The maritime shipping industry is crucial for global trade and growth, linking countries and economies worldwide. However, because of its global reach, it faces unique challenges with financial sanctions. To help businesses navigate these complexities and ensure compliance, OFSI has released updated guidance tailored for the maritime sector.
What's in the refreshed guidance?
The refreshed guidance covers new tactics used by illicit actors to evade UK financial sanctions. By understanding these tactics, businesses can adjust their compliance measures to stay ahead of potential risks. It also offers support for dealing with high-risk jurisdictions and provides links to relevant UK regulations.
Additionally, the guidance offers recommendations for implementing additional due diligence practices, which are essential for building robust compliance programs and minimising risks.
Who should read it?
Given the extensive reach of UK financial sanctions and their impact on maritime operations, it's essential for all entities in the maritime sector with any ties to the UK and relevant UK nationals to carefully review the updated guidance. Whether operating within UK territories or dealing with UK-affiliated entities, understanding these regulations is crucial for compliance and risk mitigation.
The guidance also extends support to insurers involved in the maritime shipping sector. By offering tailored advice on industry-specific prohibitions, it aims to empower insurers to navigate regulatory challenges more effectively.
How does this it fit with the Oil Price Cap guidance on Russian oil?
This refreshed maritime guidance does not impact guidance on the maritime services ban and oil price cap, which you can find here. The guidance sits side-by-side, and you should review both pieces of guidance, as well as any other guidance applicable to your specific situation. OFSI also encourages those affected by UK sanctions to seek independent legal advice.
What else is to come?
Today’s launch of the refreshed maritime guidance marks the start of a series of guidance and engagement to support those in the maritime sector including new webinars.
You can signup for the OFSI & The Maritime Sector webinar on the 14th or 21st March on gov.uk. The webinar will be available to watch on demand afterwards.
OFSI’s Maritime Shipping guidance is now available from GOV.UK
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This blog provides further information on how the Office of Financial Sanctions Implementation (OFSI) makes licensing decisions. We outline both the process involved in obtaining a licence, from submitting an application to (if the licence is granted) receiving a final licence, as well as providing an update regarding the new Designated Individuals Licensing Principles which OFSI will apply in its decision-making relating to designated individuals.
OFSI licensing process
Getting a licence from OFSI follows a step-by-step process. Each step is crucial to thoroughly evaluate applications. This structured process does not just check the urgency and validity of applications but also seeks to ensure that the correct licensing decisions are made.
Stage 1 - Initial assessment of application
When you submit a new licence application, or an application for amendment to an existing licence, it will be triaged by OFSI’s licensing team. Applications will be prioritised where there is a genuine and evidenced need, such as for humanitarian purposes or where there may be a risk to life.
OFSI’s licensing team reviews each application to ensure it contains the essential information required. If the application is incomplete, then it will be returned to you with an explanation of the further information required. OFSI's blog on returning incomplete applications explains how we manage incomplete applications.
If it appears from the initial assessment that all necessary information has been provided, then the application will be forwarded to a caseworker for a comprehensive review.
Stage 2 – Gathering information
The caseworker will conduct a detailed review. They examine the application for any information that requires clarification or supplementation, which may involve contacting you. This phase depends on factors such as whether the information you have provided supports the licensing purpose under which you have applied and whether the caseworker has enough information to make a well-informed recommendation.
Stage 3 – Assessing the application
Once the caseworker is satisfied that all essential details have been provided, they assess that application in line with the applicable sanctions regulations, taking account of any necessary legal advice obtained and any relevant guidance, to determine whether to recommend that a licence be granted.
Stage 4 – Making a decision
The case is then sent for a decision, in line with OFSI’s Delegation Framework. At this stage, we may request additional information.
Stage 5 – Outcome notification and (if application granted) licence issuance
After the outcome of your licence application has been determined, the caseworker informs you of the decision. If the decision is a rejection or partial rejection we will give reasons for the decision (see 6.12 of OFSI’s General Guidance for further information).
If issuing or amending a licence the caseworker will provide a draft copy to you. You will have a chance to review and provide confirmation of the accuracy of the draft. After this point (and unless there are any issues), the caseworker will then issue you with the final licence.
Designated Individuals Licensing Principles
OFSI has published a series of policy principles, which it applies to licence applications relating to designated individuals under all UK financial sanctions regimes.
