Sanctions as summary justice: When disruption displaces due process

This article appeared as an opinion piece at GRIP.

For those of us who have spent decades tracing, freezing, and recovering the proceeds of fraud, sanctions possess an obvious attraction.

Used properly, they can immobilize assets, exclude suspected criminals from the financial system, and disrupt international networks long before conventional proceedings reach a courtroom.

The UK’s action against Southeast Asian scam centers illustrates a case in point. In March, the government sanctioned the operator of a Cambodian cryptocurrency marketplace accused of supporting online fraud and potentially staffed by 20,000 trafficked workers.

The enterprise allegedly processed almost $20 billion since 2021 and Reuters reported asset freezes against individuals, businesses, and valuable London properties. The Government also sanctioned Xinbi, a Chinese-language crypto marketplace allegedly used by fraud networks.

In May, the government went further, sanctioning another cryptocurrency exchange for allegedly serving networks facilitating Russian sanctions evasion. The Foreign Office called the measures a crackdown on crypto and illicit-finance networks exploited by Russia.

These may be thoroughly deserving targets. Nevertheless, sanctions must not become a convenient means of avoiding the evidential, procedural, and judicial disciplines of the criminal law.

Sanctions were traditionally foreign policy instruments intended to change the conduct of hostile and belligerent regimes, or their supporters. Their growing use against fraudsters, crypto platforms, and organized crime networks moves them into territory historically occupied by investigators, prosecutors, asset recovery professionals, and the courts.

The temptation is understandable. Overseas scammers may sit beyond effective extradition; evidence might be scattered across jurisdictions and witnesses intimated or even victims of trafficking. Cryptocurrency can cross wallets, bridges, and exchanges within minutes. A designation is faster than an international investigation, restraint, extradition, and prosecution.

Speed is the strength of sanctions, but also their danger. Criminal proceedings demand admissible evidence and proof beyond a reasonable doubt. Civil recovery still requires an enforcement authority or a claimant to a civil claim to prove their case before an independent court.

A designation, by contrast, can follow an executive assessment conducted largely outside public view. That may be defensible as temporary disruption, but it becomes troubling when disruption is the outcome, rather than the beginning, of an investigation.

A person can lose access to property, banking, employment, and commercial relationships without being charged. Associates, employees, and relatives may suffer despite no allegation of wrongdoing.

The horrors of an unaccountable bureaucratic system which terrified Josef K in Franz Kafka’s 1915 novel The Trial come to mind. Sanctions should support justice, not substitute for it.

In practice, “targeted sanctions” often create a wide exclusion zone. Banks and professional firms, conscious of the consequences of a breach, may decline transactions, terminate relationships, or freeze funds first and ask questions later.

UK restrictions can extend to companies “owned or controlled” by a designated person even when unlisted. Parliamentary evidence warns that unnamed businesses may automatically fall within restrictions. Innocent shareholders, employees, suppliers, and creditors can suffer, whilst banks may refuse payments. Added to which insurers may withdraw cover and advisers decline to act.

Salaries and contractual obligations do not disappear because an ultimate owner is designated. The use of the word “designated” is itself seriously objectionable, an example of the banality of evil cloaked in a neutral-sounding term. In addition, recent academic research has concluded that sanctions against relatives have limited utility, can be ineffective, and raise human rights concerns.

Canada’s sanctions framework is recognizably similar to the UK system, for example, and contains formal safeguards, but those safeguards generally operate only after the damage has begun.

There are documented historical cases of innocent people being caught in the web of sanctions, modern designations that remain seriously contested, and a much larger group of relatives, counterparties, and mistaken-name matches affected through private-sector over-compliance. Canadian/US cases such as Liban Hussein illustrate the collateral damage caused when people are wrongly caught by the sanctioning process.

The UK Supreme Court’s decision in Shvidler v Secretary of Statedemonstrates the difficulty of overturning a UK designation. Eugene Shvidler argued that sanctions imposed because of his association with a Russian oligarch had devastated his business and disrupted family life, but the court dismissed his appeal. Lord Leggatt dissented, describing aspects of the government’s reasoning as “Orwellian.”

The judgment reveals how different a sanctions challenge is from a trial determining criminal culpability. Judicial review principally asks whether the executive acted lawfully and rationally; it does not ordinarily require proof that the designated person committed an offence.

The European Union provides an instructive contrast. In 2024, the EU General Court annulled earlier listings against Petr Aven and Mikhail Fridman, finding insufficient evidence of involvement in conduct undermining Ukraine’s territorial integrity. Although later listings remained, the ruling demonstrated the importance of genuine evidential scrutiny.

A meaningful challenge cannot depend upon a sanctioned person funding complex litigation while excluded from ordinary financial life. Nor should compensation be unavailable for a negligent designation. Parliament records that damages under UK legislation generally require bad faith and are ordinarily capped at £10,000 ($13,500), as the House of Commons Library explains.

For fraud victims, an asset freeze preserves property; it neither establishes ownership nor provides compensation. Funds can remain immobilized for years without being confiscated or returned.

Recovery requires tracing beneficial ownership, reconstructing transactions, obtaining disclosure, identifying victims, proving the connection between property and unlawful conduct, and securing confiscation or civil recovery orders. Sanctions can create the opportunity but cannot complete the work.

Every criminal-finance designation should therefore trigger an operational assessment, in the UK context at least, by the National Crime Agency, police, the Crown Prosecution Service, and relevant overseas authorities. They should determine whether intelligence can become admissible evidence, property can be restrained under the Proceeds of Crime Act, and victims have proprietary claims.

Where evidence supports prosecution or recovery, proceedings should follow. Where it does not, the designation should be reviewed rather than becoming indefinite punishment without verdict.

The Office of Financial Sanctions Implementation’s (OFSI) current guidance should inform that process, but firms must still exercise judgement. Defensive over-compliance can cause serious harm and is not automatically good compliance.

Sanctions are valuable when law enforcement cannot immediately reach an overseas network. They can deny criminals access to assets that might disappear. Their convenience, however, must not seduce government into abandoning investigation, prosecution, and recovery.

The true deterrent is the credible prospect that intelligence becomes evidence, evidence leads to proceedings, property is confiscated, and stolen money is returned to victims.

Sanctions should be used to hold the ground while investigators, prosecutors, and asset recovery lawyers are brought in and meaningful access to justice provided for the “designated.” If governments merely press the designation button and declare the problem solved, they will have disrupted criminality without delivering justice.

This article originally appeared on GRIP.