthens sanctions enforcement

On 11 August 2026, OFSI imposed a monetary penalty of £4.73m on Citibank, N.A., London Branch (“Citibank“) for breaches of the Russia (Sanctions) (EU Exit) Regulations 2019 and the Global Anti-Corruption Sanctions Regulations 2021.

OFSI found that Citibank had processed transactions and operated accounts in a manner that resulted in frozen funds being dealt with, or funds being made available to designated persons, contrary to UK financial sanctions.

Citibank had processed approximately 970 transactions with an aggregate value of approximately £19.7m. OFSI attributed many of the breaches to systems and controls failings, including weaknesses in sanctions screening, delays in reviewing alerts, and errors in ownership and control assessments.

Although OFSI accepted that the breaches were not deliberate and gave credit for voluntary disclosure, cooperation and remediation, it concluded that this case warranted the highest rating within its seriousness framework (Level 4) and imposed a final penalty of £4.73 million.

The OFSI notice can be found here: Imposition of Monetary Penalty – Citibank, N.A., London Branch