Information for applicants
The principles will assist applicants to understand how OFSI interprets certain licensing purposes, common to all regimes, in relation to designated individuals. For example, the principles help clarify OFSI’s view on what constitutes a basic need, or the kind of maintenance works that OFSI may license on a designated individual’s frozen assets. The principles will also help applicants to understand the circumstances under which OFSI may refuse to license certain activities, even where a licensing purpose is met.
Where relevant, applicants should consider the principles carefully before making a licence application to OFSI. Although OFSI considers all licence applications on a case-by-case basis, applicants should expect a licence will not be issued if doing so would require OFSI to deviate from any of the principles.
When completing an OFSI licence application form it will be helpful to make clear how your application meets these principles.
If licensing the proposed activity would require OFSI to deviate from the principles, you should provide additional supporting information to explain why this would be justified by the specific circumstances of your case.
The new guidance should be considered in addition to OFSI’s:
It is not intended to replace any part of the above guidance or any legislation.
How OFSI will use the Principles
OFSI will use the principles to inform our decision-making. OFSI will keep them up-to-date and may amend them from time to time. If OFSI makes any substantive changes to the principles, we will issue updated guidance to inform applicants, and notify email subscribers.
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The Office of Financial Sanctions Implementation (OFSI) is committed to providing high-quality, widely accessible and easy to understand guidance to support our users to implement financial sanctions. As part of this commitment, we are always looking for ways to improve our guidance to ensure it can be as beneficial as possible. This blog explains the new changes we will be making this year and how our upgraded guidance will better support you.
What changes are coming in 2024?
We will be upgrading your guidance experience by transitioning to a new Sanctions Digital Guidance format, replacing our previous PDF guidance. Unless otherwise specified, this will not routinely include changes to the content of the guidance but instead introduce improvements for accessibility and user experience.
This change will bring a variety of benefits:
To support our new and upgraded guidance, you may notice changes to our website as we improve its layout and structure.
When will these changes happen?
We will be upgrading all of our financial sanctions guidance to Sanctions Digital Guidance throughout 2024. During the transition, you may find that some guidance will be available as digital and some as legacy PDFs.
You will begin seeing upgraded guidance from today, 13 February, with our newly upgraded general guidance now available.
How can I provide feedback?
We are always looking for feedback on how we can provide you with better guidance and support, you can get in touch with us at ofsi@hmtreasury.gov.uk.
You can also sign up to our e-alerts here to be the first to find out about changes to any of our guidance.
]]>In June 2023, the UK government announced that it would be introducing two new reporting measures. These are to strengthen transparency of frozen assets in the UK and assist HM Treasury in monitoring compliance with, and detecting evasion of, financial sanctions. These measures came into force in December 2023, through the Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2023. I would like to take the opportunity to explain what these new obligations mean.
Immobilised Assets reporting measure
Relevant firms are now required to inform OFSI of any funds or economic resources they hold for the Central Bank of Russia (CBR), Russian Ministry of Finance (MOF) or Russian National Wealth Fund (NWF). This includes a person owned or controlled directly or indirectly by these entities, or a person acting on behalf of or at the direction of these entities. This new reporting obligation is intended to provide the government with a more comprehensive picture of the value and nature of CBR, MOF and NWF assets held in the UK. It will enable HM Treasury to track these assets over time, enhancing the UK’s ability to keep these assets immobilised.
This reporting obligation will provide the UK government with more reliable data to share with international partners through channels including the Russian Elites, Proxies and Oligarchs Taskforce.
Designated Persons asset reporting measure
An additional reporting requirement has also been placed on designated persons under the Russia regime. This new requirement means Persons designated under the Russia financial sanctions regime are required to proactively provide details of their UK assets to OFSI (or their worldwide assets if they are UK persons). The government intends for this measure to be extended to the Belarus regime in early 2024.
This requirement strengthens OFSI’s compliance toolkit, allowing it to cross verify information provided by relevant firms and also placing accountability for asset reporting on those who are designated. We have gone further with this measure by creating a bespoke penalty threshold. This reflects the seriousness of non-compliance and ensures the UK government can penalise those who do not comply with this requirement. The civil enforcement of this measure will also be applied on a true strict liability basis where refusal or failure to report assets is an offence subject to a civil monetary penalty where it is appropriate to do so. This is regardless of whether the DP, for example, had a reasonable excuse for failing to report.
