Financial sanctions enforcement in the UK: upping the ante
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In the past week, the UK Government has made a series of announcements in relation to the enforcement of financial sanctions in the UK.
The measures announced represent a significant enhancement of the UK Government’s ability to penalise violations of financial sanctions in the UK. Taken together with the additional resources that the UK Government has committed to the Office of Financial Sanctions Implementation (OFSI), the UK’s financial sanctions regulator, these changes could mark a substantial shift in the financial sanctions enforcement landscape in the UK.
By way of background, following calls to make it easier to identify and trace illicit wealth in response to Russia's invasion of Ukraine, the Economic Crime (Transparency and Enforcement) Act 2022 was enacted on 15 March 2022 (the 2022 Act).
The 2022 Act:
- lowers the liability threshold for imposition of a civil monetary penalty for breaching financial sanctions;
- expands the range of circumstances in which an Unexplained Wealth Order can be issued. These provisions came into force on 15 May 2022; and
- establishes a registry of beneficial owners of foreign entities which own property in the UK. It is unclear when these provisions will be brought into force.
On 8 June 2022, it was announced that the provisions in the 2022 Act, which deal with the lowering of the liability threshold for the imposition of a civil monetary penalty for breaching financial sanctions, will come into force on 15 June 2022. In advance of those provisions coming into force, OFSI prospectively published updated guidance which considers its new powers and revised approach to enforcement.
The impact of these changes is that OFSI’s enforcement powers now include the ability to:
- impose civil monetary penalties on a strict civil liability basis, in a similar fashion to Office of Foreign Assets Control (OFAC), rather than having to prove that a person had knowledge or a reasonable cause to suspect that they were in breach of financial sanctions. Not every violation will result in a monetary penalty and the extent of efforts to prevent such violations will be taken into account when deciding whether or not to enforce; and
- publish details of financial sanctions breaches committed after 15 June 2022 where OFSI has not imposed a monetary penalty, including a summary of the case and the identities of the persons that committed the breach. This is intended to help raise awareness of financial sanctions, OFSI’s approach to them and their implementation, and to deter future non-compliance.
On 9 June 2022, the UK House of Commons Treasury Committee published the Government Response to its Twelfth Report of Session 2021 – 2022. The report focused on the implementation and impact of sanctions on Russia, and the Government’s response includes commitments to:
- increase OFSI’s resources, with its staff numbers expected to double during the course of the Financial Year 22/23; and
- explore further measures to prevent circumvention of UK sanctions via crypto-assets.
These changes at the UK-level come at a time when the EU is also shifting its focus to sanctions enforcement (see our article here).
Implications for companies doing business in the UK
In light of the above, companies doing business in the UK will need to re-double their efforts to ensure that they do not breach the UK’s financial sanctions regulations. Consideration should be given to:
- reviewing and enhancing sanctions compliance-related policies and procedures;
- reviewing and enhancing sanctions-related contractual terms in standard form contracts;
- undertaking pre-contractual and ongoing due diligence on customers, contractual counterparties, agents and distributors;
- ensuring that dividends are not paid to UK asset freeze targets; and
- providing enhanced sanctions-related training for employees involved in on-boarding and management of customers, contractual counterparties, agents and distributors.