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New Government Body Established To Tackle Financial Sanctions Breaches

New Government Body Established To Tackle Financial Sanctions Breaches

On 31 March 2016 HM Treasury announced that the Office of Financial Sanctions Implementation had been officially established. In that announcement, HM Treasury said that “OFSI will provide a high-quality service to the private sector, working closely with law enforcement to help ensure that financial sanctions are properly understood, implemented and enforced.”

Chancellor George Osborne also said that “Financial sanctions are a hugely important foreign policy and national security tool. Their effective implementation and enforcement are vital to their success. OFSI will be a centre of excellence for financial sanctions, raising awareness and providing clear guidance to promote compliance with financial sanctions, providing a professional service to the public and industry, and working closely with other parts of government to ensure that sanctions breaches are rapidly detected and effectively addressed.”

Tougher Penalties

Whilst the aim to provide clearer guidance will be welcomed by businesses in the UK, it is clear from the Chancellor’s comments that OFSI will take a more aggressive approach when dealing with breaches of financial sanctions. This together with the Policing and Crime Bill, which is due to enter the reporting stage on 26th April 2016, and which if introduced intends to harmonise the criminal penalties for all breaches at both EU and UK level so that the maximum term of imprisonment is increased to 7 years for all offences, signals a shift towards tougher enforcement and harsher penalties.

The Policing and Crime Bill also introduces a new power for OFSI to issue a civil penalty where a prosecution for a breach of financial sanctions is not considered to meet the public interest test. Civil penalties will only be available where OFSI is satisfied that a person has breached financial sanctions and that person knew or had reasonable cause to suspect that they were in breach of the prohibition or had failed to comply with it. If the Bill is introduced it will mean a maximum civil penalty of £1,000,000 or 50% of the value of the funds or economic resources dealt with, whichever is greater. It is intended that details of any civil penalties imposed will be publicly available.

What does OFSI mean for UK businesses?

OFSI has published guidance on financial sanctions which can be found here: Financial sanctions: guidance - Publications - GOV.UK. Their view is that financial sanctions are generally widely publicised and that businesses, particularly those operating internationally, will have reasonable cause to suspect that sanctions might be engaged, and so will not be able to avoid liability simply by failing to consider their sanctions risks. We understand that in preparing this guidance HM Treasury consulted with OFAC (Office of Foreign Assets Control), the body responsible for enforcement of US sanctions. OFAC is notorious for imposing some of the toughest penalties for breaches of sanctions in recent years.

The guidance is not legally binding and OFSI does not have prosecutorial discretion. Time will tell whether or not the prosecutors or the courts will share this view. However, as the UK government’s enforcement regime intensifies, UK businesses, particularly those also exposed to US sanctions, should consider reviewing their compliance regime to ensure it is robust enough to deal with these most recent changes.

Lynne Moss
Senior Associate

LChalmers