Author: Syedur Rahman
12 April 2021
4 min read
Syedur Rahman of Rahman Ravelli assesses the Office of Financial Sanctions Implementation’s latest guidance on financial sanctions breaches, which came into effect this month.
On 1 April 2021, new guidance from the UK government regarding monetary penalties for breaches of financial sanctions came into effect. Breaches reported to the Office of Financial Sanctions Implementation (OFSI) from this date will be assessed under the new guidance.
The new guidance replaces what was issued four years ago, when the OFSI was created and given civil enforcement authority by the Policing and Crime Act 2017.
The previous guidance’s reference to not normally imposing a penalty on a person who has already been prosecuted has now been removed, as has the detail regarding circumstances where the OFSI reserves the right not to impose a civil monetary penalty. While the earlier guidance referred to requesting information about how a party intends to improve its compliance, the latest guidance now talks of issuing warnings and makes it clear that the OFSI can use numerous types of enforcement action in a single case.
There does appear to be a tougher tone to the new guidance. While the majority of the changes to the guidance are not huge, they do indicate the OFSI’s emphasis on its enforcement obligations and the discretion it intends to exercise regarding sanctions violations. There are some aspects of the revised guidance that merit particular attention.
The OFSI can consider voluntary disclosures from those who have breached financial sanctions as a mitigating factor when deciding what penalty to impose.
But while the previous guidance stated that a voluntary disclosure had to be "materially complete on all relevant factors’’ (former paragraph 3.34) and warned that it “takes very seriously’’ disclosures made in bad faith and any disclosure that “was not materially complete", the new guidance goes further. It states, in paragraph 3.33, that it expects disclosures to "include all evidence relating to all the facts of the breach".
This leaves little or no scope for a company missing relevant evidence in the course of an internal investigation, or for the company to not disclose all that information to the OFSI.
What is also significant is the revised guidance’s clarification that there may not necessarily be a reduction in the penalty even if a person makes a voluntary disclosure. The previous guidance said there was “automatic access" to a reduction once a materially complete voluntary disclosure had been made (former paragraph 4.11). Yet while the latest guidance says a penalty reduction will usually be given for voluntary disclosure, this will be decided based on the merits of the individual cases rather than as a matter of routine. Paragraph 4.10 makes it clear that no reduction in penalty will be available if there has not been “complete disclosure in the course of the investigation’, if only matters the OFSI is believed to be aware of are disclosed or if there is a refusal to provide information requested
The OFSI distinguishes between serious and most serious breaches of sanctions when considering the monetary penalty it is to impose. In serious cases, a reduction of up to 50% on the penalty can be made for a voluntary disclosure, with up to 30% able to be taken off penalties in cases classed as most serious.
The updated guidance classes most serious breaches as being "particularly poor, negligent or intentional conduct" (paragraph 3.46), whereas the previous guidance referred to behaviour including "blatant flouting of the law" (former paragraph 3.49). This is a change that enables a greater range of conduct to be classed as most serious – including behaviour that was not intentionally breaking the law.
The new guidance contains other revisions that may not immediately appear to be huge changes but could prove to be important in a number of cases.
Under the new guidance, the OFSI will consider a person’s actual and expected level of knowledge of financial sanctions, the work they do and their exposure to financial sanctions risk when assessing the violation (paragraph 3.19). The previous guidance’s reference to whether a penalty is proportionate if a case’s only distinguishing aspect is that “a person simply falls below a high standard" – particularly "when the person has acted swiftly to remedy the cause of the breach" - (former paragraph 3.22) has gone.
This may mean that the OFSI is now expecting better compliance standards to be in place; with less leniency for those who have tried and failed or who have not been thorough enough in their approach. This could have implications for the penalties imposed.
When calculating a civil monetary penalty, the OFSI determines the statutory maximum that could be imposed - whichever is the greater of £1M or 50% of the breach’s value. It then assesses what is reasonable - what an ordinary reasonable person would consider to be appropriate - and proportionate. Paragraph 4.8 of the original guidance defined proportionate as being when there was a "clear relationship between the value of the proposed penalty and both the value of the breach (if known) and how seriously the breach undermined the sanctions regime".
But the updated guidance describes proportionate as when there is "a relationship between the value of the proposed penalty and a holistic assessment of all the other factors in the case. This does not mean that penalty should necessarily be either a specific percentage or multiple of the breach amount" (paragraph 4.8). This revision has the effect of giving OFSI the ability to impose penalties that are no longer tied directly to the value of the transactions that constituted the breach or to the sanctions policy in place. It now appears to have far greater discretion when it comes to imposing them.
Many of the changes to the guidance can be viewed as minor and, in some cases, necessary amendments to what already existed. Some of the revisions, however, seem to be putting the OFSI in a position where it has greater scope for dealing with sanctions breaches.
The updated guidance comes at a time when the Crown Prosecution Service (CPS) has just issued its first ever Economic Crime Strategy for tackling economic crime offences – including sanctions breaching - by 2025. The guidance has to be seen as another forceful reminder to all those in cross-border business and finance of the need to ensure their compliance programmes are fit for purpose.
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.