Overview
This month has seen HM Treasury’s Office of Financial Sanctions Implementation (“OFSI”) roll out a new FAQ guidance format, as well as update a number of its existing guidance documents. In particular, OFSI has introduced changes to its enforcement and civil monetary penalties guidance, as well as to its general financial sanctions guidance in relation to the assessment of licence applications under the “extraordinary expenses” and “extraordinary situations” licensing grounds. Following the introduction of secondary legislation amending a number of UK sanctions regimes on May 15, 2024, corresponding changes also have been made to a range of OFSI guidance documents and other materials.
New OFSI FAQ Guidance Format
In response to repeated requests from industry, on May 1, 2024, OFSI unveiled a new FAQ guidance format accessible via the guidance page on the OFSI website. According to an OFSI blog post announcing this development, the FAQs are intended to provide “a new form of additional guidance aimed at providing technical support to industry partners and the public.”
The FAQs cover a variety of topics such as ownership and control, the use of OFSI general licences, and what constitutes making available funds or economic resources to a UK designated person. OFSI has cautioned, however, that the FAQs should be read alongside its existing guidance and the pertinent UK sanctions legislation, which take precedence over any views expressed in the FAQs.
While FAQs previously were included in OFSI’s Russia regime specific guidance, this is the first time that OFSI has adopted a more holistic approach to the provision of FAQ guidance in relation to UK financial sanctions, which is a welcome development.
On publication, OFSI included 91 FAQs in the new guidance, which touch on the following seven areas: (i) general (covering the application of UK sanctions, as well as sources of information on UK sanctions designations and the treatment of shareholders that are designated persons); (ii) questions arising out of the UK’s Russia sanctions regime (the single largest category of FAQs, many of which previously appeared in OFSI’s Russia financial sanctions guidance); (iii) oil price cap sanctions and the Russian oil services ban; (iv) questions arising out of the UK’s Libya sanctions regime (specifically, the sanctions status of subsidiaries of the Libyan Investment Authority and the Libya Africa Investment Portfolio); (v) OFSI general licensing (principally the legal services general licence in relation to Russia and Belarus and reporting requirements thereunder); (vi) definitions relevant to an understanding of UK financial sanctions regimes; and (vii) OFSI’s role with respect to the implementation of financial sanctions by the Crown Dependencies and Overseas Territories.
OFSI intends to update these FAQs on an as-needed basis, with new FAQs being announced via OFSI’s e-alert service. The details of withdrawn FAQs also will be retained in an accessible format on OFSI’s website with the date of withdrawal being clearly stated. OFSI has indicated that it will not generally accept individual requests for the publication of new FAQs, however, it will look to publish FAQs if doing so would benefit to a significant portion of industry or the public more generally.
Revisions to OFSI’s Enforcement and Monetary Penalties Guidance
On May 2, 2024, OFSI also published an updated version of its Enforcement and Monetary Penalties Guidance (“OFSI’s Enforcement Guidance”). As with previous versions of OFSI’s Enforcement Guidance, this document sets out a summary of OFSI’s compliance and enforcement approach, and an explanation of OFSI’s powers to impose civil monetary penalties under the Policing and Crime Act 2017.
One of the key policy changes articulated in the latest iteration of OFSI’s Enforcement Guidance is that OFSI will now always apply the most recent version of OFSI’s Enforcement Guidance to cases at the time of assessment. Previously, the OFSI Enforcement Guidance in effect at the time the pertinent breach(es) came to OFSI’s attention was applied. According to OFSI, the purpose of this policy change is to make engaging with the enforcement process easier and clearer for all parties, especially in instances where breaches span across several iterations of the guidance.
Importantly, the OFSI Enforcement Guidance confirms that this change in approach “does not impact OFSI’s application of only the relevant legislation in effect at the time of the breach,” and in particular, OFSI’s obligation to consider whether a person had knowledge or reasonable cause to suspect that their actions would result in a breach of financial sanctions in relation to any breaches occurring prior to the introduction of strict civil liability for financial sanctions breaches on June 15, 2022.
