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New strict liability offence for financial sanctions comes into force today, amongst others

Following the Economic Crime (Transparency and Enforcement) Act 2022’s expedited passage through Parliament in March 2022, the Office of Financial Sanctions Implementation (“OFSI”) is increasing its sanctions enforcement powers in several significant ways. 

The new powers seek to bring OFSI closer in line with its US counterpart, the Office of Foreign Assets Control (“OFAC”) and will allow it to respond more robustly to any breaches of financial sanctions.

OFSI has released updated guidance to accompany the changes effective from 15 June 2022, the key points of which are set out below.

Starting today, OFSI will have the following additional powers.

  • The ability to impose civil monetary penalties on a strict civil liability basis, which removes the previous requirement of proving that the individual or entity had knowledge or reasonable cause to suspect they were in breach of financial sanctions – sometimes referred to as the “knowledge or suspicion” element, which is required for most corporate crime offences in the UK. In theory, this hugely expands the potential for sanctions breaches in the UK, as inadvertent breaches could now incur monetary penalties.

    However, the updated guidance clarifies the scope of the offence significantly. It makes clear that one of the aggravating factors which OFSI will take into account when deciding whether to set a monetary penalty is “whether the person [meaning individual or entity] committing the breach knew or suspected that their conduct amounted to a breach of financial sanctions.” Via a circuitous route therefore, OFSI has brought back the “knowledge or suspicion” element but as a non-binding factor in their internal guidance, rather than as a necessary element for the offence to be satisfied.

  • The publication of details of financial sanctions breaches where a monetary penalty has not been imposed by OFSI – popularly referred to as the “naming and shaming” provision which OFSI has stated is required to give the public a better idea of how OFSI approaches and implements financial sanctions legislation. The updated guidance notes that the agency will look to do this on a case-by-case basis and only when it considers that the breach in question contains “valuable compliance lessons for industry”.

  • More flexibility in the review process for monetary penalties. Reviews can now be undertaken by someone other than a minister, which HM Treasury has argued allows for better management of resources through the utilisation of other senior officials. The ability to further challenge OFSI’s monetary penalties in the Upper Tribunal remains unaffected.

None of these additional measures will apply retrospectively. That means that only breaches from 15 June 2022 onwards will fall within the scope of the new strict liability offence.

The new offence will increase the onus on companies to have substantive policies and procedures in place, particularly in regard to due diligence on clients, customers and counterparties, so as to avoid inadvertent breaches and particularly those caused by ineffective compliance controls. The UK’s financial sanctions framework continues to develop and harden, and we expect it to get yet tougher for businesses in the months and years ahead.

“Broadly, the more aggravating factors we see, the more likely we are to impose a monetary penalty. The more serious the breach, and the worse the conduct of the individuals, the higher any monetary penalty is likely to be.”

Tags

sanctions, ofsi, ofac, hmrc, corporate crime, white collar crime, enforcement, litigation

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