Comply with the UK financial sanctions regime for Russia
As the devastation in Ukraine continues, compliance with the UK’s sanctions regime against Russia is essential. Here, Simon Ramsden and Rhiannon Sheeran review some of the requirements and practical implications of these targeted financial sanctions.
The regime includes financial, trade, aviation, maritime and immigration sanctions imposed under the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act). The aim is to encourage the Russian government to cease actions that destabilize, compromise or threaten the territorial integrity, sovereignty and independence of Ukraine.
The Office of Financial Sanctions Implementation (OFSI) within the UK Treasury is responsible for monitoring compliance with the UK financial sanctions regime and assessing suspected breaches. It has the power to impose monetary penalties for violations of financial penalties and to refer cases to law enforcement for investigation and possible prosecution. In response to the current situation in Ukraine, the list of people sanctioned by the British government is regularly supplemented in an unprecedented way.
Who must comply with financial sanctions?
British financial sanctions extend to all persons within the territory and territorial sea of the United Kingdom and to all British persons wherever they are in the world. It means that:
- All natural and legal persons located or carrying out activities in the United Kingdom must comply with the British financial sanctions in force.
- All UK nationals and legal entities established under UK law, including their branches, must also comply with applicable UK financial sanctions, regardless of where they operate.
There are different types of sanctions related to financial and investment restrictions regarding Russia.
Targeted asset freezes apply to named individuals and entities, restricting their access to funds and economic resources. Details of those subject to an asset freeze in the UK are listed on the OFSI Summary list. The people listed are called “designated people”. OFSI updates the consolidated list to reflect new additions and changes.
When the financial sanction is a freezing of assets, it is generally prohibited to:
- process frozen assets owned or owned, held or controlled by a designated person
- make funds or economic resources available, directly or indirectly, or for the benefit of a designated person
- engage in actions that directly or indirectly circumvent the prohibitions on financial sanctions.
A freezing of assets does not imply a change of ownership of the frozen assets, nor any confiscation or transfer to the OFSI for safekeeping. Instead, all funds or economic resources held or controlled by a designated person must be immediately frozen by anyone in possession or control thereof.
By funds, we generally mean financial assets and benefits of any kind. Economic resources generally refer to assets of any kind that are not funds, but which can be used to obtain funds, goods or services. This may include precious metals or stones, works of art and antiques, vehicles and property. A designated person’s day-to-day use of his or her own economic resources is not per se prohibited upon designation.
Restrictions on a wide variety of markets and financial services
These can apply to named individuals and entities, specific groups or entire sectors. Here are some examples :
- Investment prohibitions
- Obligation to notify or seek authorization before certain payments are made or received
- Restrictions on the provision of financial, brokerage, insurance, advisory or other financial services
- Capital market access restrictions. The OFSI maintains a separate list of entities subject to specific capital market restrictions, which you can consult here. These entities are not on the Consolidated List.
Specific exceptions are contained in the Sanctions Regulations made under the Sanctions Act and may permit prohibited transactions and activities otherwise prohibited in certain situations. There are limited exceptions to the prohibitions. These include the crediting of a frozen account of interest or other income by a competent institution, and the receipt or transfer of funds relating to obligations arising or entered into before the date of the sanction of the person designated. You should check whether any of the legal exceptions may apply to you and your situation and any associated notification requirements.
When a person is subject to financial sanctions, he or his representative may request specific authorization from the OFSI to use his funds or economic resources for specific purposes. Examples of grounds for which a license may be granted include the satisfaction of basic needs, reasonable professional fees, extraordinary expenses, past obligations, medical goods and services, and the maintenance of frozen assets and economic resources. You should check if any of the license grounds may be applicable. Licenses cannot be issued retroactively. Performing an act requiring a license, without having obtained one first, may constitute a breach of a monetary penalty.
A general licence, issued by the OFSI on behalf of HM Treasury, allows several parties to undertake specific activities which would otherwise be prohibited by the applicable sanctions, without the need to have obtained a specific licence. The OFSI does not accept applications for general licenses – it issues them where Her Majesty’s Treasury deems appropriate. They will generally be considered in response to unforeseen circumstances, when it has been decided that issuing a general license will best support government policy priorities.
It is a serious criminal offense to violate any applicable sanctions, permit or facilitate a violation, or circumvent the sanctions regime (including a violation of the terms of any applicable general license).
Failure to comply with monetary penalties is an offense one way or the other punishable by up to 7 years imprisonment on indictment, fine (or both). Breaches can also put the organizations involved at risk of a civil monetary penalty of up to £1 million or 50% of the value of the breach, whichever is greater.
The OFSI monitors compliance with financial sanctions and works closely with other government departments, watchdogs and regulators to investigate all cases of alleged violations reported to it.
Important steps to take if necessary
If you know or have reasonable grounds to suspect that you are in possession or control of funds or economic resources of a Designated Person, then you must immediately:
- Freeze all assets you hold
- Cease dealing with them or make them available to or for the benefit of the named person, unless there is an exception in the law on which you can rely, or you hold a license to OFSI
- Report them to the OFSI as soon as possible, either by calling their general inquiries line: +44 (0)20 7270 5454, or by sending an e-mail: [email protected]
If you are a relevant business, institution, business or profession (as defined in the legislation), you are also subject to additional reporting requirements where, in the course of carrying out your activities, you become aware or reasonably suspect that a Designated Person has violated the Sanctions. concerning them.
Further guidance and advice on the UK financial sanctions regime applicable to Russia can be found on GOV.UK.