The revisions to OFSI’s Enforcement Guidance are also evident in the coverage of OFSI’s approach to case assessment. In particular, the list of factors OFSI considers when assessing how to view a breach of financial sanctions has been expanded to include two new stand-alone case factors as follows:
- Knowledge, Intention, and Reasonable Cause to Suspect – While no longer part of the legal test for establishing a breach of financial sanctions occurring since June 15, 2022, OFSI may assess as an aggravating or mitigating factor whether (or not) a person knew or had reasonable cause to suspect that their actions violated financial sanctions. In this connection, OFSI will consider whether breaches of financial sanctions it identifies: (i) appear to be deliberate; (ii) are the result of neglect / a failure to take reasonable care, a systems and controls failure, or an incorrect legal interpretation; (iii) stem from a lack of awareness of responsibilities with respect to sanctions compliance; or (iv) are the result of a simple mistake (OFSI will consider both actual knowledge and whether the person should have been aware of the effect of their actions); and
- Cooperation – OFSI values cooperation throughout the course of a financial sanctions breach investigation and its consideration of enforcement action. OFSI views “cooperation” as including proactively undertaking internal investigations and providing OFSI with material or information beyond that requested that could assist its consideration of a case, as well as the prompt provision of complete responses to questions posed by OFSI. Refusal to engage constructively with OFSI also may be considered an aggravating factor.
Update to the Licensing Section of OFSI’s General Financial Sanctions Guidance
On May 13, 2024, OFSI updated the description of its approach to licensing grounds under the UK’s financial sanctions regimes in the licensing section of its general financial sanctions guidance. Specifically, OFSI amended the guidance with respect to the extraordinary expenses and extraordinary situations licensing grounds. OFSI’s approach to both licensing grounds is that applications under either licensing ground must be “extraordinary in nature,” including, but not limited to, being unexpected, unavoidable and/or non-recurring. Additionally, OFSI will not permit use of these licensing grounds where other licensing grounds are more suitable or if it is being invoked as a means of avoiding the clear limitations of other licensing ground.
With respect to the extraordinary situations licensing ground, it is designed to apply to non-UN designated persons and is intended to enable a licence to be issued to deal with a situation that is extraordinary in nature but does not necessarily involve an expense. OFSI applies a high threshold for a situation to meet the standard of being extraordinary. For example, even where a situation may seem extraordinary to the parties concerned because it is outside their normal day to day business, that does not necessarily mean it will meet the threshold for this licensing ground.
New Guidance to Reflect Amendments to UK Sanctions Regimes
Various OFSI guidance documents also have been updated to reflect a suite of amendments to UK sanctions regulations that were laid before parliament on May 15, 2024 in the form of the Sanctions (EU Exit) (Miscellaneous Amendments and Revocations) Regulations 2024 and the Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2024. In summary, the measures introduced that required amendments to guidance include:
- Director disqualification sanctions under a range of geographic and thematic sanctions regimes, which introduce a new power to designate persons for the purpose of disqualifying them from being a company director or directly or indirectly taking part, or being concerned, in the promotion, formation, or management of a company absent an exception or licence authorizing them to engage in these activities;
- Designated person reporting obligations under the UK’s Belarus sanctions regime, which require designated persons under that regime to report and update details of the nature, value, and location of funds or economic resources that they own, hold, or control in any jurisdiction (when the designated person is a UK national or entity) or in the UK (in other cases) within ten weeks of May 16, 2024 (when the person was designated prior to that date), or within ten weeks of the date of designation (when the person was designated after May 15, 2024). OFSI’s designated person reporting forms have been updated to reflect these requirements. Refusal or failure to comply with these obligations, or the provision of false information knowingly or recklessly, is an offence in respect of which OFSI can impose a civil monetary penalty; and
- Immigration sanctions (i.e., travel bans) under the UK’s counter-terrorism sanctions regime, which will come into force on June 5, 2024.
Conclusion
These recent updates to OFSI’s suite of guidance documents include some important changes that companies subject to UK sanctions jurisdiction should take into account when ensuring their compliance with financial sanctions, as well as responding to any OFSI-initiated investigations or enforcement actions involving possible breaches of financial sanctions. For more information on these developments, contact the authors of this post, Alexandra Melia or Elliot Letts, in Steptoe’s Economic Sanctions team in London.
