On 1 December 2016, the Office of Financial Sanctions Implementation (OFSI), launched a consultation on a draft guidance document setting out its intended approach to issuing monetary penalties. OFSI is the newly created body within HM Treasury which is responsible for the administration and enforcement of the UK’s sanctions regime; however, its enforcement powers for a breach of UK sanctions law are currently limited to either recommending criminal charges or issuing an administrative warning letter. The Police and Crime Bill, which is currently progressing through Parliament and is expected to be introduced in April 2017, provides OFSI with an additional enforcement tool; the ability to issue monetary penalties up to value of £1 million or 50% of the value of the breach, whichever is greater.
The draft guidance sets out OFSI’s proposed procedural approach to assessing the severity of sanctions breaches, including the test which OFSI will use to determine when to impose a monetary penalty. Under this ‘Penalty Threshold’, OFSI will begin by establishing whether the legal test for the introduction of monetary penalties has been met – whether it is satisfied that on the balance of probabilities there has been a breach of UK sanctions law and the person committing it knew or had reasonable cause to suspect they were committing a breach. Once this test is met, the guidance sets out additional factors OFSI will consider when assessing whether the breach warrants the imposition of a monetary penalty. Key aggravating factors include whether the funds or resources were provided directly to a sanctioned entity or individual, whether deliberate efforts had been made to structure a transaction so as to circumvent the UK sanctions regime, and whether the breach involves failure to meet applicable regulatory or professional standards.
The guidance also sets out OFSI’s proposed approach to setting the level of any monetary penalty which it decides to impose. OFSI will start with the statutory maximum of £1 million or 50% of the value of the breach, whichever is greater, and will then decide the level of penalty within this statutory maximum which is reasonable and proportionate to the breach. This will be determined by assessing the monetary value of the breach and the extent to which it undermined the UK sanctions regime.
The consultation document indicates that OFSI proposes to place a significant premium on voluntary disclosure of a breach of financial sanctions. A prompt and complete voluntary disclosure will result in an automatic reduction of 50% for breaches which OFSI regards as serious, or, where OFSI regards the breach as “most serious”, a 30% reduction for voluntary disclosure.
The publication of the draft guidance documents suggest that OFSI is likely to become more active in taking enforcement action for breaches of sanctions law once it gains these powers. Given the significant level of fines which it will be able to impose and the significant reductions available for voluntary disclosure, companies will need to review their sanctions compliance policies and processes in light of a potential increasingly active enforcement approach.
The consultation will close on 27 January 2017 and can be found here.