Those found to have breached financial sanctions will still have the same right to obtain a review of monetary penalties issued. This change does not in any way alter or weaken the ability to further challenge OFSI’s monetary penalties at the Upper Tribunal.
OFSI’s approach
I hope you will find updates in our guidance covering these changes to be useful. However, OFSI’s guidance is not static. We will continue to review it and our enforcement policy to ensure they best deliver and reflect our objectives.
We remain open and keen to engage on issues where businesses and stakeholders consider OFSI’s guidance could go further. Do contact us through existing industry channels and our email address below.
OFSI will continue to use enforcement tools robustly but fairly and proportionately, including imposing monetary penalties, to effectively enforce financial sanctions in the UK. In light of Russia’s aggressive actions in Ukraine, the private sector’s compliance with UK financial sanctions is crucial to our sanctions remaining as effective as possible, and we thank those working across industry for playing their part.
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Regulation 17A of the Russia (Sanctions) (EU Exit) Regulations 2019 was amended with effect from 15 December 2023. This amendment prohibits UK banks[1] from processing payments previously processed by designated banks (meaning banks designated specifically under regulation 17A) or which are intended for a designated bank. So, if a UK bank receives funds that have been routed from or via a designated bank, directly or indirectly, the UK bank should not process the transaction even if the account holders sending and receiving the funds are not designated for the purposes of the asset freeze or otherwise sanctioned. Designation status for the purposes of regulation 17A can be found within OFSI’s consolidated list. Please note that credit and financial institutions that are owned or controlled by a bank which is designated for the purposes of regulation 17A will also be captured by this prohibition.
What types of payments will be caught?
Put simply, correspondent banking is how banks make payments internationally – they often use one, or a series of, intermediary banks (or “correspondent” banks) to make the payment. For example, if Bank A in the UK wants to send money to Bank X in Brazil, it may try to find a bank that has a presence in both countries. Bank A has a relationship with Bank B who has a presence in both the UK and Brazil. Bank A will transfer the funds to Bank B in the UK who will transfer the funds from its UK entity to its Brazil entity. The funds will then be transferred from the Brazil entity of Bank B to their final destination at Bank X. To enable this, the banks have accounts with each other (these are known as “nostro” and “vostro” accounts). Sometimes, a series of correspondent banks will be used to complete a payment from sender to receiver. When reading about these transactions you may see the terms ‘remitting bank’ and ‘beneficiary bank’. Simply put, the remitting bank is the bank sending the funds originally and the beneficiary bank is the receiving bank, or intended destination bank in the payment chain
OFSI currently anticipates that most of the transactions affected by this measure will be transactions which have used correspondent banking earlier in the chain of transactions, and where the correspondent bank is designated for the purposes of regulation 17A.
An annex within OFSI’s Russia Guidance document shows two example scenarios where a payment may be stopped by the UK’s financial sanctions under regulation 17A.
Why can’t my payment be processed?
The UK’s Russia Regulations prohibit UK banks from processing payments to or via, or which have been received from or via banks designated for the purposes of regulation 17A. In other words, if a UK bank receives funds previously routed from or via a designated bank, or has instructions to pay funds to a designated bank, they must not transmit those funds onwards. The banks must act this way both 1) in a situation where the remitting bank is designated and 2) in a situation where a non-designated bank has initiated the payment but it has been processed via a designated bank before reaching the UK bank.
Banks are prohibited from processing these payments even in cases where the account holders sending and receiving the funds are not designated for the purposes of the asset freeze or regulation 17A. This may mean that persons who are not themselves designated have their payments impacted if they involve these designated banks.
What can I do about it?
If funds have not been processed, and you are unsure why, you should contact your bank in the first instance.
