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Ownership and Control Guidance

Author: Syedur Rahman  17 November 2023
2 min read

Syed Rahman outlines guidance issued on applying the UK sanctions test of ownership and control.

The UK Office of Financial Sanctions Implementation (OFSI) and the Foreign, Commonwealth and Development Office (FCDO) have issued joint guidance on the application of the ownership and control test under the UK sanctions regulations.

The guidance aims to clarify issues regarding the application of the test following Sir Julian Flaux’s remarks, made in obiter, in the Court of Appeal judgment of Mints and others v PJSC and another [2023] EWCA Civ 1132. Sir Julian Flaux’s wide interpretation meant that all Russian entities, particularly state-owned ones, could be deemed to be controlled by President Putin.

In this latest guidance, OFSI has said that the UK government does not consider that Putin “exercises indirect or de facto control over all entities in the Russian economy merely by virtue of his occupation of the Russian Presidency”.

The published guidance seeks to emphasise that the UK government’s approach is intended to prevent circumvention: OFSI does not generally consider designated public officials to exercise control over public bodies. But if FCDO considered that a public official was exercising control over a public body under UK sanctions regulations, FCDO would look to designate that public body where possible when designating the relevant public official.

OFSI says in the guidance that a sanctioned person will only be considered to exercise control over businesses when there is “sufficient evidence on a case-by-case basis” to prove this. There is no presumption on the part of the UK government that a private entity is subject to the control of a designated public official simply because that entity is based or incorporated in a jurisdiction in which that official has a leading role in economic policy or decision-making.


Diligence

The guidance adds that OFSI expects firms and individuals to adequately consider the sanctions risks and conduct due diligence to ensure compliance with financial sanctions.

But it does not prescribe the level or type of due diligence required. OFSI will, however, expect to see:

  • Evidence of a decision-making process in the conducting of the risk assessment and due diligence.
  • An internal framework or policy existing in relation to these processes.
  • That information obtained throughout the process is carefully scrutinised.
  • Review of the due diligence and ownership and control assessments being carried out on an ongoing basis - and a record kept of this.

Where there is a breach, OFSI states that it will consider every case individually on its merits - along with any mitigating and / or aggravating factors - before imposing penalties.

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Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.

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