The UK’s HM Treasury is holding a consultation (click here), open for comment through January 26, 2017, on the process for imposition of civil penalties for breach of financial sanctions. This is a major change from current UK law, which has produced few enforcement actions, as the law currently allows only for criminal enforcement of sanctions breaches or regulatory oversight for those operating in the financial services sector for failing to have adequate systems and controls in place to comply with financial sanctions.
The new civil sanctions regime would be applied under the Policing and Crime Bill (click here), which is expected to be enacted by Parliament early next year as the Policing and Crime Act 2017. Part 8 of the proposed Act sets out the new financial sanctions provisions, including civil monetary penalties of up to the greater of £1 million or 50% of the estimated value of funds or economic resources involved in a sanctions breach. Such civil penalties would be applicable both to businesses and other organizations, and to individuals (in the case of company officials, where it is shown by the “balance of probabilities” that an offense involved the connivance, consent or neglect of the official).
Part 8 of the proposed Act would also:
- establish enhanced criminal penalties for sanctions violations;
- add sanctions offenses to the offenses which may be covered by a deferred prosecution agreement under the Crime and Courts Act 2013 or a serious crime prevention order under the Serious Crime Act 2007; and
- authorize certain temporary actions to facilitate prompt implementation of new UN and EU sanctions.
The consultation relates only to monetary penalties under the Act (and not to the other issues set out in the previous paragraph). Monetary penalties would be administered by the UK Office of Financial Sanctions Enforcement (OFSI), a new office of HM Treasury established on March 31, 2016 to facilitate UK compliance with financial sanctions. At present, OFSI has no sanctions enforcement role (criminal penalties are within the jurisdiction of the UK Serious Fraud Office, the Crown Prosecution Service and the Attorney General), but the Act would give it primary responsibility for civil sanctions enforcement. Topics covered by the consultation include:
- which “serious” and “most serious” sanctions breaches will trigger enforcement action;
- aggravating and mitigating factors (including voluntary disclosure) – analogous to a briefer version of the enforcement guidance issued by the US Office of Foreign Assets Control (OFAC Enforcement Guidance);
- setting penalty levels – including a “penalty matrix” quite similar to the one in the OFAC Enforcement Guidance;
- initiation of penalty proceedings, and process for participation in proceedings by target(s);
- review of penalty determinations (by a HM Treasury minister) and appeal (to the Upper Tribunal, which handles certain other types of administrative appeals); and
- publication of penalty determinations “to deter future non-compliance, and promote increased awareness of good practice”.
More generally, civil enforcement of sanctions is rare in the EU, and some have suggested that UK adoption of civil sanctions could be influential in other EU member states. However, the ongoing Brexit process of UK withdrawal from the EU may affect the persuasiveness of UK action, as well as UK implementation of the Act. The main sources of UK sanctions are UN and EU sanctions decisions and legislation, and the Act and the consultation are drafted on the assumption of UK membership in the EU. Various changes to UK sanctions legislation and processes will be required if and when Brexit takes place.
Companies interested in responding to the consultation may do so via the process in Part 3 of the consultation. Steptoe is considering a response to the consultation on its own behalf or as part of a larger group – in order to seek implementation of the proposals in a way that does not unduly burden companies with potential UK sanctions exposure – and we would be interested to speak with companies interested in such an effort. We are also available to answer questions about that process or otherwise assist with responses. We will also provide further updates on the ongoing implementation of the new UK civil sanctions penalties, and other sanctions-related provisions of the Act.