On 15 March 2022, the UK's new Economic Crime (Transparency and Enforcement) Act (the "ECA") received Royal Assent. The legislation contained a number of important provisions, including the introduction of a new 'Register of Overseas Entities' and reforms to unexplained wealth orders. The UK's Office of Financial Sanctions Implementation ("OFSI") has now issued updated enforcement guidance, in advance of enforcement powers which are due to come into force on 15 June 2022 – including the ability to impose civil monetary penalties on a strict civil liability basis.
Sanctions Update: UK's Office of Financial Sanctions Implementation sets out new enforcement guidance in advance of enhanced powers coming into force
As set out above, the ECA received Royal Assent on 15 March. Key measures included:
- Enhancing the UK's ability to move faster to impose sanctions as well as increasing civil enforcement powers;
- The introduction of a new 'Register of Overseas Entities'; and
- Reforms to unexplained wealth orders, which remove certain barriers to their use.
Please see our briefing for details of the new Register of Overseas Entities and our previous sanctions update, which includes details about other measures contained in the ECA. This article focuses on OFSI's new enforcement powers.
On 8 June 2022, Giles Thomson, Director of OFSI, published a message on OFSI's blog discussing new enforcement powers which come into force on the 15 June 2022 and OFSI's approach to enforcement generally.
Civil Monetary Penalties: Strict Liability
OFSI's initial power to impose civil monetary penalties for breaches of trade sanctions (based on the balance of probabilities), was provided under the Policing and Crime Act 2017 (enhancing OFSI's enforcement powers beyond existing criminal penalties).
- The value of the civil penalties can range from 50% of the total breach up to £1 million and has been used sparingly since being introduced (six occasions since 2019). The power to impose civil monetary penalties was subject to a requirement that the person "knew, or had reasonable cause to suspect, that the person was in breach of the prohibition or (as the case may be) had failed to comply with the obligation" (i.e. a knowledge qualifier). This knowledge qualifier was removed by the ECA and has now been replaced with a strict liability test.
As set out in the Director's blog post, for breaches of financial sanctions which are committed on or after 00:00 15 June 2022, OFSI will be able to impose civil monetary penalties on a strict liability basis (breaches that occurred prior to 00:00 15 June 2022 will be assessed in line with previous guidance). While the previous requirement for OFSI to prove that a person had knowledge or reasonable cause to suspect that they were in breach of financial sanctions has been removed, the blog post states that OFSI will still bear the burden of proof to establish that there was a breach of financial sanctions prohibitions. There is no equivalent change to the financial sanctions criminal legal test or threshold.
The blog post stresses that while the change strengthens OFSI's ability to take enforcement action, it does not mean that OFSI will impose a monetary penalty in every case – but only where "it is appropriate, proportionate and in the public interest to do so." OFSI will continue to take into account the severity of the breach in addition to the conduct of the persons involved.
This will come as some welcome relief for businesses who have been unsure of how OFSI's new powers will be used. The new guidance lists the assessment criteria which OFSI will take into account in addition to case factors and mitigating circumstances – and the blog post states that OFSI will "continue to take into account efforts to prevent such breaches when deciding on any enforcement action."
On that basis, while the threshold for OFSI to impose a civil monetary penalty has fallen significantly, the approach that OFSI will take appears to be relatively similar as under the previous guidance. Additionally, confirmation that the new guidance/enforcement powers will only apply from 15 June 2022 will be welcomed, given the lack of clarity in this area previously.
Naming and shaming
The ECA enables OFSI to publish a report where a monetary penalty has not been imposed but "the Treasury is satisfied, on the balance of probabilities, that a person has breached a prohibition, or failed to comply with an obligation, that is imposed by or under financial sanctions legislation.”
The blog post makes it clear that "the power only applies where there is found to be a breach of financial sanctions, and publication will be considered on a case-by-case basis - including whether the case involves important compliance lessons for industry. OFSI will notify persons prior to publication to provide an opportunity to make representations."
This suggests that the power will not be used as regularly as may have first been feared, however this provision is still likely to enhance existing concerns for businesses which carry out higher-risk operations from a sanctions perspective.
- Check relevant sanctions lists and updated government guidance regularly.
- Carry out enhanced screening of counterparties based in higher-risk jurisdictions, or where they are connected to higher-risk jurisdictions.
- Review existing policies and procedures to ensure that they are proportionate to the level of risk and are targeted at higher-risk activities.
- Consider whether enhanced training should be provided to certain individuals/teams (e.g. those involved in customer onboarding).
- Consider whether a licence is required for certain higher-risk activity and if so, whether activities would fall under licence conditions.