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OFSI exercises powers to enforce sanctions compliance on fintech company

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

01-09-2021

 

Introduction

The Office of Financial Sanctions Implementation (“OFSI”) has issued a monetary penalty of £50,000 against fintech company TransferGo Limited (“TransferGo”) for breaches of Regulation 4 of The Ukraine (European Union Financial Sanctions) (No.2) Regulations 2014 (“UK Regulations”).  The breaches arise from payments made to accounts held by designated bank Russian National Commercial Bank (“RNCB”). 

In accordance with its right pursuant to section 147 of the Policing and Crime Act 2017 (“PACA 2017”), TransferGo exercised its right to a Ministerial review by the Economic Secretary to the Treasury.  Following this review, OFSI’s decision was upheld on 25 June 2021.

The action marks the first penalty issued by OFSI this year and the fifth penalty issued by OFSI altogether under its civil monetary penalty powers.

Background

TransferGo is a registered payment service provider that allows customers to make global money transfers. Between 20 March 2018 and 18 December 2019, TransferGo made 16 different transactions, totalling £7,764.77, involving the transfer of funds into accounts held by individuals resident in Crimea who held accounts at the RNCB.  The RNCB is a designated entity subject to an asset freeze under the Council Regulation (EU) No 269/2014 meaning that making funds available to such an entity, directly or indirectly, is prohibited.

TransferGo did not make a voluntary self-disclosure to OFSI and the OFSI notification indicated that it received a suspected breach report in April 2018 in respect of 8 initial payments.  Whilst a voluntary self-disclosure was not made, OFSI noted that the company did cooperate with the regulator throughout the investigation and provided information promptly when requested.

TransferGo argued that it did not engage in activity which breached the UK Regulations, as the beneficiaries of the payments (i.e. the account holders) were not themselves subject to sanctions.  OFSI concluded that this was an incorrect interpretation and that funds held in bank accounts ultimately belong to those banks.  As such, OFSI concluded that TransferGo had demonstrated a poor understanding of the restrictions imposed by the relevant sanctions.   OFSI concluded that as the payments in question were made using a BIC which identified the RNCB as the receiving institution, TransferGo had knowledge or reasonable cause to suspect breaches of the UK Regulations.

Following a Ministerial review by the Economic Secretary to the Treasury, both OFSI’s decision and the penalty were upheld due to the belief that the penalty was reasonable and proportionate when taking into account the options available to OFSI, OFSI’s assessment of the facts was reasonable and it had followed its processes correctly.  The Minister also refused a request for anonymity from TransferGo.  

Lessons learned  

1.    This decision further demonstrates OFSI’s willingness to investigate alleged sanctions breaches and to impose monetary penalties where necessary.   The notice also confirms that OFSI will continue to investigate allegations of sanctions breaches pre-Brexit and will enforce them under the pre-Brexit legislation where necessary.   The OFSI notice also highlights the importance of voluntary self-disclosure.  It confirms OFSI’s position that it welcomes and values self-disclosure and that a 50% reduction in penalty would have been applied in this case if TransferGo had self-disclosed.  It is a reminder to all regulated institutions that where historic sanctions breaches are identified, self-disclosure is a valuable and worthwhile consideration.

2.    The OFSI notice confirms that it is considered to be a breach where funds are transferred to a non-designated person (i.e. an account holder) if such funds are held in an account with a designated bank (where there is knowledge or reasonable cause to consider that this is the case). This makes a thorough due diligence critical and emphasises that checks must be done against all parties involved in a funds transfer, including the Banks involved, to mitigate against any potential risk.

3.    TransferGo was not granted anonymity as this would not be in the public interest and would be contrary to OFSI’s sanctions regime’s objectives. OFSI did not, however, provide any information on when such anonymity would apply and in our view, this is unlikely to be granted unless there are strong public interest reasons for not doing so.