The UK’s Office of Foreign Sanctions Implementation (OFSI) has introduced stricter economic sanctions enforcement measures for UK firms. The measures were set out in the Economic Crime (Transparency and Enforcement) Act 2022 which was fast-tracked to Parliament in March 2022 in response to Russia’s invasion of Ukraine.
The sanctions enforcement measures included in the Economic Crime Bill will bring the UK sanction regime into closer alignment with US sanctions programmes and will, according to OSFI Director Giles Thomson, ‘strengthen OFSI’s ability to take appropriate enforcement action against persons…that fail to ensure they are not dealing with sanctioned entities’.
With the new rules now in effect, it is crucial that UK financial institutions understand their sanctions compliance obligations.
OFSI Sanctions Enforcement Powers
The rules set out in the Economic Crime Act concern sanctions enforcement and monetary penalties for persons that breach sanctions regulations. As of 15 June, 2022, the following measures are in effect:
Strict liability: Breaches of UK sanctions regulations will be evaluated on a strict liability basis regardless of an individual’s intent or knowledge that they were in violation.
Proportionate penalties: OFSI has the power to impose monetary penalties for sanctions breaches ‘proportionately and effectively’ and where it is ‘in the public interest to do so’. The rules emphasise the importance of self-disclosure and attempts to prevent sanctions breaches as mitigating factors in any subsequent punishment.
Publication of breaches: OFSI has the power to make the details of sanctions breaches public where a monetary penalty has not been imposed.
Penalty reviews: Senior UK officials may now conduct reviews of monetary penalties for sanctions breaches, in addition to UK ministers.
The Changing Sanctions Landscape
The OFSI sanctions enforcement changes are designed to make the UK’s sanctions regime more impactful and responsive to global threats.
Prior to 15 June, OFSI was not able to prosecute sanctions breaches unless there was ‘reasonable cause to suspect’ that the person breaching the rules knew that they were doing so. This meant that many sanctions violations went unpunished as a result of a lack of supporting evidence – and allowed sanctions targets to continue to perpetrate illegal activity.
Similarly, where a sanctions breach previously did not result in a monetary penalty, OFSI was unable to release details of the persons responsible to the public. Under the new rules however, firms will still risk reputational damage for sanctions violations even if they are not punished financially.
Finally, by extending the power to review sanctions penalties to senior officials, OFSI intends to speed up the UK’s sanctions enforcement process and ensure that the measures remain a useful diplomatic deterrent.
The fast-tracking of the Economic Crime Act, and its relevant sanctions enforcement measures, reflects the UK’s attitude to ongoing Russian aggression in Ukraine, and the threat that poses to regional and global stability. The UK’s reputation as a financial destination for Russian oligarchs, including members of President Vladimir Putin’s elite inner circle, meant that a huge amount of Russian assets were held in UK banks and financial institutions when the invasion began. With that in mind, UK sanctions against Russia represent a significant part of the collective global response to the invasion, and the 2022 enforcement measures a way for OFSI to act more decisively against organisations and individuals that take action to prolong the hostilities.
UK Business Challenges
OFSI’s new sanctions rules, and in particular the introduction of strict liability, require UK businesses to review their sanctions screening solutions carefully. In the context of Russia’s war with Ukraine, and the global sanctions landscape, new designations are added and withdrawn from watchlists regularly, which means UK firms must ensure that their solutions are updated continuously to ensure they are not doing business with the UK’s Russian sanctions targets, or any targets on the UK government’s autonomous sanctions watchlist.
Given the urgent need for sanctions compliance, UK firms must implement a screening solution capable of collecting and analysing vast amounts of customer and transaction data, and of reacting to a constantly changing regulatory environment. In practice this means:
- Conducting suitable due diligence to establish customer identities and build accurate customer risk profiles.
- Screening customer transactions for suspicious activity.
- Screening customers against relevant sanctions lists and watch lists.
- Screening customers for involvement in adverse media stories from around the world.
With that purpose in mind, Ripjar’s Labyrinth platform incorporates cutting-edge screening technology, including multi-lingual name matching tools, automated data management, and real time updates from global sanctions watchlists, including the UK sanctions list, the US OFAC sanctions list, and the EU sanctions list.