Economic and financial sanctionsAsset freezes
In what circumstances may a person become subject to asset freeze provisions in your jurisdiction? What dealings do asset freeze provisions generally restrict in your jurisdiction?
The provisions on asset freezes under the UK regime are set out in the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). They apply to named individuals and entities, whose names are published on a consolidated list (known as ‘designated persons’), and restrict their access to funds and economic resources. The UK government can identify persons either by name or by description where it has reasonable grounds to believe that the person is, involved with, owned or controlled, or acting on behalf of a person involved in an activity which is of the type within scope of SAMLA, for example, human rights abuses or illegal arms dealing. It can also designate persons to give effect to UN sanctions.
Dealing with funds or economic resources belonging to, or owned, held or controlled by, a designated person, is prohibited. It is also prohibited to make funds or economic resources available, directly or indirectly to, or for the benefit of, a designated person. In addition, it is prohibited to undertake activities that, directly or indirectly, circumvent financial sanctions.
‘Funds’ is broadly defined and covers financial assets and benefits of every kind including securities, bonds, dividends and letters or credit. ‘Economic resources’ means assets of any kind that are not funds but may be used to obtain funds, goods or services. This includes, for example, precious metals and stones, and vehicles.General carve-outs and exemptions
Are there any general carve-outs or exemptions to the asset freeze provisions in your jurisdiction?
While it is possible to apply to OFSI for a licence to engage in activity that would otherwise breach financial sanctions, other than acting under such a licence, there are very limited exceptions to the asset freezing regime in the UK under SAMLA. The exceptions available provide that:
- a person may credit a frozen account with interest due, to discharge an obligation arising from the period prior to the freeze, or to accept third party funds on notice to OFSI (but in all cases the account must remain otherwise frozen);
- independent (non-sanctioned) persons may transfer their legal or equitable interests in frozen funds or economic resources to another person provided that they themselves are not holding the interests jointly with a sanctioned person and are not owned or controlled by them; and
- UK banks may transfer funds that would otherwise be frozen in order to comply with ring-fencing obligations (ie, those separating retail and non-retail business).
Do the competent sanctions authorities in your jurisdiction maintain a list of individuals and entities blocked under asset freeze restrictions?
Yes, OFSI maintains a ‘consolidated list’ of persons subject to an asset freeze, which is available here. This is separate to the list covering entities subject to restrictions in the financial markets, which is available here.Other restrictions
What other restrictions apply under the economic and financial sanctions regime in your jurisdiction?
The UK has in place sanctions limiting access to financial services and investments for persons subject to restrictive measures in light of Russian involvement in Ukraine. Under these restrictions it is, currently, prohibited to deal in certain transferable securities and money market instruments if they have a maturity exceeding 30 days and were issued after either 1 August 2014 (for certain specified companies) or 12 September 2014 (for other specified companies). Subsidiaries established in a country other than the UK and owned (directly or indirectly) by one of the specified companies are also subject to the restrictions. It is not possible to obtain a licence to carry out the prohibited activities, but the measures do provide limited exemptions to allow dealing for the purposes of national security reasons or for the prevention of crime. It is also prohibited to grant loans or credit with a maturity of more than 30 days to specified companies (and their non-UK established subsidiaries).
OFSI has issued guidance on the Russia sectoral restrictions, which can be viewed on its website here. The guidance lists the companies specified under these restrictions. It also details other sectoral restrictions relating to the areas of Crimea and Sevastopol, for example, restrictions relating to acquisition of land in those areas.
The sectoral provisions in respect of Russia and Ukraine are expected to be broadened in March 2022.Exemption licensing – scope
Are the competent sanctions authorities in your jurisdiction empowered to issue a licence to permit activities which would otherwise violate economic and financial sanctions? If so, what is the extent of their licensing powers and in what circumstances will they issue a licence?
OFSI can issue a licence to do an otherwise prohibited act where certain specific licensing grounds apply. These will vary according to the underlying sanctions but, in broad terms, OFSI’s approach to certain types of licence application under SAMLA is set out in guidance (pages 26−28) and is summarised as follows:
Enables the basic needs of a designated person (ie, an individual or entity subject to an asset freeze), or (in the case of an individual) any financially dependent family member of such a person to be met and to ensure that they are not imperilled. Meeting basic needs does not necessarily mean that a person will be able to continue the lifestyle or business activities they had prior to designation.
For entities, basic needs include (not an exhaustive list): payment of insurance premiums, payment of reasonable fees for the provision of property management services, payment of remuneration, allowances or pensions of employees, and rent or mortgage payments.
Fees for the provision of legal services
In general, it is possible for lawyers to provide legal advice or to act for a designated person without a licence. However, a licence is required to enable a lawyer to receive payment and OFSI recommends that a licence is sought in advance of the provision of any substantive legal services. OFSI requires that the licence applicant demonstrate that the legal fees and disbursements are reasonable. To do this, an estimate of the anticipated fees or fees that have already been incurred, a fee breakdown and identification of any disbursements should be provided with the application.
