A First-tier Tribunal (FTT) has issued a definitive warning to wealthy philanthropists that retaining ultimate constitutional control over a charity carries significant personal risk, particularly where personal regulatory status threatens to paralyse its mission.

Background:

The appellant, Vladimir Potanin, is a prominent Russian businessman and former Deputy Prime Minister who established the Potanin Foundation in 2005. As the “founder” and sole member, he held significant constitutional powers, including the absolute right to appoint and remove trustees and amend the charity’s governing documents. Over the period of its existence, Mr. Potanin was the charity’s sole benefactor, donating approximately US $100m to fund philanthropic initiatives focused on education and culture.

The legal crisis began following the Russian invasion of Ukraine in February 2022. Although the charity was managed on a day-to-day basis by independent trustees, Mr. Potanin’s overwhelming constitutional control meant that, when he was designated as a sanctioned person by the UK government in June 2022, the charity was legally deemed to be substantially “owned or controlled” by him. This triggered an automatic asset freeze under the Russia (Sanctions) (EU Exit) Regulations 2019, or ‘Russia Regulations’, which prohibited the charity from managing its investments, making grants, or paying for professional services without a government licence.

Even before the UK sanctions were formally imposed, the charity’s professional advisers, including lawyers and auditors, began resigning due to the escalating regulatory risks associated with Mr. Potanin’s profile. Despite these clear signs of operational paralysis, Mr. Potanin did not resign from his position as Founder. The Charity Commission eventually intervened by opening a statutory inquiry, appointing an interim manager to take control of the assets, and ultimately issuing an order to remove Mr. Potanin from his office as Founder.

Decision:

A FTT dismissed an appeal by Mr. Potanin against the Charity Commission’s decision to remove him as an officer and a member of the Foundation. The Court ultimately found that his role as Founder carried enough power to be considered an office and that his inaction—which allowed the charity to become legally and operationally paralysed—amounted to a breach of his fiduciary duty of loyalty. Consequently, the FTT upheld his removal as a necessary and proportionate measure to protect the charity’s property and reputation.

The FTT ruled that the term “officer” under the Charities Act 2011 must be interpreted broadly to fulfil the Act’s protective purpose. It rejected the argument that an officer must hold a traditional title (such as Director or Secretary), or any other role as defined by the Companies Acts.

Implications:

The ruling is a landmark decision, one that significantly expands the Charity Commission’s reach over non-traditional power brokers and reinforces the “fiduciary” nature of high-net-worth philanthropy. The case serves as a sharp reminder that a charity is not a personal asset, and the “founder” title carries with it a heavy legal onus.

The most significant precedent set here is the functional definition of an “officer”. The FTT looked past such formal labels as “director” and “trustee” to see who actually held the corporate levers. This allows the Commission to remove a Founder, even if they are not involved in day-to-day operations. Once removed, a person is automatically disqualified from serving in a senior capacity at any other UK charity, thereby creating a severe reputational “black mark”.

The FTT has effectively established that “mismanagement” does not require fraud or theft, as it can also be triggered by inaction or recalcitrance in the face of foreseeable risk.