The Treasury is reviewing its procedures after the Russian founder of a mercenary army was given permission to circumvent sanctions to attempt to silence a British journalist. The Treasury minister James Cartlidge said changes could be made after an outcry over the case, which the shadow foreign secretary, David Lammy, called an “unconscionable” decision to make it easier for Yevgeny Prigozhin to pursue an unfounded claim. Cartlidge said that even individuals under sanctions had a right to legal representation and licences could be granted for them to cover their own legal fees. “However, I can confirm that in the light of recent cases, and related to this question, the Treasury is now considering whether this approach is the right one and whether changes can be made without the Treasury assuming unacceptable legal risk, while ensuring that we adhere to the rule of law,” he told the Commons. The revelations, published by openDemocracy, concern a libel case brought by Prigozhin, a key ally of Vladimir Putin, against Eliot Higgins, the founder of the investigative group Bellingcat. The documents and leaked emails show how Prigozhin’s lawyers were given permission by the Office of Financial Sanctions Implementation (OFSI), a department inside the Treasury, to represent him despite the fact he was under sanctions. For years, Prigozhin denied all links to the Wagner group of mercenaries, and he brought a case against Higgins, but last year admitted he founded Wagner in 2014. Discreet Law, a London firm led by Roger Gherson, received government approval to engage with Prigozhin, openDemocracy reported. McFadden said Jeremy Hunt, the chancellor, should explain how this was allowed to happen. No 10 has said all the decisions were made by officials without ministerial involvement. During an urgent question on the disclosures, Lammy accused Cartlidge of “evasiveness”, and added: “The government appears to have granted a waiver for a warlord that enabled him to launch a legal attack on a British journalist. If the now prime minister’s Treasury had any hand in alleviating pressure on Prigozhin, I’m sure every member across this house would agree that this would be absolutely unconscionable.” In a letter to Hunt, seen by the Guardian, the shadow chief secretary to the Treasury, Pat McFadden, said No 11 had to say why it had granted the permission and whether similar allowances had been made for other oligarchs who were subject to sanctions to use libel lawsuits. McFadden said: “It is completely unacceptable that one of Putin’s allies was able to use the Treasury to attempt to subvert sanctions and silence a critical journalist. The chancellor must immediately explain how this was allowed to happen, and what steps he will take in the future to ensure that wealthy oligarchs are unable to use the Treasury or any government department as a weapon in this way.” In a statement, No 10 said there was a process whereby an individual under sanctions could apply for a licence to pay for legal costs by drawing on their assets. “Clearly, having a fully functioning legal system enabling people to defend themselves is part of a function of democracy, and therefore there is, in limited circumstances, the possibility for the OFSI to grant access to funds to use the legal system in the way it was designed,” the spokesperson said. In his letter, McFadden said Wagner was “pursuing a murderous campaign against the people of Ukraine” and said Prigozhin’s aim was to silence Higgins and Bellingcat. He wrote: “The critical question is how could the Treasury have facilitated a legal action by the founder of the Kremlin associated Wagner group against a British journalist and do so while that person was a sanctioned individual? “What questions have you asked of the OFSI since this story came to light? What actions has the Treasury taken to ensure it is not used as a weapon in SLAPP [strategic lawsuits against public participation] actions by wealthy oligarchs facilitated by legal firms here in the UK? “Are there any other instances of the OFSI granting such permissions for oligarchs or other Kremlin-associated individuals seeking to silence British journalists? What actions will the Treasury take to ensure this does not happen again?” Lawyers from Discreet stopped representing Prigozhin in March 2022, a month after Russia launched a full-scale invasion of Ukraine. Higgins has said he was left with estimated costs of £70,000.