Introduction

From 1 April 2017, businesses and individuals that breach financial sanctions rules may be liable for monetary penalties of up to £1,000,000 or 50% of the estimated value of the breach.

These monetary penalties are one of a range of increased enforcement powers for financial sanctions breaches that have been introduced under Part 8 of the Policing and Crime Act 2017 (PCA).

The test

The Office for Financial Sanctions Implementation (OFSI) – the government body responsible for financial sanctions – may impose a monetary penalty where:

  • a person or entity has breached the relevant financial sanctions rules; and
  • that person or entity knew, or had reasonable cause to suspect, that it was committing a breach.

In determining whether this test is satisfied, OFSI needs to meet the civil standard of proof (on the balance of probabilities) – i.e. that it is more likely than not that each limb of the test is satisfied. This is a significantly lower threshold than would be required for any criminal fine or penalty, which is “beyond reasonable doubt”.

The level of the penalty

The OFSI has discretion over the level of the penalty that can be imposed, up to a maximum of £1,000,000 or 50% of the estimated value of the breach (whichever is greater). OFSI has published guidance on how it will decide the level of that penalty or, indeed, if any penalty will be imposed at all.

The guidance makes it clear that both the nature of the breach, and the person’s conduct following a breach, will have a significant impact on the level of any penalty. For example, breaches that involve the direct provision of funds or financial resources to sanctioned persons, attempted circumvention of financial sanctions or failure to provide information when required are more likely to result in a higher penalty being imposed.

OFSI will also consider the level of actual or expected knowledge of financial sanctions rules of particular individuals or businesses when deciding on the level of the penalty to be imposed. In particular, OFSI will be more likely to impose a higher penalty where a regulated professional (such as an accountant or solicitor) breaches the financial sanctions rules. In effect, OFSI’s position is that such professionals should “know better” and will therefore be penalised more heavily than others.

OFSI will classify each breach in terms of seriousness based on the circumstances in each case. All breaches that result in a monetary penalty will be classified as either “serious” or “most serious” by OFSI – with the “most serious” serious breaches attracting a higher penalty.

Voluntary disclosure

The OFSI guidance provides strong incentives for any business or individual that discovers that it has breached the financial sanctions rules to voluntarily disclose the breach. In less serious cases, voluntary disclosure may result in OFSI deciding not to impose a monetary penalty at all.

Even in “serious” and “most serious” cases, businesses or individuals can automatically reduce their potential liability by voluntarily disclosing a breach. Once the baseline value of the penalty has been assessed, this amount will automatically be reduced by 50% in “serious” cases and 30% in “most serious” cases, where the breaching party voluntarily disclosed the breach.

Businesses and management

The PCA expressly provides that, where a penalty is imposed on a body (such as a company or partnership), OFSI may also impose a separate penalty on an officer of the body (such as a partner or director) where the breach or failure took place:

  • with the consent or connivance of the officer; or
  • was attributable to any neglect on the part of the officer.

Officers of businesses dealing in high risk sectors or geographies should be particularly aware and up to date with financial sanctions restrictions and ensure that appropriate checks and safeguards are implemented, as a failure to do so may give rise to direct personal liability.