Routine maintenance of frozen funds or economic resources
Fees or service charges must be reasonable and result in the routine holding or maintenance of frozen funds or economic resources. OFSI will not generally provide a licence for refurbishment or redevelopment of properties to improve their value but will consider such requests on a case-by-case basis.
OFSI does not permit this licensing ground to be used if other grounds are more suitable. Expenses must be extraordinary in nature, ie, unexpected, unavoidable and not recurring.
Pre-existing judicial decisions etc.
Enables the use of frozen funds or economic resources that are the subject of a judicial decision or lien that was established before the date of designation and that is enforceable in the UK. The funds or economic resources must be used to implement or satisfy (in whole or in part) the pre-existing judicial decision or lien. They cannot be used for the benefit (whether direct or indirect) of a designated person.
Humanitarian assistance activity etc.
Enable payments to facilitate humanitarian activity or activity where its purposes are consistent with the objectives of UN Security Council Resolutions. This will include the work of international and non-governmental organisations carrying out relief activities for the benefit of the applicable civilian population, such as delivery of aid or peace-building programmes. OFSI notes that a licence may still be required even if the activity involves using government funds.
Enables anything to be done in order that the proper functions of a diplomatic mission or consular post, or an international organisation may be carried out.
This ground applies to non-UN designated persons and enables anything to be done to deal with an extraordinary situation. OFSI explains that this will enable a situation that is extraordinary in nature but does not necessarily involve an expense. ‘Extraordinary’ means unexpected, unavoidable and not recurring. For example, it may allow for funds to be released to support disaster relief or provide aid in extraordinary situations. Like the ‘extraordinary expenses’ ground, it cannot be used where other grounds are more suitable.
Enables funds or economic resources to be used to satisfy an obligation in existence prior to the date of designation. It does not permit funds or economic resources to be made available (directly or indirectly) to a designated person.
Where the relevant sanctions derive from other primary legislation (such as the Anti-Terrorism Crime and Security Act 2001), then OFSI will consider the grounds applicable under that legislation, which may differ.
OFSI also has the power to issue ‘general licences’ permitting specified activities which would otherwise be prohibited, without the need to apply for a specific licence. It is not possible to apply for a general licence – they are issued for specific policy reasons by the UK government, for example:
- there is a general licence published under the Russia (Sanctions) (EU Exit) Regulations 2019, which permits payments to be made to sea ports that would otherwise be unlawful, subject to both prior notification to OFSI and post facto reporting; and
- on 25 February 2022, a general licence was published under the Russia (Sanctions) (EU Exit) Regulations 2019 to allow for the wind-down of any positions involving VTB Bank and VTB Capital plc.
What is the application process for an exemption licence? What is the typical timeline for a licence to be granted?
- the amount of an intended payment;
- the intended purpose of the transaction or funds;
- the intended payment routes;
- the sender and receiver of funds, including any intermediaries and beneficiaries;
- how the funds will be accounted for; and
- an explanation of the reasonableness of any proposed payment (where relevant).
OFSI aims to engage with applicants within four weeks of the licence request. This does not, however, mean that a licence will necessarily be granted within that time frame. In certain cases, OFSI will need to seek approval from the UN Sanctions Committee before a licence is issued. That will lengthen the processing time. OFSI will prioritise urgent or humanitarian licence requests.Approaching the authorities
To what extent is it possible to engage with the competent sanctions authorities to discuss licence applications or queries on economic and financial sanctions compliance?
It is possible to contact OFSI at [email protected] or by calling 020 7270 5454 with queries about the licence regime, the practicalities of submitting an application and the evidentiary requirements. In our experience, OFSI will not provide an indication of whether a licence is likely to be granted in a theoretical scenario and it will not provide legal advice on the sanctions requirements.Reporting requirements
What reporting requirements apply to businesses who hold assets frozen under sanctions?
All businesses in the regulated sector (as set out on page 19 of OFSI’s guidance) are required to report to OFSI where they know or suspect either that their customer is a designated person, or that an offence has been committed under sanctions legislation by another person, where the information upon which that knowledge or suspicion is based comes to them in the course of business. Information provided to a regulated person in privileged circumstances is protected from disclosure.
This means that there will be a reporting obligation where businesses holding frozen assets become aware, for example, that a person is attempting to move those assets or to circumvent the legislation. Businesses should also bear in mind that such situations may give rise to a separate reporting obligation under the money laundering regime, if potential money laundering is identified. A report to OFSI does not discharge the duty to report to the NCA by filing a SAR, or vice versa.
In addition to the reporting regime, OFSI has statutory powers to compel the production of information, where a failure to comply carries criminal liability.
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1 April 2021