29 January 2025
EGC ¦ Ownership Stakes and Tax Significance: How the EU Targets Russian Business Activity
Sanctions, Influence, and Legal Certainty: The EU General Court Upholds Measures Against Alexander Vinokurov
A significant judgment from the EU General Court (First Chamber) on January 29, 2025, offers a detailed look at how the European Union applies and justifies restrictive measures (asset freezes) against Russian business figures in connection with the war in Ukraine. The Court dismissed the action brought by Russian businessman Alexander Semenovich Vinokurov, affirming the legality of his continued listing and the broader legal framework enabling sanctions against business actors in sectors generating substantial revenue for the Russian government.
The Case at a Glance
Vinokurov, a Moscow-based businessman with stakes in retail, pharmaceuticals, agriculture, and infrastructure, sought to annul four EU acts adopted in September 2023 and March 2024 that maintained restrictive measures against him. His listing originates from March 2022 amid the early phases of Russia’s full-scale invasion of Ukraine, when he — along with other prominent business figures — met President Vladimir Putin to discuss the impact of Western sanctions. The EU relied on its business roles, including significant indirect holdings in Magnit, one of Russia’s largest food retailers, and interests in grain trading through Demetra Holding, to justify the measures.
The Council’s case emphasized that such sectors constitute meaningful sources of government revenue in Russia, and that targeting businessmen active in these sectors is a legitimate way to increase the economic cost of Russia’s actions and pressure its authorities to cease aggression.
The Legal Framework: From “Influential Businessmen” to Sector-Based Coverage
In June 2023, the EU broadened a key designation criterion under Decision 2014/145/CFSP and Regulation No 269/2014. Previously, sanctions focused on “influential businessmen”. The revised criterion allows designation of businessmen engaged in sectors that provide a substantial source of income to the Russian government, regardless of whether the person is proven to be “influential”.
Vinokurov attacked this change via a plea of illegality, arguing it violated legal certainty and proportionality. He said the term “businessman” was too vague and could arbitrarily reach anyone with minimal roles, and that the concept of “substantial source of income” was indeterminate. He further claimed that, without a requirement of influence, the criterion was unfit to achieve its purpose — pressuring the Russian government.
How the Court Addressed Legal Certainty
The Court rejected the legal certainty challenge. It held that the revised criterion is sufficiently clear and predictable in its application:
- “Businessmen” are not “anyone working in Russia”. The Court read the term to cover individuals conducting qualitatively or quantitatively non-negligible economic activities in sectors that significantly contribute to Russian government revenues.
- “Substantial source of income” means significant and non-negligible revenues at the sector level. It is the sector — not the individual — required to provide substantial income to the government.
- A French-language drafting error in the Council’s June 2023 decision (referring to “influential” businessmen in a recital) was formally corrected and did not undermine the legal clarity of the operative text.
In short, the criterion is neither arbitrary nor boundless; it requires meaningful activity in revenue-rich sectors, ensuring foreseeability for those potentially targeted.
Proportionality: Fit for Purpose and Not Excessive
On proportionality, the Court emphasized the EU’s broad discretion in complex, high-stakes external policy domains. The measures aim to maximize pressure on Russia to end its aggression and destabilizing policies. The Court found:
- Removing the “influence” requirement is justified. Sanctioning businessmen active in sectors that significantly fund the Russian government state can raise the cost of actions, regardless of whether the particular person is “influential.”
- The link to the EU’s objectives, including peace and security under Article 21 TEU, remains logical and intact. Sector-based coverage increases economic pressure.
- The measures are appropriate, necessary, and proportionate. Asset freezes are temporary and reversible; narrower alternatives would be less effective and easier to circumvent. Member State authorities can grant exemptions for basic needs.
Evidence and Error of Assessment: Why the Listing Stands
Vinokurov also argued the Council had misjudged his activities, claiming he held only passive, minority stakes and lacked any operational role or influence, particularly in Magnit. The Court disagreed:
- Magnit exposure: Through Marathon Group, Vinokurov indirectly holds 29.2% of Magnit’s equity — significant in a company with over two-thirds free float. The Court considered that level of ownership sufficient to constitute activity in the food retail sector.
- Sector significance: Magnit is a top-tier retailer with massive turnover and tax contributions. The Court noted both corporate income taxes and indirect taxes borne by consumers contribute materially to government revenues.
- Meeting at the Kremlin: Vinokurov’s participation in the February 24, 2022 meeting with Putin and senior officials reinforced the non-negligible character of his business activity and relevance.
- Past board role irrelevant: Even after he left Magnit’s board, his substantial stake sufficient to demonstrate ongoing activity in a revenue-providing sector.
The Court concluded that the Council provided a sufficiently concrete, precise, and consistent set of indicators showing it meets the revised criterion. Importantly, once one valid ground suffices to support a listing, alleged flaws in other grounds do not warrant cancellation.
Fundamental Rights: Property and Enterprise
The Court acknowledged sanctions impact property and the freedom to conduct business but reiterated these rights are not absolute. The measures are grounded in law, aim at a recognized public interest, and preserve the core essence of the rights due to their temporary nature and the availability of periodic review and derogations. The Court found no breach of Article 16 (freedom to conduct a business) or Article 17 (right to property) of the EU Charter of Fundamental Rights. A claim regarding privacy (Article 7) was not substantiated and was rejected.
Practical Takeaways for Financial Crime and Sanctions Compliance
The following practical notes explain what financial crime and sanctions compliance teams should consider when assessing sector-based EU listings:
- Sector-based exposure matters: The EU can list businessmen engaged in sectors that significantly fund the Russian state, disrespect of individual “influence”. Firms with material stakes in major tax-contributing sectors (e.g., food retail, energy, metals, grain exports, pharmaceuticals) face increased risk.
- Ownership thresholds and practical control: A large minority stake, especially amid dispersed free float, can be enough to establish “activity” in the sector. Passive-investment arguments carry limited weight without evidence of renouncing shareholder rights.
- Indirect taxes count: The Court expressly recognized indirect taxes in high-volume consumer sectors as part of the “substantial source of income” calculation.
- Documentation must be robust: Public sources, corporate filings, rankings (e.g., Forbes lists), and consistent evidence sets will be used to demonstrate sectoral engagement and revenue significance.
- Legal certainty and predictability: Despite broadened criteria, the Court requires non-negligible sectoral activity and significant sectoral revenue contributions. This provides a workable compliance benchmark.
- Rights balancing remains consistent: Temporary, reversible freezes with periodic review and derogations continue to pass Charter scrutiny when tied to high-order public interests like peace and international security.
Conclusion
The General Court’s judgment reaffirms the EU’s authority to expand sanctions beyond “influential” figures to any businessman with non-negligible activity in sectors generating substantial public revenue in Russia. For financial crime and sanctions practitioners, the ruling underscores the importance of mapping sectoral exposure, ownership structures, and revenue significance — not just formal positions or influence — when assessing listing risks and compliance obligations.