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Regulations broaden financial sanctions reporting obligation

ANALYSIS: New UK regulations have been published that significantly extend the duty to report financial sanctions breaches. Previously only banks, financial institutions, certain EEA credit institutions, and currency exchange businesses were obliged to report, but the duty now applies to a far broader range of professions and sectors.14 Aug 2017

Obliged companies who do not adjust their policies and procedures face an increased risk of committing an offence.

The reporting obligation now applies to auditors, casinos, dealers in precious metals and stones, estate agents, external accountants, independent legal professionals, tax advisers, and trusts or company service providers.

Any of these must file a report if, in the course of doing business, they come to know or suspect that a person has committed an offence under the relevant financial sanctions regulations. In broad terms, these offences relate to funding or dealing directly or indirectly with persons or entities who have been listed in financial sanctions regulations and who are subject to asset freezes and other restrictions as a result. Information gained on persons who are known or suspected to be subject to financial sanctions must also be reported.

Reports must be filed with the Treasury's Office of Financial Sanctions Implementation (OFSI) as soon as practicable. The report has to cover the basis of knowledge or suspicion, the information held about the relevant person and the nature and amount of funds or resources held by the reporting entity or institution for the relevant person.

The regulations apply within the UK and to any UK national or body incorporated in the UK.  Failure to report when required is a criminal offence, punishable by up to seven years in prison or a fine, or both. If an offence is committed with the consent of, or attributable to the neglect of, a senior manager or officer, that person as well as the body corporate will be guilty of the offence.

Auditors, casinos and other businesses now covered by the regulations should introduce policies and procedures to ensure that knowledge or suspicions of financial sanctions breaches are escalated so that they can be reported as required. The potential criminal consequences for companies and their officers of not reporting are significant.

For businesses not subject to the reporting duty, voluntary disclosures are encouraged and will be considered a mitigating factor that could lead to a substantial reduction in any penalty for breaching sanctions.

OFSI guidance

OFSI has also released new guidance on the financial sanctions and relevant penalties. OFSI was created to ensure sanctions are properly understood, implemented and enforced and this latest publication is in line with those objectives. The guidance provides practical guidance on the effect and reach of sanctions regulations, and also covers developments under the Policing and Crime Act 2017.

The Act has been in force since 1 April. It significantly altered the monetary penalties that could be imposed for breaches of sanctions regulations, and also changed the way UN resolutions have effect in the UK.

The Act gives OFSI the power to impose penalties of the greater of 50% of the estimated value of the relevant funds or resources or £1,000,000.

To date, the UK financial sanctions regime has been subject to light enforcement in comparison to the US. The establishment of OFSI and the powers given under the Act mean that sanctions breaches are likely to be enforced more rigorously.  

Tom Stocker and Neil Carslaw are sanctions and export control experts at Pinsent Masons, the law firm behind Out-Law.com