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OFSI launches consultation on far reaching penalties for breaching financial sanctions

  • United Kingdom
  • Financial services disputes and investigations
  • Fraud and financial crime
  • Litigation and dispute management
  • Sanctions

02-12-2016

The Office of Financial Sanctions Implementation (“OFSI”), part of HM Treasury, yesterday (1 December 2016) launched a new consultation seeking views on guidance which will set out its approach to imposing monetary penalties for financial sanctions breaches.

OFSI was established on 31 March 2016 to support the UK’s foreign policy and national security goals and help to maintain the integrity of and confidence in the UK financial services sector. However, to date, there has been minimal activity in terms of enforcement of the UK’s sanctions regime.

That will change from April 2017, as OFSI will be able to utilise new powers to impose penalties for serious sanctions breaches of up to £1 million or 50% of the value of the breach, whichever is higher. These powers stem from the new Policing and Crime Bill (the “Bill”), which is currently passing through Parliament and which, once passed into law, will provide a more flexible, effective and proportionate set of enforcement measures for sanctions breaches. For example, in 2016, the most expensive breach of financial sanctions in the UK was worth around £15 million which, under the Bill, could cost the perpetrators up to £7.5 million. The guidance provides a helpful penalty matrix:

 

 

Voluntary disclosure

 

Seriousness

Serious

Most serious

 Yes

Statutory maximum minus 50%

Statutory maximum minus up to 30%

 No

Statutory maximum minus up to 15%

Up to the statutory maximum (the greater of 50% of the value of the breach or £1m; or up to £1m if OFSI cannot estimate the value of the breach)

The consultation asks a number of questions in respect of the guidance that is proposed to be published by OFSI in conjunction with the Bill and asks for views on OFSI’s approach to:

• circumstances where monetary penalties may be appropriate;

• factors that will be considered when determining the penalty amount;

• the process for imposing a penalty; and

• circumstances where OFSI will publish details of monetary penalties imposed.

The purpose is to ensure that decisions on sanctions penalties are made in a transparent manner, that HM Treasury can issue clear guidance, which will be understood by the industry, about the approach to the use of its powers under the Bill and that the approach it adopts is fit for purpose.

The Bill, combined with this consultation, will ensure that OFSI has the powers it needs to hand out penalties quickly and effectively. It will also provide OFSI with the ability to publish details of serious sanctions breaches to both educate businesses and organisations as to the importance of sanctions compliance and deter non-compliance.

This is a clear signal that the UK is taking a step towards the US model on enforcement, where OFAC has reached multi-billion dollar settlements with sanctions violators on a number of occasions. Given the major financial, commercial and reputational damage inherent in any enforcement action both stateside and here in the UK, any companies subject to OFSI’s jurisdiction will need to seriously consider their current sanctions exposure and start taking appropriate steps to ensure compliance with an increasingly complex domestic and international sanctions landscape.

The consultation, which can be accessed here, closes at 11:45pm on 27 January 2017.

For more information contact

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