On 8 August 2017, the European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017 came into force . The Regulations amend the Schedules to existing statutory instruments relating to the enforcement of financial sanctions in the UK. Broadly, the Schedules (ie. to the Lebanon and Syria (Asset-Freezing) Regulations 2012 and other similar instruments relating to other countries) require certain institutions to disclose information pertaining to a suspected sanctions breach to HM Treasury or, specifically, the Office of Financial Sanctions Implementation (“OFSI”) which is charged with detecting, responding to and addressing financial sanction breaches.
Prior to the enactment of the amending Regulations, enforcement action for the failure to disclose information to OFSI could only be taken against those in the regulated financial services sector. The new Regulations extend the ambit of businesses and professionals exposed to potential enforcement action for failure to report information required under financial sanctions legislation. In each Schedule to the relevant statutory instrument a “relevant business or profession” will now be defined to include the following: auditors, casinos, dealers in precious metals or stones, estate agents, externals accounts, independent legal professionals, tax advisors and trust or company service providers.
As of 8 August 2017, persons falling into these categories will be required to report to OFSI, as soon as practicable, knowledge or suspicion that a person is a designated person or that an offence under the sanctions regulations has, or may have been, committed. Relevant persons operating in these areas will now be required to submit a suspected breach form to OFSI where it knows or has reasonable cause to suspect that a financial sanction may have been breached during the course of their business.
In reporting information to OFSI, relevant entities must include information on which the knowledge or suspicion is founded as well as any information held in relation the designated person. Failure to provide information gives rise to potential criminal liability. For example, paragraph 1(5) of Schedule The Somalia (Asset Freezing) Regulations 2010 provides that a relevant institution who fails to comply with the requirement to report to the HM Treasury knowledge and information related to a known or suspected financial sanctions breach commits a criminal offence. Other sanctions regulations in force in the UK contain similar provisions. There is also the potential for criminal liability for failing to comply with a request for information from HM Treasury. Paragraph 4 of the Schedule makes provision for individual criminal liability. The paragraph provides that:
“(4)(1) A person commits an offence who –
(a) without reasonable excuse refuses or fails within the time and in the manner specified (or, if not time has been specified, within a reasonable time) to comply with any request made under this Schedule;
(b) knowingly or recklessly gives any information, or produces any document, which is false in a material particular in response to such a request;
(c) with intent to evade the provisions of this Schedule, destroys, mutilates, defaces, conceals or removes any document; or
(d) otherwise intentionally obstructs the Treasury in the exercise of their powers under this Schedule.”
(2) Where a person is convicted of any offence under this paragraph, the court may make an order requiring that person, within such a period as may be specified in the order, to comply with the request.”
According to the Explanatory Note accompanying the amending Regulations, an impact assessment was not prepared as, according to the Government, “no significant impact on the private or voluntary sector is foreseen”. This is an interesting conclusion as although the eight new business areas specified in the amending Regulations are already required to perform customer due diligence in satisfaction of money laundering obligations, exposure to criminal liability for failing to disclose sanctions-related information is, of course, significant. The introduction of the extended enforcement power broadens the significant criminal offence framework professionals working with the services sector are already exposed to.
Helpfully, at the same time as the new Regulations came into force, OFSI published updated guidance on financial sanctions which aim to assist individuals and businesses understand the requirements, scope and nature of reporting known or suspected breaches. Business areas affected by the new Regulations should carefully review the guidance to ensure that they are familiar with the practices and procedures for reporting potential financial sanction breaches. Failure to do so, as is now made clear, may amount to a criminal offence.