The UK government has announced that a new body will be responsible for the implementation and enforcement of sanctions in the UK.
The launch of the Office of Financial Sanctions Implementation (OFSI) marks the first step in the government's efforts to reform the financial sanctions regime in the UK. In addition, new legislation is currently being considered by Parliament to give OFSI greater enforcement powers for those found to have breached sanctions.
Why the new OFSI?
In the July 2015 budget, the UK Chancellor stated that the OFSI would ensure that financial sanctions make the fullest possible contributions to the UK’s foreign policy and national security goals and help maintain the integrity of and confidence in the UK financial services sector.
On 31 March 2016, the Chancellor together with HM Treasury, announced the establishment of OFSI, by adding that it would 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'.
The new OFSI will continue to sit within HM Treasury, but is likely to be conferred with a greater range of powers than its predecessor should the proposed legislation be passed.
What new powers are in the legislation?
The new powers are contained in the Policing and Crime Bill 2016 (the Bill) which is currently progressing through Parliament. The proposals contained in the Bill include:
- An increase in monetary penalties (the greater of £1m or 50% of the value of the breach) and custodial sentences (up to 7 years imprisonment) that can be imposed for a breach of sanctions;
- Alternative actions for breaches of sanctions including Serious Crime Prevention Orders and Deferred Prosecution Agreements; and
- A mechanism by which the HM Treasury will be able to introduce temporary regulations to implement UN resolutions for the interim period whilst the EU regulation is still going through the legislative process.
If implemented, these measures will provide OFSI with a far greater range of tools with which to deal with sanctions breaches and certainly gives a strong indication that enforcement is to be a priority moving forward.
In this regard, it seems that the UK government may have been influenced by the US model, taking its cue from the US Department of the Treasury's Office of Foreign Assets Control (“OFAC”) – perhaps influenced by the large fines OFAC has imposed in recent years.
For (re)insurers and other UK businesses, there is hope that OFSI's increased resources and focus on providing clear guidance will assist when negotiating the often tricky waters of sanctions compliance.