Paper divestments will not help you. A landmark ruling confirms that operating in any sector feeding Russia’s war chest is enough to keep your assets frozen.
The General Court of the European Union handed down a judgment on Wednesday that will be studied carefully in the offices of every sanctions lawyer in Brussels, London, and Moscow. Igor Kesaev, a Russian billionaire (and major shareholder in Megapolis Group, Russia’s largest tobacco distributor) had spent more than two years trying to get his name off the EU’s asset-freeze list. The court rejected every argument he made.
The ruling is more than a footnote in one oligarch’s legal biography. It is a stress test of the EU’s entire sanctions architecture. The edifice held. Mr Kesaev must now pay the EU’s legal costs, and his European assets remain frozen.
Broader than it looks
The political significance of the 2 September judgment lies in what it says about the scope of EU sanctions. Mr Kesaev is not a defence contractor. He has no known personal ties to the Kremlin. He does not produce weapons, extract oil, or run a state bank; he distributes cigarettes.
Yet the court found that this was sufficient grounds to keep him on the list. It is because the tobacco sector, taken as a whole, generates meaningful revenue for the Russian state.
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The court was explicit on this point. It is not that the court must show an individual to fund the Russian war effort directly. As the judgment states: “It is the economic sector, and not the natural or legal person whose name (features) on the lists, that must constitute a substantial source of revenue for the government of the Russian Federation.”
That is a wide net. It captures anyone operating at scale in any sector that contributes significantly to Russian public finances. In a heavily state-dependent economy, it covers a great deal of ground. Lawyers advising sanctioned clients had hoped the courts might draw a narrower line. They now have their answer.
Perhaps the most practically consequential part of the ruling concerns asset transfers. Since 2022, a pattern has emerged among sanctioned Russians: move assets into a personal foundation, a family trust, or a nominee structure, then argue to the court that you no longer own anything worth freezing.
The foundation gambit fails
Mr Kesaev tried precisely that. In December 2023, he transferred his shareholding in Mercury Retail to a personal foundation established in Russia.
The court was unimpressed. It noted that Russian personal foundations—a legal instrument introduced in March 2022, just weeks after the invasion—are specifically designed to allow owners to retain effective control of assets while concealing their identity. Transferring assets to such a structure, the court found, does not demonstrate genuine relinquishment of control.
Crucially, the court placed the burden of proof squarely on Mr Kesaev. He had to show that the transfer was real, arm’s-length, and made to a genuinely independent third party — with documentation. He did not.
As the judgment puts it: “The mere fact of using an intermediate legal structure, such as a personal foundation in this case, is not capable of demonstrating that the applicant has relinquished control of the shareholdings managed by that foundation.”
Rolling renewals, low burden
That passage will be cited in sanctions proceedings for years to come. It closes, firmly, what had become a well-trodden escape route.
A third element of the ruling deserves attention. The EU Council renews its sanctions lists every six months. Mr Kesaev argued that the Council could not simply recycle the same evidence each time. His lawyers said that renewal required fresh justification.
The mere fact of using an intermediate legal structure (…) is not capable of demonstrating that the applicant has relinquished control of the shareholdings managed by that foundation. — Kesaev v Council of the European Union, European Court of Justice
The court disagreed. As long as the underlying situation has not materially changed, and as long as the war continues, the Council may maintain a listing on the basis of the same factual record used at the outset.
Freeing the Council’s hands, of sorts
This matters enormously for the sustainability of the sanctions regime. Assembling new evidence on individuals living in Russia (where EU investigators have no powers and access is severely limited) is difficult and expensive.
The court acknowledged as much, noting that “the conflict in which the Russian Federation and Ukraine are involved makes access to certain sources particularly difficult in practice”. Giving the Council latitude to rely on existing evidence, provided it remains current and credible, makes the regime far more durable.
It would be a mistake to overread the judgment. The court was careful to distinguish between freezing assets and seizing them. Mr Kesaev’s European holdings are immobilised. He cannot sell them, transfer them, or draw income from them. But they have not been confiscated. That is a different legal question entirely, and one that remains deeply contested.
The debate over what to do with the roughly €210bn in frozen Russian central bank assets (and, separately, the personal assets of sanctioned individuals) is political as much as legal. Several EU member states remain cautious about outright confiscation, fearing legal challenges, precedent effects, and damage to the euro’s reputation as a reserve currency.
A green light
This judgment does not resolve that debate. It does, however, reinforce that the freeze itself is on solid legal ground. Individuals hoping to quietly divest their way off the list before any confiscation framework is agreed will find the court an unsympathetic audience.
The conflict in which the Russian Federation and Ukraine are involved makes access to certain sources particularly difficult in practice. — European Court of Justice
For EU policymakers, the judgment is an invitation to press on. The court has shown that it will grant the Council wide discretion in defining who qualifies for sanctions, in renewing listings, and in treating asset transfers with scepticism.
It has confirmed that the ‘substantial source of revenue‘ criterion is valid, proportionate, and clearly enough defined to withstand challenge. It means the legal hook used to catch businesspeople who are not directly involved in the war is good enough to withstand legal pressure.
Mr Kesaev mounted a well-funded, technically sophisticated legal challenge. He lost on every count. Others contemplating similar litigation will take note. The EU’s sanctions list is not, it turns out, easily escaped; the court has just made it harder still to try.
