A new approach to enforcement of UK sanctions?
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On 31 March 2016 the UK Office of Financial Sanctions Implementation (OFSI), part of HM Treasury (HMT), opened. As noted in our publication on 17 May 2016, this may herald more aggressive enforcement against breaches of the financial sanctions regime in the UK. OFSI has been created to administer and enforce UK sanctions and has a number of powers to do so, which may soon include the ability to impose civil monetary penalties where a breach of sanctions is committed and also to enter into deferred prosecution agreements (DPAs) with companies. Following the “leave” vote in the EU Referendum on 23 June, we may see OFSI hesitating in exercising its increased powers, if HMT wants to encourage businesses to keep investing in the UK.
Powers and penalties
OFSI is responsible for both the implementation of EU / UN financial sanctions in the UK, and the administration of those financial sanctions once implemented. These functions were previously handled by HMT. Trade sanctions and embargoes will still be implemented by the Department for Business Innovations and Skills. To this end, OFSI has been granted significant powers and responsibilities, and these will likely increase if the Policing and Crime Bill (PCB) presented to Parliament is passed in its current form.
The PCB introduces:
- increased criminal penalties for sanction offences – up to a maximum of seven years in jail on indictment and six months in jail on summary conviction (OFSI works with the relevant agencies for enforcement of criminal penalties);
- new civil monetary penalties that may be imposed by OFSI – up to the greater of £1m or 50% of the value of the assets subject to sanction; and
- an ability for OFSI to make DPAs with companies that it considers have breached UK sanctions, which will suspend proceedings subject to certain conditions being met.
Similar to enforcement action taken by the Office of Foreign Assets Control (OFAC) in the U.S., enforcement action will be brought by OFSI. By bulking up the OFSI’s powers, the government is sending a message to companies that it is willing to take criminal and civil action for serious cases of breach of the UK sanctions regimes.
A lighter touch
OFSI, however, does not intend to become the new OFAC (whose extraterritorial reach has been subject of some controversy). Rena Laglie, head of OFSI, has indicated that despite the broad range of current and potential powers granted to it, OFSI’s main objective will not be to impose penalties, but to engage with a dialogue with the private sector on how it should administer the UK sanctions regime.
One of OFSI’s first actions was to issue comprehensive guidance to the UK sanctions framework and the approach OFSI will take in relation to UK sanctions, including practical examples on its approach to licencing and compliance questions. This guidance note is valuable for companies and legal practitioners alike and represents an improvement to earlier guidance. OFSI also maintains an up-to-date consolidated list of sanctions targets and offers an e-mail alert system for updates.
Co-ordination, clarity and compliance
All of this shows that OFSI is taking its new role seriously and should go some way to providing a clearer and more co-ordinated approach to administration of the UK sanctions regime. OFSI’s position may be somewhat complicated by the “leave” vote on 23 June, as aggressive enforcement may further damage the UK’s position with financial institutions and corporates; however, the long term effects remain to be seen. While the powers set out in the PCB are yet to be introduced, they signal a new stage of enforcement of UK sanctions and companies should take as much care as ever to ensure compliance with the UK sanctions regime.