Some of OFSI’s general licences permit banks to process payments that would otherwise be prevented by Regulation 17A. If you believe one applies to your transaction you should contact your bank and explain why. OFSI’s general licences can be found here: https://www.gov.uk/government/collections/ofsi-general-licences
If your funds have not been processed due to engaging Regulation 17A and a General Licence is not applicable, you may be able to apply to OFSI for a specific licence. However, it will be your responsibility to decide whether you qualify for a relevant licensing purpose and then make an application to OFSI (with the benefit of independent legal advice if appropriate). Guidance on applying for a licence can be found here: https://ofsi.blog.gov.uk/2021/04/19/introduction-to-licensing/. The licensing grounds available under this prohibition are set out at Parts 1B and1C of Schedule 5 of the Russia Regulations, and are:
Any derogation listed in Parts 1B or 1C would be applicable to a transaction that engages regulation 17A(2).You should be aware, however, that although some of these licensing grounds are generally applicable, some are only available to the designated person themselves. If you are unsure about whether to apply or whether a licensing ground or general licence applies to your situation you should seek independent legal advice.
[1] The relevant legislation applies to “UK credit or financial institution[s]”. We often use the term ‘bank’ within this article as a shorthand to ease readability. UK persons, including credit or financial institutions, who are unclear on their obligations in a given case should refer to the relevant legislation and consider taking independent legal advice.
]]>On 14 December 2023, the Office of Financial Sanctions Implementation (OFSI) published its Annual Review for the financial year 2022 to 2023 containing reporting on assets frozen under UK financial sanctions regulations. This blog explains more about the two separate reporting exercises: the Annual Frozen Asset Review and Russian Frozen Assets In-Year Reporting.
Annual Frozen Asset Review
Each year OFSI conducts a comprehensive exercise known as the Annual Frozen Asset Review, published within OFSI’s broader Annual Review. This exercise aims to gain insights into assets that have been frozen due to UK financial sanctions regulations within the specified timeframe. To facilitate this process, individuals with possession of, or control over, assets, encompassing funds and economic resources subject to freezing under UK financial sanctions, are mandated to provide OFSI every year with detailed reports outlining the nature and assessed value of these assets. This figure includes the value of funds frozen in the UK, such as funds in UK bank accounts, as well as overseas where those funds or economic resources are subject to UK financial sanctions legislation. The Annual Frozen Asset Review does not include any assets where their value is approximate.
The Annual Frozen Asset Review for 2022 reported £21.6 billion* of funds frozen as at 30 September 2022 across all of our regimes.
This is a substantial increase of £9.2 billion since 2021 demonstrating the sustained pressure that the UK’s financial sanctions have had.
Russian Frozen Assets In-Year Reporting
In addition to the Annual Frozen Asset Review, relevant firms are also obliged to report to OFSI as soon as practicable, information concerning funds or economic resources belonging to, owned, held, or controlled by a designated person. This is known as Frozen Asset In-Year Reporting.
Under Frozen Asset In-Year Reporting, OFSI announced in its Annual Review that as of October 2023, £22.7 billion worth of assets frozen in relation to the Russia regime have been reported frozen to OFSI since the beginning of Russia’s large-scale invasion of Ukraine in February 2022.
The importance of Frozen Asset In-Year Reporting is that it enables OFSI to build a picture of the value of assets as they were frozen, rather than monitoring changes over time. The In-Year Reporting figure provided above for Russia comprises the value of all reported frozen assets, including bank accounts, payments, real estate, bullion, and other tangible and intangible assets. As Frozen Asset In-Year Reporting is a cumulative value of frozen assets at the time of freezing and does not determine or record subsequent changes, the published values as part of In-Year Reporting are likely to be higher than their actual value as the assets subsequently depreciate. For example, valuations of shares at the point of reporting will fluctuate, and funds may be legitimately drawn down through licensing. Unlike the annual Frozen Asset Review, In-Year Reporting identifies the last known value of shares reportedly held at the point of designation, where not already reported. Similarly, valuations of tangible assets reported as part of In-Year Reporting are made through publicly available information where not included in submitted reports. Collectively, this represents a significant proportion of assets reported as frozen throughout the year.
Across all financial sanctions regimes, the total value of frozen funds or economic resources reported under either exercise to OFSI is susceptible to fluctuation. Reasons include: changes in share, market, or currency values, and new designations or sanctions being lifted, or licensed financial activity. Therefore, the value of frozen assets reported to OFSI as part of the Annual Frozen Asset Review or as part of Frozen Asset In-Year Reporting do not provide a complete picture of assets frozen as a result of UK financial sanctions.
The OFSI Annual Review 2022-23: Strengthening our Sanctions is available to read now on GOV.UK.
