The Financial Conduct Authority (FCA) has launched a new financial sanctions evasion reporting platform for regulated entities, in a bid to encourage compliance with the ever-increasing complexity of the UK sanctions framework. Since the beginning of the conflict in Ukraine, the UK has vastly scaled up its programme of both individual sanctions designations and sector-specific sanctions rules known as “sectoral sanctions”.
Over the last few months the FCA has sought to proactively monitor the standard of regulated entities’ financial sanctions controls, an area often neglected within companies’ compliance policies and procedures. The agency has contacted numerous firms directly in regard to their existing procedures and their mechanisms for avoiding breaches of the legislation.
This new reporting tool is distinct from other reporting regimes, in that it is voluntary and it aims to tackle not just breaches of sanctions, but weaknesses in companies’ internal sanctions policies and procedures.
The tool requests reporting of any sanctions evasion issues or weaknesses in sanctions controls where they relate to a regulated person, entity, activity or to a listed security. Reports can be submitted anonymously and will be kept confidential by the FCA.
Once the FCA receives a report through this voluntary platform, it will consider whether further action needs to be taken. However, the FCA has urged that, even if formal action is not taken against the individual or entity that has been reported, the report alone will help to build a picture of conduct risk and inform how the FCA develops policy, in addition to assisting the institution in working with partners to facilitate the UK enforcement of sanctions.
Whilst making use of this reporting tool is voluntary, it is important to bear in mind that a large number of firms are legally obliged to make reports of suspected financial sanctions breaches to the Office of Financial Sanctions Implementation (OFSI). Further, the OFSI reporting regime applies to a wider set of individuals and entities than those regulated by the FCA. For example, those who provide legal services, tax advice, trust advice and estate agents are also subject to this compulsory reporting obligation.
If a report to OFSI is needed, the company should also consider whether to make a Suspicious Activity Report (SAR) for money laundering under the Proceeds of Crime Act 2002 (POCA). An OFSI report does not discharge obligations under POCA and potential sanctions breaches and potential money laundering offences often go hand in hand, with the former inevitably inviting the possibility of the latter. Again, the SAR reporting regime is compulsory for entities in the regulated sector – a failure to report knowledge or suspicion represents a criminal offence.
The introduction of this new self-reporting tool fits into a broader pattern of co-ordinated attempts by the government and public bodies to clamp down on economic crime, with sanctions evasion at the forefront of this agenda. We reported on 4 May 2022 that the government are reinforcing their attempts to tackle economic crime through the introduction of new agencies. One of these new units, dubbed the “Combatting Kleptocracy Cell”, was created within the National Crime Agency in order to target sanctions evasion and money laundering. It also provides support for cross-government sanctions delivery and enforcement. Given the recent levels of activity in the area of economic crime policy, we expect to see more initiatives in this space from government and enforcement agencies in the weeks and months ahead.