Wine and spirits competition organiser in breach of UK financial sanctions
27 October 2022
The fine relates to three competition entry payments and 78 bottles of wine that Hong Kong International Wine and Spirits Competition Ltd (company), a UK registered company, received from Massandra, a Crimean winery, between September 2017 and August 2020. The company also provided publicity to the winery. Massandra is a ‘designated entity’ under UK financial sanctions imposed in 2014 as a result of Russia's annexation of Crimea.
A third party report
OFSI received a report from a third party, in December 2020, about a payment received by the company from Massandra. Whilst the OFSI notice does not specify who made this disclosure, it is most likely to be its bank. Banks have reporting obligations relating to suspected breaches of financial sanctions by a third party, including a customer.
Following information requests sent by OFSI to the company, the breaches were identified. The acceptance by the company of wine and entry fees from Massandra was regarded as dealing with the funds and economic resources of a designated entity. The provision of publicity to Massandra was regarded as making economic resources available to it.
Publicity as an intangible economic resource
OFSI considered the publicity to be an intangible economic resource because, it said, Massandra could use it to increase its sales. The type of publicity is not specified in the OFSI penalty notice.
The penalty amount
OFSI estimated a cumulative value relating to the wine and payments received by the company to be GBP 3919.62. The penalty notice does not specify a separate amount for the value of the publicity so it is difficult to know how that might have impacted the overall penalty amount.
The penalty of GBP30000 represents an approximate 750% uplift on the cumulative value of the tangible economic resources.
The penalty notice states that the company fully cooperated during the investigation, but it had not initially self-reported so no voluntary disclosure discount was applied to the penalty amount. If it had self-reported, it would most likely have obtained a discounted penalty. Full voluntary disclosure and cooperation can qualify a company for up to a 50% discount.
On appeal, OFSI’s penalty was upheld.
Wine, telephone calls, publicity, IP rights
Financial sanctions catch more than just money. Economic resources are interpreted very broadly. Here it included wine and publicity. In a previous case it has included facilitating international telephone calls to a designated entity. The penalty notice emphasises the restriction on intangible economic resources, specifically mentioning IP rights as another category. This might include, for example, the licencing of software or other IP rights to a designated entity.
OFSI gearing up for increased enforcement?
There is a political imperative for OFSI to be seen to be enforcing the newer sanctions against Russia. In June, a reduced legal threshold came into effect, making it easier for OFSI to impose a penalty for a sanctions breach. Instead of having to show that the individual or company knew or had reasonable cause to suspect that their conduct breached a sanction, now it is strict liability.
OFSI announced on 17 October a new enhanced partnership with its U.S. counterpart (and by far the most active enforcer of financial sanctions), OFAC, and increased staffing levels.
It will be interesting to see whether these measures result in increased enforcement activity.
Companies should identify if any companies or individuals that they work with appear on the consolidated sanctions list.
Navigating laws driven by national security and geopolitics was one of the ten key challenges for in-house counsel this year identified in the 2022 Allen & Overy Cross-border White Collar Crime and Investigations Review.
If you require sanctions enforcement advice please contact your normal Allen & Overy contact or one of our sanctions investigations specialists.
With thanks to Kierra D’Sanchez, Solicitor Apprentice, for assistance with this post.