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What you need to know about the AML and sanction updates

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Published: 22 Aug 2022

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A series of changes to the UK financial system have been made to support sanctions on Russia following its invasion of Ukraine. Mike Miller, ICAEW Economic Crime Manager, explains the changes affecting financial services.

The UK government brought forward the Economic Crime (Transparency and Enforcement) Act 2022 following the Russian invasion of Ukraine. In addition to changes to the powers of the Office of Financial Sanctions Implementation (OFSI) in its role of enforcing compliance with financial sanctions, the new Act also grants it the power to publish the details of those judged to have breached financial sanctions, even if a monetary penalty has not been issued. 


An important change is the removal of the need for the OFSI to prove that individuals had knowledge or reasonable cause to suspect that they are in breach of financial sanctions in order to impose a civil monetary penalty. 


From 15 June 2022, the OFSI has been able to impose penalties simply by proving that financial sanctions were breached, increasing the onus on a person to conduct suitable levels of due diligence.  


The OFSI says that while this will strengthen its ability to enforce penalties against persons (natural and legal) that do not cease dealing with sanctioned entities or otherwise breach their sanctions obligations, it will not always impose a monetary penalty. 


As per current guidance, this change does not change the OFSI’s enforcement approach and self-disclosure of any financial sanctions breaches is important to be considered a mitigating factor. 


Prohibition of Services to Russia 



On 4 May 2022, Foreign Secretary Liz Truss announced the UK Government’s intention to prohibit the provision of accountancy, management consultancy and public relations services to Russia. The prohibition is part of the ongoing and ever-increasing package of sanctions imposed by the UK Government on Russia, following the invasion of Ukraine earlier this year. Both the EU (Regulation (EU) 2022/879) and US (Executive Order 14071) have recently imposed similar prohibitions. 


The 2022 Regulations amend the Russia (Sanctions) (EU Exit) Regulations 2019 (‘the Regulations’) in several respects. New Regulation 54c of the Regulations now provides that: 


(1) A person must not directly or indirectly provide, to a person connected with Russia: 

  • accounting services;
  • business and management consulting services; or
  • public relations services.

 

In terms, Regulation 21(2) provides that ‘A person connected with Russia’ means: 

  • an individual who is, or an association or combination of individuals who are, ordinarily resident in Russia; 
  • an individual who is, or an association or combination of individuals who are, located in Russia; 
  • a person, other than an individual, who is incorporated or constituted under the law of Russia; 
  • a person, other than an individual, who is domiciled in Russia. 

The prohibitions set out in the Regulations apply to the territory of the UK and apply to the conduct of all UK legal persons (including companies and accountancy firms), wherever they are based in the world.  


In other words, the prohibitions and requirements imposed by the Regulations apply to all companies established in any part of the UK, and they also apply to branches of UK companies operating overseas. 


There are certain aspects of this legislation that firms and ICAEW are seeking clarity on with BEIS, and we will update the ICAEW website with any updates that are received. 

 

Companies House reform 


Part of the recently introduced Companies House reforms, the new Register of Overseas Entities, is integral to the UK government’s response to the Russian invasion of Ukraine. 


The Economic Crime (Transparency and Enforcement) Act 2022 (‘the Act’), is an attempt by the government to reduce the manipulation of the UK’s financial system as a tool for nefarious actors to conduct financial crimes.  


One such change is the implementation of the Register of Overseas Entities (the ‘Register’) as part of Companies House reforms, which came into force on 1 August 2022.  


The Register means that, in short, any overseas entities who want to buy, sell, or transfer property or land in the UK, must register with Companies House and declare who their registrable beneficial owners or managing officers are.  

Under the Act, the Registrar of Companies is required to maintain the new Register. Overseas entities that own property in the UK (freehold estates or a lease granted for a term of more than seven years) are now required to register with Companies House and to identify their beneficial owners. 


In England and Wales, the requirements of registration apply to property acquired since 1 January 1999. In Scotland, registration requirements apply to property acquired since 8 December 2014. Overseas entities that currently hold qualifying property have six months from 1 August to register with Companies House. Failure to register is a criminal offence.