Angelika Hellweger

The decision in R v Hauser & Wirth Gallery Limited & Anor EWCR 7 is an important addition to the developing body of UK sanctions jurisprudence. Although the prosecution ultimately failed, the case provides the first detailed judicial consideration of Regulation 46B of the Russia (Sanctions) (EU Exit) Regulations 2019 and offers valuable guidance on two concepts central to the operation of the UK's luxury goods restrictions: who is "connected with Russia" and what amounts to "making available" a luxury good.

The defendants, Hauser & Wirth Gallery Limited (H&W) and Artay Rauchwerger Solomons Limited (ARS), escaped criminal liability after the prosecution failed to establish that the purchaser of a George Condo artwork was "ordinarily resident" in Russia. Nevertheless, the judgment adopts an expansive interpretation of the prohibition on making luxury goods available and illustrates the willingness of UK prosecutors to pursue criminal enforcement against commercial participants operating well beyond traditional financial institutions.

The prosecution
In July 2021, Alexander Popov agreed to purchase George Condo's Escape From Humanity from H&W. Completion of the sale, however, occurred against a dramatically altered geopolitical backdrop. Following Russia's invasion of Ukraine in February 2022, the UK introduced a series of additional trade sanctions, including Regulation 46B, which came into force on 14 April 2022.

The artwork remained in storage until 26 August 2022, when H&W released it to ARS for transportation to Heathrow Airport for export. Before leaving the UK, the shipment was intercepted and seized by Border Force.

The prosecution alleged that H&W, by releasing the artwork, and ARS, by transporting it, had each made a luxury good available to a person connected with Russia contrary to Regulation 46B.

There was no dispute that the artwork constituted a luxury good. Nor was there any suggestion that Mr Popov was a designated person or subject to an asset freeze. Instead, the prosecution relied upon the broader statutory definition of a person "connected with Russia," contending that Mr Popov was ordinarily resident there.

Ordinary residence
Regulation 21(2) provides that an individual is connected with Russia if, among other things, they are ordinarily resident in Russia or located there.

The regulations contain no definition of ordinary residence. Judge Baumgartner therefore approached the issue as one of fact, examining whether Russia formed part of the settled and regular order of Mr Popov's life during the relevant period.

The prosecution relied upon numerous indicators of continuing ties with Russia. Mr Popov remained a Russian citizen, retained ownership of Russian businesses operating from Moscow, and continued to own residential property there. On one view, these factors might readily support the conclusion that Russia remained his principal place of residence.

The court reached a different conclusion. The evidence demonstrated that Mr Popov had established homes and practical living arrangements in Bosnia and Herzegovina and Armenia. Although he maintained substantial commercial and personal connections with Russia, those links did not establish that Russia continued to form part of the settled pattern of his daily life. Historic connections, nationality and business interests, while relevant, were not determinative.

The judgment illustrates that ordinary residence is a qualitative rather than quantitative assessment. The question is not whether an individual maintains significant links with a country, but whether that country remains the centre of their ordinary life at the material time.

This distinction ultimately proved decisive. Having failed to establish that Mr Popov was ordinarily resident in Russia, the prosecution could not prove that he fell within the statutory definition of a person connected with Russia.

The scope of "making available"
Although the prosecution failed on the residence issue, the court nevertheless provided important guidance on the scope of Regulation 46B.

Judge Baumgartner concluded that both defendants had made the artwork available to Mr Popov.

For H&W, the act of releasing the artwork following sale constituted making it available. ARS likewise participated in making the artwork available by collecting, transporting and handling it on Mr Popov's behalf. Perhaps the most significant aspect of the judgment is the court's rejection of the argument that goods must reach their intended recipient before the prohibition is engaged.

Instead, the court held that the artwork became available once it passed into the custody or control of persons acting for Mr Popov. The subsequent intervention by Border Force, preventing export, was therefore legally irrelevant.

This interpretation gives Regulation 46B a considerably broader reach than might previously have been assumed. Liability does not depend upon successful delivery or completion of the transaction. Rather, the offence is capable of being committed once the goods are placed beyond the seller's control and at the disposal of the purchaser or those acting on the purchaser's behalf.

Wider significance
The decision illustrates the breadth of potential criminal exposure under Regulation 46B. Liability is not confined to galleries or sellers of luxury goods. Logistics providers, freight forwarders, storage facilities and other intermediaries may all participate in making goods available and may therefore fall within the scope of the offence.

The case is also noteworthy for what it says about the architecture of the Russia Regulations more generally. Unlike financial sanctions, which primarily focus on designated persons, many trade restrictions apply to the wider category of persons connected with Russia. That concept can capture individuals who have never been designated but whose residence or location brings them within the ambit of the Regulations.

Enforcement implications
The decision should also be viewed against the backdrop of the UK's evolving sanctions enforcement strategy.

Since 2022, the government has repeatedly emphasised that sanctions enforcement is intended to become more proactive, intelligence-led and coordinated across criminal, civil and regulatory agencies. While relatively few criminal prosecutions have reached the courts, this case demonstrates that prosecutors are prepared to pursue contested proceedings where they consider that the evidential threshold has been met.

The judgment also highlights the evidential challenges inherent in prosecutions based upon ordinary residence. Modern patterns of international mobility, multiple residences and cross-border commercial activity mean that residence will often require detailed factual examination. Future prosecutions are therefore likely to depend less upon formal legal principles than upon the quality of the evidence demonstrating where an individual's life is genuinely centred.

Conclusion
R v Hauser & Wirth Gallery Limited is significant not because it resulted in convictions, but because it provides the first judicial interpretation of key concepts underpinning the UK's luxury goods sanctions.

The prosecution failed because the Crown could not establish that the purchaser was ordinarily resident in Russia. Yet the court simultaneously adopted a broad interpretation of "making available," confirming that criminal liability may arise well before goods reach their intended destination and may extend to intermediaries involved in the transaction.

As sanctions enforcement continues to mature, the decision is likely to become an important authority on the interpretation of Regulation 46B. It also signals that future prosecutions will turn as much on careful factual analysis as on the wording of the Regulations themselves, particularly where questions of residence and indirect participation arise.

About the author

Angelika Hellweger is a multilingual business crime and asset recovery lawyer with extensive experience advising corporates, high net worth individuals and family offices on complex cross-border investigations, disputes, sanctions and regulatory matters. Recognised by The Legal 500 and Lexology Index, she regularly leads multijurisdictional asset tracing and recovery strategies across Europe, the Middle East, Africa and the US.