The Policing and Crime Act 2017 introduces a tougher range of penalties for those who breach financial sanctions.
Failure to comply with it can lead to fines of up to £1 million from HM Treasury. The Treasury’s Office of Financial Sanctions Implementation (OFSI) is also given power under the Act to offer deferred prosecution agreements.
The Act’s approach to financial sanctions ushers in a new era; with significant monetary and criminal penalties for breaches of it.
It affects any person in the UK, any UK citizen wherever they are, all corporates operating in the UK, corporates incorporated in the UK that may be based abroad, foreign subsidiaries of a UK company and even a non-UK company that conducts an international transaction via the UK or buys financial products in the UK for use overseas.
Under Section 146 of the Act, HM Treasury has the power to impose a monetary penalty on “a person” if it is satisfied, on the balance of probabilities, that the person has breached a financial sanction and knew, or had reasonable cause to suspect, that a breach was being committed.
Breaches of financial sanctions include failure to comply with:
* Asset freezes.
* Restrictions on individuals in certain financial markets and services.
* Directions to stop trading with a certain person or group or in a named country or business sector.
When assessing the seriousness of the breach – and the appropriate penalty – the OFSI will look at the conduct in question, compliance standards in that sector, the behaviour of all parties, the number of breaches and whether those breaches were reported to OFSI.
The OFSI guidance states that the “penalty threshold” will be reached where:
* On the balance of probabilities there has been a breach.
* The person committing it knew or had reasonable cause to suspect a breach is being committed.
*The breach involved funds being made available directly to a designated person via arrangements that were made to circumvent the law
Without the above factors, OFSI believes that a monetary penalty is appropriate and proportionate. The maximum financial penalty, where the breach does not relate to specific funds, is £1 million. Under sub-sections (3) and (4) of Section 146, if it does relate to particular funds, the maximum financial penalty is £1 million or, if it is greater, 50% of the estimated value of the funds involved in the breach.
The OFSI can decide not to impose a penalty if it is not in the public interest to do so, would have no effect or if the wrongdoing was committed due to coercion or blackmail. It is important to emphasise that the OFSI says that reductions of up to 50% could be available if the wrongdoing is self-reported.
The Act increases the maximum criminal penalty for failing to comply with a prohibition under a freezing order from two to seven years for conviction on indictment, and from three to 12 months on summary conviction: a clear indicator of just how tough the Act is. Section 148(1) of the Act states that where an offence is committed with the consent or connivance of a corporate body, or through the neglect of its officer, both are guilty of the offence and liable to be punished accordingly.
This Act gives the OFSI more power – criminal and civil – than has previously been available to punish these types of offence. This will surely mean that enforcement in the UK will become busier; possibly with the OFSI acting like the US Office of Foreign Assets Control (OFAC): imposing large fines on those breaching sanctions. More criminal prosecutions, civil penalties and out-of-court settlements are likely.
It is a piece of legislation that emphasises the need for companies of all sizes to have strong compliance policies and, if they have not, to seek advice on introducing them.