EuroChem v Societe Generale & Ors: a sanctions-driven barrier to payment enforcement

Posted: 27/10/2025

Background

In a significant Commercial Court decision, LLC EuroChem North-West-2 and Eurochem Group AG brought proceedings against Societe Generale and ING Bank, seeking payment under six on-demand bonds issued in 2021–2022. These bonds, governed by English law, were intended to secure EuroChem’s obligations under construction contracts with Tecnimont SpA and its Russian affiliate for a fertiliser plant in Kingisepp, Russia. Following Russia’s invasion of Ukraine, both Mr Andrey Melnichenko (founder of EuroChem Group) and his wife Aleksandra were designated under EU sanctions. The banks declined to honour the bonds, citing concerns that payment would breach EU sanctions due to the alleged control of EuroChem by sanctioned individuals.

Key issues and findings

The court was asked to determine whether the bonds were enforceable under English law, given that their place of performance was within the EU (Italy and France), where sanctions applied. The judgment concluded:

1. EU sanctions rendered payment illegal: the court held that payment under the bonds was prohibited under EU sanctions, as EuroChem was deemed to be controlled by Mr Melnichenko. This made the bonds unenforceable in their place of performance.
2. Public policy considerations: even if not directly prohibited, enforcement would contravene public policy under English law, given the illegality of the underlying transaction in the EU.
3. Ownership and control analysis: the court undertook a detailed review of the concept of 'control' under sanctions law, including indirect ownership and trust arrangements, emphasising that sanctions regimes must be interpreted to achieve their intended effect. It found that EuroChem was effectively controlled by Mr Melnichenko, despite formal ownership changes.

Sanctions landscape: EuroChem’s position under UK, US, and EU regimes 

United Kingdom (OFSI)
OFSI’s notice dated 11 October 2024 describes Mr Melnichenko as an 'involved person' under the Russia (Sanctions) (EU Exit) Regulations 2019. It states that he 'previously owned or controlled' EuroChem and benefited from its operations. This language suggests that OFSI does not currently consider EuroChem to be controlled by a designated person. This is an important distinction as, although UK sanctions are in full force against Melinchenko, EuroChem itself is not listed on the UK sanctions list.

United States (OFAC)
OFAC’s FAQ 1074, dated 2 August 2022, explicitly states: 'EuroChem Group AG is not owned 50% or more by blocked persons or otherwise considered the blocked property of Andrey Igorevich Melnichenko.' The FAQ also refers to General License 6B, which authorizes certain transactions, including those relating to agricultural commodities (such as fertiliser), that would otherwise be prohibited under US sanctions. The position is clear: EuroChem is not considered blocked under US sanctions. However, this FAQ has not been updated since 2022, and OFAC has issued no further guidance on EuroChem.

European Union
The EU’s position is the most restrictive. In Annex I of Regulation 269/2014, the EU states that Mr Melnichenko 'continues to control major fertiliser producer EuroChem Group… and continues to benefit from the wealth he transferred to his wife.' This language was updated in September 2023. Despite the absence of a direct listing of EuroChem, the implication is clear: the EU considers EuroChem to be controlled by a sanctioned individual, making dealings with the entity potentially prohibited under EU law.

Reconciling the divergence

The divergence between the three regimes creates a challenging compliance environment. UK and US appear to permit dealings with EuroChem, based on current guidance. EU, however, effectively prohibits such dealings, based on its interpretation of control. This discrepancy is particularly problematic for cross-border transactions involving EU-based banks or operations.

Ownership structure and screening observations

Internal screening identified EuroChem Group AG as indirectly owning a majority stake in the relevant entities. While EuroChem claims not to be controlled by sanctioned individuals, the EU’s position contradicts this. Key shareholders include:

• EuroChem Comercio de Produtos Quimicos Ltda – 28.49%;
• OCP International Coöperatieve UA – 10% (ownership structure unclear); and
• PCS Sales Canada Inc – 9.5%, owned by Potash Corporation of Saskatchewan Inc (no direct concerns).

The judgment

The judgment in EuroChem v Societe Generale & Ors [2025] EWHC 1938 (Comm) is a landmark decision in the context of sanctions enforcement under English law. The Commercial Court held that the six on-demand bonds issued in favour of EuroChem North-West-2 were unenforceable, despite being governed by English law, because their places of performance, Italy and France, were subject to EU sanctions. The court accepted that EuroChem was effectively controlled by Mr Andrey Melnichenko, a designated individual under EU sanctions, and that payment under the bonds would be prohibited.

The court’s reasoning extended beyond the technicalities of governing law. It found that enforcement of the bonds would contravene English public policy, given the illegality of the transaction in the place of performance. This reflects a significant judicial willingness to incorporate foreign sanctions regimes into the enforceability analysis under English law. The court also provided a detailed interpretation of 'control' under sanctions law, including indirect ownership and trust arrangements, concluding that Mr Melnichenko retained effective control over EuroChem despite formal ownership changes.

This judicial interpretation stands in contrast to the UK’s regulatory position. OFSI’s notice dated 11 October 2024 refers to Mr Melnichenko as having 'previously owned or controlled' EuroChem, suggesting that he no longer exercises control. EuroChem itself is not listed on the UK sanctions list. OFSI’s language implies a more cautious and formalistic approach, focusing on current legal ownership rather than broader notions of control and benefit.

As of the latest updates from OFSI, there has been no formal change in the UK’s regulatory stance on EuroChem since the October 2024 circular. This can lead to some confusion.  The UK continues to treat EuroChem as a non-designated entity, and dealings with it are not expressly prohibited under UK sanctions law. However, the court’s judgment introduces a precedent that may influence future enforcement and risk assessments, particularly where transactions involve performance in jurisdictions subject to stricter sanctions regimes like the EU.

The judgment underscores the need to assess not only the governing law of a contract but also its place of performance and the broader sanctions landscape. It also signals that English courts may adopt a purposive approach to sanctions enforcement, aligning more closely with EU interpretations in certain contexts.

In conclusion, while the UK’s regulatory position on EuroChem has not formally changed, the EuroChem judgment represents a judicial shift that introduces greater uncertainty for counterparties. Legal and compliance teams should exercise heightened caution and consider both regulatory guidance and judicial interpretation when engaging with entities potentially linked to sanctioned individuals. This includes reassessing risk exposure in contracts involving cross-border performance and reviewing internal sanctions screening protocols to reflect evolving judicial attitudes.

This article was co-written by Cameron Marshall, trainee solicitor in the marine, trade and energy team.

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