OFSI Revises Guidance on Monetary Penalties for Breaches of UK Financial Sanctions

On March 10, 2021, the UK Office of Financial Sanctions Implementation (OFSI) published a revised version of its Monetary Penalties for Breaches of Financial Sanctions Guidance (Guidance), which will come into force on April 1, 2021. The new Guidance will be used to assess any potential financial sanctions breaches of which OFSI becomes aware on or after that date. The current version of the Guidance will remain applicable in the meantime.

The structure and scope of the revised Guidance is largely unchanged. The majority of the additions and changes focus on the case assessment and penalty calculation processes and seek to clarify OFSI's position on certain issues as well as reflect some of the lessons OFSI has learned through its monetary penalty cases since May 2018. However, the revised Guidance is not purely an update or restatement. While the overall monetary penalties regime has not materially changed, a number of the changes to the Guidance indicate a stronger enforcement stance from OFSI.

Most notably, the amendments to the Guidance suggest an intention to make use of monetary penalties in concert with other enforcement tools and the possibility of a broader interpretation of OFSI's jurisdiction to impose penalties. In some cases, the changes are subtle and only time will tell whether certain changes reflect new interpretations or shifts in enforcement stance or are simply the product of drafting.

This advisory summarises in more detail the key amendments to the Guidance by topic.

Chapter 1: Introduction

The introduction largely sets out some basic information about financial sanctions, the power to impose monetary penalties and to whom that power can apply. Having said that, paragraph 1.22 of the Guidance has been amended to remove a statement – included in the previous version of the Guidance – that "OFSI will not normally impose a penalty on any person who already has been prosecuted." This suggests a strengthening of OFSI's enforcement stance and may signal an intention to make use of monetary penalties in cases that also involve a criminal prosecution for breaches of financial sanctions.

Chapter 3: Case Assessment

The most extensive amendments to the Guidance are to be found in the case assessment chapter.

Paragraph 3.2 of the revised Guidance sets out a non-exhaustive list of steps that OFSI may take when responding to a breach of financial sanctions, including imposing a monetary penalty, issuing a warning or referring the case for criminal investigation and potential prosecution. The updated Guidance has been supplemented to make clear that OFSI may take more than one such action in any particular case.

The prior version of the Guidance stated, at paragraph 3.8, that OFSI "will not artificially bring something within UK authority that does not naturally come under it." This statement on OFSI's jurisdiction over financial sanctions breaches has been removed from the revised Guidance and may indicate a more expansive interpretation of OFSI's jurisdiction to impose penalties, perhaps including in cases involving payment flows through UK banks.

The Guidance also describes a series of aggravating and mitigating "case factors" that OFSI takes into account when determining how seriously to view a case. The revised Guidance has:  

• Removed a statement included in the previous version of the Guidance that OFSI is "likely to treat a case that directly and openly involves a designated person more seriously than one that is a breach of financial sanctions but does not make funds or economic resources available to a designated person" (paragraph 3.16).
• Clarified that the financial value of the transactions or resources involved in a breach of financial sanctions is one component in OFSI’s overall assessment of such cases (paragraph 3.17).
• Extensively rewritten the “Knowledge of sanctions and compliance systems” section of the Guidance in a manner that arguably raises the bar with regard to the level of knowledge of – and compliance with – financial sanctions expected by OFSI. In particular, the –
  • requirement for a person to “make their own assessment of what is reasonable and necessary for their particular circumstances” has been replaced with a requirement for OFSI to consider the kind of work a person does and their exposure to financial sanctions risk when assessing their actual or expected knowledge of financial sanctions and determining the action to be taken in response to a financial sanctions breach (paragraph 3.20); and
  • removal of a statement included in paragraph 3.20 of the previous version of the Guidance concerning the level of compliance that OFSI expects, which provided that "[i]f a person simply falls below a high standard, [OFSI] will consider whether or not it is proportionate to impose a penalty if that is the only distinguishing factor in a case." 
• Confirmed that repeated, persistent or extended breaches by the same person will be considered as an aggravating factor, particularly when a person is unresponsive to a previous warning and makes further breaches of financial sanctions (paragraph 3.26).
• Confirmed in paragraph 3.33 that OFSI expects voluntary disclosures to "include all evidence relating to all the facts of the breach," replacing the requirement in paragraph 3.34 of the previous version of the Guidance for such disclosures to be "materially complete on all relevant factors that evidence the facts of a breach."
• Changed the description of "most serious" type cases from those involving "blatant flouting of the law" to "particularly poor, negligent or intentional conduct," arguably lowering the threshold for categorisation of a case as being of the "most serious" type (paragraph 3.46).

