In recent times, we are seeing an increase in the use of financial sanctions as a means to respond to global threats and protect national security. The UK Government has said it is committed to implementing and enforcing financial sanctions, with the UK Government, EU Council and Parliament still being in agreement that there should be cooperation on sanctions.
The UK Government has now published a Bill which will put in place a new statutory framework to ensure the ongoing effectiveness of the sanctions regime. HM Treasury has also published updated guidance on the approach the Office of Financial Sanction Implementation ('OFSI') takes to financial sanctions and the monetary penalties for breaches.
Financial sanctions apply in a variety of ways and can come in different forms. The most common type of financial sanction is targeted asset freezes and these can apply to named individuals. Further types of sanction include restrictions on a variety of financial markets and services, which can apply to designated individuals and include requirements to seek authorisation before making or receiving payments.
Businesses and individuals must ensure that proper and full effect is given to UK, UN and EU sanctions.
OFSI state that businesses, particularly those that may trade internationally, will have reasonable cause to suspect that sanctions might be relevant them. OFSI expects all business who engage in activities where financial sanctions apply to stay up-to-date with the sanctions regimes in force to:
- consider the exposure of their business to sanctions
- take appropriate steps to mitigate those risks taking into account the nature of their activities.
To assist with this, OFSI maintains two lists of those subject to sanctions. The 'consolidated list' includes persons subject to financial sanctions under EU and UK legislation, as well as those subject to UN sanctions which are implemented through EU regulations.
OFSI also publishes a list of entities subject to capital market restrictions.
All individuals and entities have an obligation to report to OFSI if they know or have ‘reasonable cause to suspect’ that they are in possession or control of, or are otherwise dealing with, the funds or economic resources of a designated person. If this obligation is breached, OFSI have the powers to impose serious penalties.
Breaching financial sanctions
Accepting money from a person subject to a financial sanction may be considered a breach of a financial sanction. Breaching a financial sanction is a serious offence, carrying substantial criminal and civil penalties. If found guilty, breaching a sanction is punishable by up to seven years in prison and/or considerable fines.
Every individual and business must take responsibility to ensure compliance with financial sanctions, and to assess their own risk of falling foul of them. The nature and extent of protective measures that will be required will vary from business to business, but it is ultimately always the business' responsibility to mitigate its own risk.