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Sanctions

Sanctions are used for a number of purposes, including pressurising a particular country or regime to change their behaviour, or to prevent terrorist financing.

The Treasury has established within it the Office of Financial Sanctions Implementation (OFSI). Its principle aims are to:

  • increase awareness of and compliance with financial sanctions;
  • ensure that sanctions breaches are rapidly detected and effectively addressed; and
  • provide a professional service to the public and industry on financial sanctions issues.

The financial sanctions regimes in force in the UK include country-based regimes, as well as those directed at terrorist organisations. The HM Treasury website provides details of all the current financial sanctions regimes in force and of the statutory instruments giving effect to these sanctions.

You can also subscribe to receive updates when sanctions are updated.

Further guidance on Sanctions, Embargos and Restrictions can be found on the HM Treasury website, along with a form for reporting suspected breaches

We would recommend considering a sanctions check as an important part of your customer or client due diligence.

NCA have published guidance on the financial profiles of foreign terrorist fighters.

Reporting obligations

All accountants in practice, as well as others working within the regulated sector in the UK, will be aware of their obligations under the Money Laundering Regulations 2007 including the legal obligation to report their suspicions to the National Crime Agency (NCA).

All businesses, organisations and individuals now have an obligation to report information about sanctions breaches.

You must report to OFSI as soon as practicable if you know or have reasonable cause to suspect that a person:

  • is subject to financial sanctions
  • has committed an offence under the regulations

OFSI have updated their Guide to Financial Sanctions to help individuals and businesses understand what they should report and when.

There is a standard template that must be used which can be found here.

Members should be aware that making a SAR to the NCA does not remove the requirement to make a report to OFSI.

Sanctions and AML compared and contrasted: 15 things you should know

  • The UK Sanctions Regime has been developed over the same timeframe as the Anti-Money Laundering regime, and has many similar objectives and characteristics. However, there are also significant differences.
  • Sanctions are used for a number of purposes, including pressurising a particular country or regime to change their behaviour, or to prevent terrorist financing. There are many different types of sanctions including travel bans, asset freezes, trade embargoes and other restrictions.
  • All UK individuals and businesses must comply with financial sanctions requirements.
  • The prohibitions apply whether dealing with targets directly or through an intermediary including a lawyer or accountant. In these circumstances, the intermediary (acting within the UK) is also caught.
  • There is no single Act of Parliament that sets out the UK financial sanctions regime, it is instead made up of various EU Regulations and UK Statutory Instruments. The penalties for breach vary depending on the underlying legislation but include imprisonment and/or a fine.
  • The nature of the regime means that, if a business or individual is unaware that a new target has been added to a sanctions list, and they deal with that target, they could find themselves guilty of a strict liability offence. Such lists are updated on a periodic basis which can make compliance challenging.
  • The international and UK legislative frameworks for financial sanctions do not prescribe the processes which businesses have to adopt to achieve compliance with their legal obligations.

Risk assessment procedures

  • The senior management/partners of the business are responsible for the firm’s sanctions compliance policies and procedures. Businesses might want to implement a sanctions policy and carry out staff training proportionate to their risk profile.
  • Businesses may want to consider financial sanctions as part of their customer and transaction due diligence, as well as their overall risk assessment, with processes being proportionate to the nature and size of the firm’s business. This might involve consideration of a range of factors including (but not limited to):
    • Customer profiles
    • Service offerings
    • Complexity of transactions with which the firm is involved
    • Geographic markets (including legal requirements and sanctions)
    • Internal processes
    • Businesses should document their risk assessment and decisions made on the basis of such an assessment

Customer due diligence

  • AML customer due diligence systems may provide assistance with identifying sanctions targets. Ongoing monitoring systems for AML may also assist in highlighting targets during the course of business relationships. Businesses may consider using electronic customer screening software, many AML due diligence products will also include sanctions screening. The HM Treasury website also provides details of all the current financial sanctions regimes in force and of the statutory instruments giving effect to these sanctions. Potential matches should be checked but ‘false positives’ are common.
  • AML systems in an accounting environment can have a tendency to focus on customer due diligence rather than the receipt or transmission of funds. Compliance with sanctions means knowing to whom payments are being made. Funds may be from an entirely legitimate source.
  • Targets might use false information to evade detection such as varying the names of individuals and entities.
  • In some situations screening might also cover other related parties like beneficial owners, trustees or company directors, on a risk sensitive basis.

Reporting

All businesses, organisations and individuals now have an obligation to report information about sanctions breaches. You must report to OFSI as soon as practicable if you know or have reasonable cause to suspect that a person:

  • is subject to financial sanctions
  • has committed an offence under the regulations

For those in the AML regulated sector, finding that you are dealing with a sanctioned party is not necessarily grounds for filing a SAR under either POCA or the Terrorism Act. Neither does informing the client necessarily constitute ‘tipping off’ as sanctions are public information (unless otherwise specified). However, if you are operating in the AML regulated sector, and you have a suspicion of crime or terrorism, obligations arise under POCA/Terrorism Act and a SAR should be submitted. Informing the client in this scenario would constitute tipping off.

Final thought

  • Although compliance with AML obligations does not equal compliance with financial sanctions obligations, the key similarities are the use of judgement and the adoption of a risk based approach