The UK government brought forward its Economic Crime (Transparency and Enforcement) Act 2022 following the unprovoked invasion of Ukraine by Russia. The Act will include important changes to OFSI’s powers so that the organization can respond swiftly and robustly to breaches of financial sanctions. The measures will commence on 15 June 2022.
What Does the Act Involve?
Breaches of financial sanctions committed after 15 June 2022 will be met with civil monetary penalties on a strict civil liability basis. Crucially, this means that the previous requirement for OFSI to prove that someone had knowledge or reasonable cause to suspect they were in breach of sanctions will no longer be in effect. OFSI will still bear the burden of proof to establish that there was a breach of financial sanctions’ prohibitions. This will also bring UK financial sanctions legislation in line with the legal test used for the import/export of arms, which was the model used by the United States to design their financial sanctions.
The criminal legal test or threshold for financial sanctions remains unchanged.
OFSI will be empowered by the Act to take appropriate enforcement action against both natural and legal persons that do not take care to ensure they are not dealing with sanctioned entities or that fail to adhere to their financial sanctions obligations. OFSI will not necessarily impose monetary penalties every time there is a breach, but they will do so if it’s in the public interest or whenever it is appropriate.
OFSI states in their official guidance that a potential breach may be met with a warning, a referral to the relevant professional body or regulator to improve compliance, and the publication of information related to the breach if it is deemed in the public interest. They may also refer the case to law enforcement. Self-disclosure is a mitigating factor, but all cases are evaluated on a case-by-case basis.
While the monetary penalty guidance was updated, there isn’t a change in OFSI’s overall enforcement approach. OFSI will consider the severity of each breach, taking into consideration whether or not the breach was conducted deliberately and whether or not the person who is in breach had the expected knowledge of the person and their exposure to financial sanctions risk.
It should be noted that OFSI does not prescribe what due diligence should be undertaken to prevent breaching sanctions, but firms are still obligated to make every appropriate effort to prevent such breaches.
As mentioned, OFSI’s new powers include the ability to publicize details of financial sanctions breaches, even if monetary penalties were not imposed. This may include a summary of the case and the persons who committed the breach. While this was designed to raise awareness of financial sanctions and to deter future non-compliance, firms will likely want to take every action possible to avoid the reputational risk that will no doubt result from publication. (OFSI will notify persons prior to publication so that they may make representations).
The Review Process For Monetary Penalties
Some changes have been made to the review process for monetary penalties. Reviews that were requested after 15 June 2022 may be undertaken by someone other than a minister, which will ease the resourcing implications of reviews. However, OFSI was quick to emphasize that this change does not weaken OFSI’s monetary penalties at the Upper Tribunal.
OFSI has said that the importance of financial sanctions has been clearly demonstrated by the UK government’s response to the Ukrainian conflict and indicated that they would continue to “robustly but fairly and proportionately use the enforcement tools available” to enforce financial sanctions in the United Kingdom.
Guidance For Financial Firms
OFSI provides the following guidelines for financial firms and individuals:
- Companies should always refer to up-to-date sanctions lists and sanctions regulations to understand what is prohibited as these regulations may be broadly interpreted;
- Asset freezes purohit companies and individuals to deal with the funds or economic resources that belong to or are owned, held or controlled by a designated person;
- Financial sanctions contain reporting obligations that apply to relevant firms and should be studied carefully, e.g. firms are required to inform HM treasury if they have dealings with a designated person or hold frozen assets;
- Failing to comply with reporting obligations is an offense;
- Whenever OFSI has licensed activity, the license may be subject to reporting requirements. It is an offence not to abide by them or the conditions required by the license.
- OFSI has the power to request information under sanctions regulations, including the power to request information to establish the extent of funds owned, held or controlled by or on behalf of a designated person. It is an offense not to comply with an OFSI request for information.
Remaining compliant can be challenging for most firms that may not have the tools or resources at their disposal to keep abreast of changes in financial sanctions. Fortunately, automated sanctions screening solutions can be used to automate, simplify and speed up the entire sanctions screening process with greater accuracy. If you would like to know more, get in touch with us – we are happy to help.