On 31 March, the Chancellor announced the establishment of the Office of Financial Sanctions Implementation (“OFSI”) as foreseen in the Summer Budget 2015.
Highlighting the goal of ensuring that financial sanctions make the fullest possible contributions to the UK’s foreign policy and national security goals, the Chancellor underlined how the OFSI will maintain the integrity of and confidence in the UK financial services sector. Indeed, the OFSI is designed to provide a “high-quality” service to the private sector working closely with law enforcement to help ensure that financial sanctions are properly understood, implemented and enforced. The announcement set out how the OFSI will be a centre of excellence for financial sanctions. It will deliver this by: 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.
Increasing penalties for non-compliance with financial sanctions
As well as setting the scene for the launch of the OFSI, the Summer Budget set out the Government’s intention to increase the penalties for non-compliance. New measures are designed to bring consistency to penalties across all the financial sanctions regimes and ensure that penalties for breaches of financial sanctions have a sufficient deterrent effect. They also seek to provide the enforcement community with a broader and more flexible array of powers.
These reforms have now been set out in the Policing and Crime Bill 2015-16 (“the Bill”) . This is currently making its way through Parliament with the second reading having taken place on 7 March 2016 and the Committee Stage in the House of Commons coming up on 12 April.
The Bill provides that in the case of legislation implementing financial sanctions, the maximum penalty for an offence is seven years imprisonment. The statutory instruments currently implementing financial sanctions under regulations introduced by the European Communities Act 1972 will be amended by further regulations once the Bill is enacted so that these new penalties apply, bringing other financial sanctions legislation into line with the Terrorist Asset Freezing etc. Act 2010.
The Bill also amends Schedule 1 to the Serious Crime Act 2007 to include financial sanctions breaches in the list of offences for which a Serious Crime Prevention Order (SCPO) may be imposed and amends Schedule 17 to the Crime and Courts Act 2013 to include financial sanction breaches in the list of offences for which a Deferred Prosecution Agreement (DPA) may be entered into. The Bill also provides for the swifter implementation of UN financial sanctions.
As an alternative to a criminal prosecution, the Bill provides for a new monetary penalties regime. The Bill sets the maximum penalty at £1 million or 50% of the total value of the breach, whichever is the greater. A factsheet accompanying the Bill states that monetary penalties will be a “useful tool to deal with those cases” where it is not in the public interest to pursue a criminal prosecution, SCPO or DPA and where the level of the breach or conduct of the individual or organisation is such that a warning letter alone is unlikely to bring about a sufficient change in behaviour.
HM Treasury will consult later this year on the detailed processes for imposing penalties and the levels of penalty imposed in a given situation, and will publish details of the approach to be taken prior to the power being used.
In the meantime, Financial Sanctions is an area receiving increasing attention and scrutiny both in the UK and by overseas jurisdictions and those who risk coming to the attention of the authorities should seek specialist advice as a priority.