Chapter 4: The Penalty Process

Several changes have been made to the penalty calculation process in the revised Guidance:

• The criteria for assessing the baseline penalty level have been adjusted. OFSI must still decide what level of penalty is reasonable and proportionate within the statutory maximum penalty (i.e., the greater of £1 million or 50% of the value of the breach) based on its view of the seriousness of the particular case. However, the revised Guidance has replaced the requirement for a clear relationship between the value of the proposed penalty, value of the breach and how seriously the breach undermined the pertinent sanctions regime with "a holistic assessment of all the other factors present in the case." The updated Guidance goes on to make clear that, in the future, penalties are not required to "be either a specific percentage or multiple of the breach amount" (paragraph 4.8).
• The revised Guidance has clarified a number of points regarding the likely credits available for voluntary disclosure of financial sanctions breaches, as follows –
  • in cases where a series of financial sanctions breaches are identified but only some of the breaches were voluntarily disclosed, OFSI will take that into account when calculating any penalty reduction for voluntary disclosure in the particular case and may reduce the credit to be awarded accordingly (paragraph 4.9); and
  • while voluntary disclosure reductions usually will be applied when a person notifies OFSI of a suspected financial sanctions breach, OFSI assesses reductions on a case-by-case basis and may refrain from giving reductions if, among other things, it becomes apparent that the person has not made a complete disclosure during the course of the investigation, has only self-reported to OFSI because they believe that OFSI already is aware of the suspected financial sanctions breach, or refuses to provide information on request (paragraph 4.10).
• Paragraph 4.11 of the revised Guidance clarifies that – in information offence and other cases where there is no transaction value on which to base a penalty calculation – OFSI will impose a penalty that is reasonable and proportionate to the facts of a case up to a permitted maximum of £1 million.
• Paragraph 4.21 in the prior version of the Guidance provided OFSI with the discretion not to impose a penalty in certain circumstances, including when imposing a penalty would have no meaningful effect, be perverse or otherwise not in the public interest. Notably, this provision has been removed from the updated Guidance.

Chapter 5: Procedure for Imposing a Penalty

While the revised Guidance does not set forth any major changes with respect to the procedure for imposing a monetary penalty, the time period within which the penalised person may make representations concerning the proposed penalty has been slightly extended from 28 calendar days to 28 working days. The evidence that must be submitted in support of any request for an extension to the foregoing timeframe also has been changed from evidence that it is "reasonable" to extend the timeframe to evidence "of the reasons" for the extension request.

A comparable extension from 28 calendar days to 28 working days has been made to the timeframe after the final date of the period for making representations within which OFSI must consider and respond to representations made by the penalised person.

Chapter 6: The Right of Ministerial Review

The revised Guidance has made a number of changes to the ministerial review process, as follows:

• The time period within which a penalised person can request a ministerial review of OFSI’s decision to impose a monetary penalty has been increased from 28 calendar days to 28 working days (paragraph 6.3).
• The revised Guidance expressly states that extensions to the foregoing timeframe can also now be requested in exceptional circumstances, with OFSI required to consider such requests on a case-by-case basis (paragraph 6.3).
• Under the previous version of the Guidance, requests for ministerial review were to be submitted in writing via OFSI. While the default position under the updated Guidance remains that such requests should be submitted in writing, the Guidance has been qualified to permit submission by other means if "there is a good reason" for not making a written submission (paragraph 6.3).
• The time period that must be targeted for the completion of ministerial reviews has increased from 28 calendar days to two months, subject to any necessary extensions of time (paragraph 6.9).

Chapter 8: Paying a Penalty

While the revised Guidance does not introduce any major changes with respect to the payment of monetary penalties, paragraph 8.1 has been amended to clarify that payment should be made within 28 working days of the date the penalty is imposed, replacing the reference to payment “within a reasonable time” in the previous version of the Guidance.

Chapter 9: Publication of Penalty Details

The revised Guidance contains the following clarifications and additions to its description of OFSI's publication of monetary penalty details: 

• Paragraph 9.3 of the Guidance has been updated to clarify that case summaries containing details of monetary penalties will include the aggregated value in Pounds Sterling of the transactions that are in breach of pertinent financial sanctions regulations, where such data can be identified.
• Paragraph 9.8 of the Guidance provides additional detail regarding the timing of OFSI’s publication of case summaries. In particular, the Guidance states that OFSI will not normally publish monetary penalty details until after the penalised person has had an opportunity to exercise their right to a ministerial review (i.e., the penalized person has asked for a review and the Economic Secretary to the Treasury has decided that a penalty should be imposed or the deadline for requesting such a review has elapsed without any request being made). The updated Guidance also clarifies that – if the penalized person appeals to the Upper Tribunal following a ministerial review and the Upper Tribunal quashes or amends the penalty –  OFSI must publish an amended case summary that reflects the determination of the Upper Tribunal.
• The Guidance now specifies in paragraph 9.9 that monetary penalty reports will be published on OFSI's website.

Conclusion

As the foregoing analysis demonstrates, OFSI remains committed to establishing itself as a financial regulator with teeth and is using the lessons learned through past monetary penalty cases to hone and sharpen up the way it exercises its powers to impose penalties for financial sanctions breaches. While the updated Guidance is of most immediate relevance to companies considering self-reporting – or actively seeking to resolve – suspected breaches of UK financial sanctions, it also provides an insight into OFSI's current enforcement stance and, as such, is relevant more generally to the compliance efforts of companies that are subject to UK financial sanctions. Companies should keep a close eye focused on OFSI's implementation of certain of the changes to the Guidance for evidence of new interpretations or shifts in OFSI's enforcement stance.