On April 1, the United Kingdom’s Office of Financial Sanctions Implementation (OFSI) acquired new civil enforcement powers, including the ability to impose civil monetary penalties. These authorities come from implementation of portions of the Policing and Crime Act 2017 (the Act).
OFSI has issued finalized guidance of its compliance and enforcement approach, including how it will assess whether to apply a monetary penalty (the Guidance).
The office is now authorized to impose civil monetary penalties if it is “satisfied, on the balance or probabilities, that—
“(a) The person has breached a prohibition, or failed to comply with an obligation that is imposed by or under financial sanctions legislation, and (b) 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.”
In contrast to the strict liability sanctions regime in the U.S., the U.K. explicitly focuses its enforcement authority on persons with knowledge or reason to suspect a potential violation. In a case where the breach or failure relates to particular funds or economic resources, the Act authorizes the imposition of penalties of up to £1,000,000 or 50 percent of the estimated value of the funds or economic resources, whichever is greater.
Scope of Jurisdiction and Individual Liability
OFSI’s guidance, a draft of which we summarized in January, includes:
- Scope of Jurisdiction: Its authority covers all transactions with a “U.K. nexus,” even those outside the U.K. This includes, but is not limited to:
- “Transactions using clearing services in the U.K.”
- Transactions involving “financial products or insurance bought on U.K. markets but held or used overseas.”
- Transactions “taking place overseas but directed from within the U.K.” OFSI notes that it will “not artificially bring something within U.K. authority that does not clearly and naturally come under it,” but it can and will refer potential violations to other authorities.
- Individual Liability: The Guidance highlights OFSI has jurisdiction to impose penalties on entities, but can also pursue a penalty against an officer of that entity if the activity:
- "Occurred with the “consent or connivance of the officer;" or
- Was "attributable to any neglect on the part of the officer."
Other Key Points
- Actions OFSI Can Take: OFSI identifies four actions it can take in response to a sanctions breach: (1) issuing correspondence requiring details of how a party will improve its compliance practice; (2) referring a regulated professional to its relevant professional body; (3) imposing civil monetary penalties; or (4) referring the case to law enforcement agencies for criminal investigation and prosecution.
- Enforcement Focus: OFSI intends to be “proportionate” in its response and that it will assess a number of mitigating and aggravating circumstances when assessing a case. Generally speaking, “the more aggravating factors [OFSI] see[s], the more likely [it is] to impose a monetary penalty.”
- Factors OFSI Considers: OFSI will look at a number of factors in considering enforcement, including: (1) whether there is a direct provision of funds or economic resources to a designated person; (2) whether there is circumvention of sanctions; (3) the value of the breach; (4) the harm or risk of harm to the sanction regime’s objectives; (5) the knowledge and sophistication of the actor involved; (6) the behavior of the persons involved; (7) whether a license was sought; (8) whether a transaction was disclosed; (9) whether there were repeated, persistent, or extended breaches; (10) the public interest; and (11) other case-specific factors.
- Voluntary Self-Disclosure: Voluntary self-disclosures are encouraged and treated as a mitigating factor. In contrast to the U.S. where only the first disclosure is considered voluntary, OFSI notes “the mere fact that another party has disclosed first will not necessarily lead to the conclusion that later disclosure has any lesser value.” OFSI encourages early disclosures and notes that it is willing – as is common before the Office of Foreign Assets Control (OFAC) in the U.S. – to consider an initial and further disclosure as facts are supplemented.
- Penalty Calculation: OFSI published a matrix to show how it calculates penalties. This penalty matrix is very similar to that published by OFAC. OFSI assesses the ‘seriousness’ of a penalty, while OFAC assesses ‘egregiousness’, and both consider whether a voluntary disclosure was made. For serious violations in which a disclosure was made, the penalty would be reduced by at least 50 percent. For “most serious” violations, the base penalty will be reduced “up to 30%”.
- Publication: In a departure from typical European practice and as required by the Act, OFSI notes it will “normally publish details of all monetary penalties it imposes [.]” This summary will include: (a) identifying the person subject to penalty; (b) the summary facts of the case; (c) the value of the violation; (d) the value of the penalty; (e) the “compliance lessons OFSI wishes to highlight”; and (f) any other relevant information. OFSI does note that there may be circumstances in which it will not publish a summary including where “a reasonable person would consider it disproportionate.”
Companies need to be aware of the new penalties and that the standard of proof required to impose them is lower than that required for criminal prosecution. Although breach of sanctions has always risked adverse media coverage, the publication by OFSI of all monetary penalties it imposes means this risk has increased.
These factors, together with the size of the fines and the added risk of referral to regulators who may impose additional fines, means that sanctions compliance issues will remain at the top of the compliance agenda for all businesses.