* This figure does not include the value of all assets reported to OFSI as part of the annual frozen asset review due to difficulties in defining their values with accuracy. This may include the contents of safety deposit boxes or tangible assets.
]]>On 26 October 2023, the High Court of Justice, Administrative Court, delivered its judgment rejecting a legal challenge by Mikhail Fridman against OFSI’s decision to refuse to grant certain licence requests.
OFSI has been at the front and centre of an unprecedented financial sanctions response following Putin’s full-scale invasion of Ukraine. OFSI welcomes the judgment and the Court’s approval of OFSI’s decision-making under the UK’s financial sanctions licensing regime in this case. This judgment indicates that OFSI properly implements financial sanctions through its licensing powers.
OFSI will robustly defend baseless challenges against its decisions and ensure financial sanctions are implemented to support the objectives of the Russia sanctions regime and applicable licensing grounds.
Summary of Judgment
On 22 March 2023, a claim was filed against HMT (OFSI) by Mr Fridman. This was the first ever claim filed against OFSI to the High Court under section 38(2) of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). It was also the first ever challenge to OFSI’s licensing decision-making under the Russia (Sanctions) (EU Exit) Regulations 2019 (the Russia Regulations).
Mr Fridman argued that OFSI was wrong to refuse certain licence requests made under the prior obligations, basic needs and routine holding and maintenance licensing grounds in respect of his primary residence in the UK.
In his judgment, the Honourable Mr Justice Saini dismissed the claim on all grounds of challenge.
Key Points
The Judge supported OFSI’s long-standing view that OFSI does have a “residual discretion to refuse to grant a licence, even if the conditions for the grant of a licence are met”. OFSI’s decisions were rational and within the bounds of this residual discretion. However, in recognising this residual discretion, the Judge determined that it “must be exercised consistently with the purposes of the” statutory regime.
The Judge also agreed with OFSI’s position that the onus is on the applicant to provide all relevant information in their licence application to enable OFSI to make a decision as to whether a licensing ground applies. He remarked that this approach was “perfectly sensible and a matter of common sense.” He commented that, “OFSI cannot be expected to know whether or not all information has been provided.” He also found that OFSI is not required to act as an “adviser to applicants” or “identify gaps” in licence applications.
Further to this, the Judge commented that, “OFSI directed itself correctly in law and came to a lawful conclusion,” on its interpretation of the prior obligations licensing ground: specifically, that a payment cannot be made directly or indirectly to another designated person, including where the payment is made to a person or entity which is owned or controlled by that designated person.
Finally, it was found that the review proceedings should not be used as a vehicle to pursue a “rolling application” and, therefore, evidence submitted post-decision was irrelevant.
Guidance
OFSI has issued extensive guidance to outline what is expected from individuals and organisations when submitting licence requests. As a first step, we recommend reading Chapter 6 of the General Guidance.
]]>October 2023 marked one year since the launch of the OFAC-OFSI Enhanced Partnership, an ongoing commitment from two of the world’s leading financial sanctions implementation authorities to deepen their collaboration. Over the last year, the UK Office of Financial Sanctions Implementation (OFSI) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) have worked more closely than ever to exchange best practices, better align sanctions implementation, and more effectively deliver on our shared objectives.
As Directors of these organisations, we were delighted to mark the one-year milestone with a multi-day technical exchange in London in October 2023, and together underscore our continued commitment to this partnership.
The Enhanced Partnership is a forward leap to ensure the implementation of robust, cutting-edge financial sanctions. Amidst ever evolving threats to international security, prompted by the global instability resulting from Russia’s illegal and unprovoked invasion of Ukraine, the United Kingdom and United States are working collaboratively to tackle these issues. This partnership is anchored by a shared vision for the effective implementation of sanctions through the active use of robust authorities, coupled with calibrated exceptions such as general licences and clear messaging and support to the private sector through regular and responsive guidance. This common picture has allowed us to align our priorities and maximise opportunities for co-operation.
Regular Exchanges
Over the past year, the Enhanced Partnership has included quarterly virtual and in-person exchanges at all levels of seniority. They have enabled colleagues in the United Kingdom and the United States working on challenging cross-jurisdictional issues to explore different perspectives, improve understanding, and identify innovative ways to tackle important issues such as those relating to trust services and digital assets.
