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New powers for the Office of Financial Sanctions Implementation to impose monetary penalties

Posted on 17 June 2022

On 22 March 2022, significant and wide-ranging amendments were made to the UK sanctions regime that removed the requirement for periodic reviews of designations and created a new "urgent procedure" for designations. Furthermore, from 15 June 2022 additional changes to the Office of Financial Sanctions Implementation (OFSI) enforcement powers came into force. These amendments will make important changes to the UK sanctions regime and lower the bar for OFSI to impose monetary penalties for breaches of financial sanctions.

The principal changes that came into force on 15 June are that:

  1. OFSI will be able to impose monetary penalties on offenders without having to show that the offender "knew" or had "reasonable cause to suspect" that their conduct breached a financial sanction;
  2. If there is a breach, the monetary penalties imposed can be the greater of either £1m or, where the breach related to particular funds, 50% of their estimated value;
  3. OFSI has been given power to publicly "name and shame" a company or individual that OFSI believes, on the balance of probabilities, has breached a financial sanction prohibition; and
  4. Reviews of monetary penalties requested after 15 June do not have to be personally undertaken by a minister – a senior official may also undertake the review.

It is clear the intended impact of these changes is to create more hostile compliance environment in which the risks of sanctions violations simply cannot be ignored. However, OFSI has made it clear that it will not exercise its power to impose a monetary sanction for civil breaches in every instance. It remains committed to being "fair and proportionate" when considering which action it will take in the face of a suspected breach. The guidance that OFSI has published in anticipation of its new powers sets out multiple factors OFSI claim it will take into account, including whether the breach was self-reported, the value involved and whether the breach was deliberate or a mistake. Also, OFSI will still have to establish that a breach of financial sanctions has taken place, but as Giles Thomson (the director of OFSI) has stated, the changes will strengthen OFSI’s ability to take appropriate enforcement action against those who fail to comply with their sanctions obligations.

Despite OFSI's forceful rhetoric, in reality it is unlikely that we are going to see any significant monetary penalties imposed or any criminal action taken by OFSI, at least in the short term. OFSI was established on 31 March 2016 and to date there have been no criminal prosecutions and only six monetary penalties imposed by the authority that have been made public. The majority of those monetary penalties have been for relatively modest sums. With this low enforcement rate, it is unsurprising that the Treasury now wants to publish reports of instances where OSFI has identified a breach but decided not to impose a monetary penalty, as stated in the guidance. The ability to report more categories of enforcement action is clearly designed to dispel the impression that OFSI is a paper tiger failing to take any meaningful action against sanctions breaches. Whether these reforms have the desired effect remains to be seen.

Nevertheless, what is clear from OFSI's new enforcement powers is that it is more important than ever to seek specialist advice in relation to you and your company's sanctions exposure. Individuals and companies that put their heads in the sand in respect of sanctions issues may take on material and in some cases existential risk, not least because of the reputational damage that may be caused by an unintentional breach of sanctions regulations and OFSI's new powers to "name and shame" offenders. If there is a suspected breach of sanctions, it is vital that sensible advice is sought as soon as possible to minimise risk, report where appropriate, improve systems and manage your exposure.

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