New penalties for breaching financial sanctions now in force

Houses of Parliament

As of 3 April 2017, the UK Treasury’s Office of Financial Sanctions Implementation (OFSI) has the power to impose monetary penalties (up to £1 million or 50% of the breach, whichever is higher) for serious breaches of financial sanctions committed after 1 April 2017. The UK Government is strengthening its response to financial sanctions breaches and this is just one of many new initiatives hoping to achieve this. It is the OFSI’s intention to ensure compliance with UK financial sanctions, rather than wait to respond to a breach, by intervening to end breaches, tackling breaches effectively and try to change behaviour to prevent future non-compliance. Previously breach of sanctions in the UK only gave rise to the risk of criminal penalties, This lower burden of proof increases the risk of exposure to being penalized by OFSI for a suspected breach.

Furthermore, the breach does not have to occur within UK borders. OFSI’s guidance states that the UK’s financial sanctions regulations may be enforced against anyone in the UK; against companies and entities present in or dealing with other countries, against foreign nationals dealing with UK persons, companies or entities from their home country; and in situations where there is a connection to the UK. Such a UK nexus could be created by such things as a UK company working overseas, an international transaction clearing or transiting through the UK, action by a local subsidiary of a UK parent company, or financial products or insurance bought on UK markets but held or used overseas.

A penalty may be imposed on either a legal person (a company) or an individual. OFSI may also impose a penalty on a senior employee of the company if the breach took place with their consent or involvement, or was attributable to any neglect on the part of that employee. In determining how to treat a breach, OFSI will take into account both mitigating as well as aggravating factors. Details of the penalties will be published as an act of further deterrence. This could create significant adverse media coverage and attracting the interest of regulators, which could give rise to additional fines. It, therefore, remains more important than ever to conduct thorough due diligence and understand sanctions regimes.

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