Joint Industry Guidance and Engagement
OFSI and OFAC issued our first joint fact-sheet to provide further clarity on United Kingdom and United States Russia-related humanitarian authorisations. We have heard directly from non-governmental organisations (NGOs) and financial institutions that this guidance has enabled them to continue to provide and facilitate aid and support to the world’s most vulnerable populations. We have also participated jointly on a number of key industry panels and global events, discussing topics such as circumvention, enforcement, and international alignment.
The Enhanced Partnership has also seen us undertake joint visits to improve sanctions effectiveness across the globe. Our visits to countries at risk of sanctions circumvention have helped further inform both ourselves and local government officials about the impacts of our regimes, enabling us to improve compliance with United Kingdom and United States sanctions globally, put out more tailored guidance, and take steps to mitigate unintended consequences.
At this year’s in-person technical exchange, officials from both teams explored new ways of tackling our shared challenges. This included discussion on areas where our respective authorities may differ, such as on ownership and control and reporting requirements, with a commitment to work more closely on these policy areas going forward. We also shared economic analysis regarding sanctions programmes and committed to further exchanges on this topic. Both teams agreed to share more data across a range of functions to increase insights, strengthen analytical capacity to inform sanctions programme design and implementation, and identify more ways to strengthen coordination of our ongoing efforts. We also agreed to explore further areas for joint industry engagement and guidance. Finally, we are proud to have launched a reciprocal secondee programme, with an OFAC employee now embedded in OFSI and plans to have an OFSI employee at OFAC soon, allowing us to further share and exchange hands-on experience.
We also utilised the in-person visit to conduct a series of joint engagements to hear directly from industry on areas where we can more closely align. As Directors, we participated in a UK Finance-chaired Senior Implementation Group (SIG) meeting with senior representatives from a range of sectors including financial services, insurance, law, and accountancy on topics including alignment and our collaboration over the past year.
Members of both teams then held the first joint OFSI-OFAC roundtable with fintech and digital asset stakeholders, focused on sanctions compliance best practices across both jurisdictions in this sector. OFSI and OFAC committed to participate in regular joint engagements and will look to replicate this model in the coming months with the humanitarian sector, in recognition of the wide-ranging benefits such dialogues provide to government and industry, and the NGO community alike.
Commitment to Ongoing Collaboration
Both the United Kingdom and United States governments as well as our stakeholders have already felt the benefits of this Enhanced Partnership, which will be of ever-growing importance as we face an increasingly complex sanctions implementation landscape. We are deeply grateful for the commitment of stakeholders and their constructive engagement, which in turn shapes our policy approach. We are proud of our enduring alliance and are excited for the opportunities to come as our Enhanced Partnership continues to prosper.
Giles Thomson, Director, The Office of Financial Sanctions Implementation, HM Treasury
Brad Smith, Director, Office of Foreign Assets Control, U.S. Department of the Treasury
]]>The critical role that financial sanctions have played in the international coalition’s response to Russia’s invasion of Ukraine has further demonstrated what a crucially important tool they are for the UK to protect its national security and financial integrity. As threats to our values and freedoms remain constant, it is more important than ever that we are effectively implementing and enforcing financial sanctions.
The private sector, as the first line of defence, play a critical role in the effective implementation of financial sanctions. The Office of Financial Sanctions Implementation (OFSI)’s primary objectives are to help the private sector understand and effectively implement sanctions, to prevent illicit finance entering the UK’s financial system and achieve the security and foreign policy aims of our sanctions at minimal cost to the UK economy and legitimate actors. The vast majority of UK businesses want to comply with financial sanctions and are committed to doing so. However, as with any regulatory system, taking robust but proportionate enforcement action where it is justified is crucial to the effectiveness of our sanctions. It punishes those guilty of the worst breaches of sanctions, acts as a deterrent to them and others, and – through the associated publicity and compliance lessons OFSI produce – helps others understand how they can improve their compliance systems.
As part of our ongoing commitment to strengthening our enforcement regime, on 31 August 2023, OFSI used its new Disclosure enforcement power for the first time. In brief, this power allows OFSI to publish details of financial sanctions breaches - including the person/entity who committed the breaches – where OFSI decides that the breaches are not serious enough to justify a civil monetary penalty. We refer to this publication as a “Disclosure”. OFSI acquired this power last year via the Economic Crime (Transparency and Enforcement) Act 2022, and it forms an important part of our expanded enforcement toolkit.
