Freezing of assets held in Bermudian trusts backed by top EU court
Assets held by Bermudian-based trusts can be frozen in cases where people subject to European Union sanctions effectively control the trusts, the EU Court of Justice has ruled.
The question came into focus in three recent cases concerning the freezing of funds and economic resources linked indirectly, through trust structures, to people sanctioned under restrictive measures taken by the EU in response to Russia’s military aggression against Ukraine.
The judgment clarifies the concepts of “belonging to” and “control” under the sanctions.
The court ruled that sanctions allow the freezing of funds and economic resources held through trust structures where sanctioned persons can exercise power, benefit, influence or de facto control over the assets.
In Case C-483/23 T Trust, the focus was on four companies controlled by a Bermudian company, which is itself held by a trust governed by the legislation of Bermuda, the trustee of which is a Swiss company.
The settlor of the trust was removed from the list of beneficiaries before being subject to sanctions in 2022. The Italian authorities nevertheless imposed a freezing measure on the companies and their assets, finding them to be substantially attributable to the settlor.
In joined cases C-428/24 and C-476/24, the first situation is that of the Italian company FZ AR, a member of an international group and held indirectly by a trust established in Bermuda. The original beneficial owner was subsequently replaced by his spouse, sanctions having been imposed on both in 2022.
In the second case, the court said, the yacht Sailing, which is in Italy, belongs to the company SX, itself controlled by a trust of which TU is the sole beneficiary.
Sailing Yacht A, a 469ft vessel widely described as the largest private sailing yacht in the world, was built for Russian billionaire Andrey Melnichenko.
Since March 2022, Sailing Yacht A has been under administrative seizure in Trieste, Italy, following EU sanctions imposed on Mr Melnichenko.
Even though the terms of the trusts bar any transfer to persons subject to sanctions and any form of control by such persons, the Italian authorities imposed freezing measures on the company FZ AR and on the yacht, finding that in practice they remained attributable to the trust beneficiary.
The European Court of Justice stated in a press release: “The companies concerned challenged those decisions before an Italian administrative court, claiming that the persons subject to sanctions had no power to dispose of the assets subject to freezing or any control over their management.
“The Italian court referred questions to the Court of Justice in order to determine whether, in relation to EU restrictive measures, the concepts of ‘belonging to’ and of ‘control’ in respect of funds and economic resources can be extended to include the settlor or the beneficiaries of a trust, even where the trustees are not able to dispose of the assets in question.”
The court added that to ensure the effectiveness of EU law, the concepts of “belonging to” and of “control” should encompass all forms of power or influence exercised over those assets, even in the absence of any legal link to the person concerned.
“This means that assets can be regarded as belonging to or being under the control of the settlor or the beneficiary of a trust, where those persons have power to use, benefit from or dispose of those resources or to have influence over them and over the decisions made by the trustee in relation to them,” the court stated.
The court added that indications of whom assets belong to or are controlled by “may be inferred from factual circumstances or from the presence of needlessly complex legal structures”.
• Read the full EU Court of Justice press release in Related Media
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