Financial sanctions are EU and UK regulations which prohibit or restrict the giving and receiving of funds and other resources for the benefit of a person or entity that is on the EU or UK’s sanctions list, usually subject to obtaining a licence. Sanctions may also take the form of financial market restrictions to prevent trade in financial instruments issued by specific persons or entities. Last year, the Treasury dealt with over 100 suspected breaches of financial sanctions. Breaches varied significantly: the most expensive breach of financial sanctions was worth around GBP 15 million although the authorities’ enforcement options were limited to pursuing a formal criminal prosecution or sending a warning letter. Authorities lacked an alternative means to impose fines or penalties, unless a criminal prosecution was of sufficient public interest.
The PCA 2017 However, the position has changed following the Police and Crimes Act 2017 (PCA) coming in to force on 1 April 2017. In line with the trend in the UK of moving towards a more robust approach to the enforcement of sanctions for financial crime, the PCA gave the Treasury’s new Office of Financial Sanctions Implementation (“OFSI”) powers to impose potentially significant monetary penalties on companies and individuals for breaches of financial sanctions law. These penalties are an alternative to criminal enforcement, which remains an option. Part 8 of the PCA makes changes to financial crime sanctions in three main areas:
1. Sentencing: the PCA increases the maximum penalties for the sanctions offences under:
a. Schedule 3 to the Anti-terrorism, Crime and Security Act 2001 (failure to comply with freezing orders); and
b. Schedule 7 to the Counter-Terrorism Act 2008 (failure to comply with requirements such as undertaking customer due diligence, limiting or ceasing certain types of business). The maximum penalty was previously two years’ imprisonment but the PCA 2017 increased the penalty to seven years. Penalties for summary offences under the same legislation have also increased from six months to twelve months.
2. Enforcement: currently, financial sanctions breaches are punishable by administrative warning letter or criminal prosecution. The PCA 2017 supplements these by:
a. Extending the deferred prosecution agreement (“DPA”) regime so that a breach of financial sanctions is in the list of offences for which a DPA may be given (see Schedule 17 to the Crime and Courts Act 2013). A DPA may be used where prosecutors believe that criminal proceedings are more appropriate than a civil penalty but it is in the interests of justice to enter into a DPA rather than pursuing a prosecution;
b. Adding sanctions breaches to the list of offences for which a serious crime prevention order (“SCPO”) may be imposed. An SCPO is a civil order, which prohibits a company from undertaking certain targeted activities, such as preventing business dealings with an individual or company. Breach of a SCPO carries a maximum five year prison sentence, an unlimited fine or can lead to an order for forfeiture, or for winding-up of a company;
c. Creating a new civil monetary penalty which may be imposed by OFSI where it is satisfied on the balance of probabilities that a prohibition has been breached and the person in breach either knew or had reasonable cause to suspect that they were in breach. The maximum penalty provided for is GBP 1m or 50 per cent of the estimated value of the funds to which the breach relates, whichever is greater; and
d. A new penalty for senior management which can be imposed where a company has also had to pay a civil penalty for sanctions breaches. This can be imposed on a senior manager if the company’s breach took place with the senior manager’s consent or is attributable to their neglect.
3. Implementation: UN sanctions are given effect in the UK by EU regulations. This means that when the UN introduces a new sanction, the EU must then adopt sanctions regulations implementing any associated asset freeze. The asset freeze cannot be given effect in the UK until the EU regulations have been adopted, which leads to average delays of four weeks (international best practice is for asset freezes to be given effect within 48 hours). PCA 2017 remedies this by giving new UN sanctions regimes immediate effect in the UK for a period of up to 30 days (extendable to 60 days) pending the introduction of the necessary EU legislation.