Where OFSI decide it is necessary and proportionate to use the disclosure power, OFSI will publish the details of a breach on its GOV.UK website in the form of a notice. Our intention is to use this power in response to moderately severe breaches, when an administrative warning letter would be too lenient on the facts of the case, but a civil monetary penalty would be disproportionately punitive. This is an important step in allowing OFSI to further tailor its enforcement action according to the different severities of breaches it sees. Through publishing details of breaches, this new enforcement tool will act as a form of censure and deterrent while also enabling compliance lessons to be available to other companies and individuals.
In OFSI’s first published Disclosure, important compliance lessons can be learnt to ensure that companies and individuals do not make funds available to designated persons or entities owned or controlled by designated persons. The company’s policy at the time of the breach (of not restricting debit cards where a possible name match to a designated person was identified) was inappropriate for managing sanctions risk. A lack of resource at weekends to review sanctions alerts also led to a material delay in the proper restrictions being placed on a designated person’s debit card. This case demonstrates that firms should carefully consider what resourcing is appropriate to manage sanctions risk exposure. When a firm identifies a sanctions risk, it should take steps to fully address that risk by promptly restricting all forms of access to funds or economic resources. Firms should also maintain proportionate sanctions screening and alert review functions whenever business is being conducted.
As well as making a disclosure on a specific case, OFSI has today also published updated guidance with further information on how we intend to use this power and the different steps in that process. Following these events, I encourage those involved in sanctions compliance to read Chapter 10 of our updated Monetary Penalty and Enforcement Guidance, as well as the first Disclosure Notice.
You will also see in our updated guidance that we have provided more detail on how OFSI categorises breaches (as lesser severity, moderate severity or serious enough to justify a civil monetary penalty) when determining what enforcement outcome is most appropriate. This updated guidance reinforces OFSI’s commitment to taking proportionate action that considers the facts of each case. Although in this first disclosure case we determined that full use of the power to name the firm involved was proportionate to the breach, OFSI can also use its disclosure power for breaches of lesser severity to publish details of case where there is a useful compliance lesson to industry. In those cases, OFSI will usually anonymise the publication by not identifying who performed the breach.
As ever, OFSI and I welcome your feedback on these or any other issues relating to our implementation of financial sanctions, which you can email to: ofsi@hmtreasury.gov.uk.
I intend that the updated enforcement guidance, this blog, and the Disclosure OFSI has made today, provide clarity to support your continued diligence and efforts to fully comply with the regulations.
Giles Thomson
Director, Office of Financial Sanctions Implementation and Economic Crime
HM Treasury
]]>In response to the illegal invasion of Ukraine, the UK introduced the largest and most severe package of economic sanctions that Russia has ever faced. As a result, the Office of Financial Sanctions Implementation (OFSI) continues to experience unprecedented high demand to consider applications for new licences and for amendments to existing licences.
When applying for a specific licence, or an amendment to an existing specific licence, applicants must provide evidence to support an application and demonstrate that all criteria of the relevant licensing ground have been met. Where an application has insufficient details or evidence, OFSI’s General Guidance states that: 'Incomplete applications will not be considered and will be returned to the applicant for re-submission' (see paragraph 6.9).
Since the invasion, and to help mitigate the impact on applicants, OFSI has repeatedly engaged with applicants until such a time as sufficient details and evidence have been received and a decision can be taken.
To reduce delays and ensure a timely service can be provided for all applicants, OFSI will be ending this temporary measure and will resume returning applications which are not complete at the time of receipt.
An incomplete application is one in which key information is missing, such as an adequate explanation as to why the licensing purpose applies.
Applicants will be able to re-apply; however, this will be treated as a new application and will not be prioritised purely because it has been resubmitted.
OFSI will continue to assist applicants who contact us to understand the licensing process as well as our evidentiary requirements. However, we cannot provide legal advice and applicants should consider taking independent legal advice before applying, especially for complicated matters.
Please note that OFSI can only issue licences which relate to financial sanctions. If an application relates to another type of sanction, then it should be redirected to the relevant Department. Further information can be found here.
How can applicants demonstrate this?