New guidance on penalties for breaches of financial sanctions suggests that the Office of Financial Sanctions Implementation (“OFSI”) is moving closer to the US model of pursuing wrongdoing aggressively and levying huge fines. The new penalty rules came into force on 1 April 2021, and companies operating in high risk sectors should pay close attention to the updates.
The Introduction to the new Guidance removes a statement that “OFSI will not normally impose a penalty on any person who has already been prosecuted”. This could be taken to mean that OFSI will seek to impose fines, even where persons have been prosecuted for criminal breaches of financial sanctions.
Case assessment
The Guidance updates the factors that OFSI will take in to account when determining whether to take enforcement actions and what those actions might be.
Several changes have been made to the case assessment chapter, including:
- Removing the statement that OFSI “will not artificially bring someone within UK authority that does not naturally come under it”. This suggests that OFSI could seek to expand its jurisdictional reach in enforcing UK sanctions.
- Removing the statement 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”.
- Changing the requirement for a person to “make their own assessment of what is reasonable and necessary for their particular circumstances” to a requirement for OFSI to “take into account the level of actual expected knowledge of financial sanctions held by an individual or a company, considering the kind of work they do and their exposure to financial sanctions risk”.
- Removing the statement that “if 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 feature in a case”.
- Replacing the requirement that voluntary disclosures be “materially complete on all relevant factors that evidence the facts of a breach” to now requiring voluntary disclosures to “include all evidence relating to all the facts of the breach”. This is not only relevant when OFSI is determining whether to take enforcement action, but also come in to play when assessing penalties (discussed below).
- Changing the definition of the “most serious” types of case from those involving “blatant flouting of the law” to “particularly poor, negligent or intentional conduct”. This change will no doubt bring more cases in to the “most serious” category.
Penalties
The new 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 sanctions regime with a "relationship between the value of the proposed penalty and a holistic assessment of all the other factors present in the case". It also goes on to state that this "does not mean that a penalty should necessarily be either a specific percentage or multiple of the breach amount".
Where voluntary disclosures have been made, OFSI will determine the credit to be given to reflect a reduction in penalties. The Guidance confirms a number of points:
- Where a series of breaches are identified but only some were voluntarily disclosed, that will be taken into account when calculating any penalty reduction and may reduce the credit to be awarded.
- A reduction in penalty may not be given where complete disclosure has not been made, if disclosure has only been made because it’s believed that OFSI is already aware of the breach, or where there is a refusal to provide information upon request from OFSI.
Also of particular interest in the revised Guidance is the removal of the statement that OFSI had a discretion not to impose a penalty in certain circumstances, including where imposing a penalty would have no meaningful effect, be perverse or otherwise not in the public interest.
Time limits and ministerial review
The revised Guidance has made a number of changes to time limits and ministerial review, including extending time limits from 28 calendar days to 28 business days and allowing requests for ministerial review to be made orally if "there is a good reason" for not making a written request.
Publication of penalty details
The revised Guidance states that OFSI will not normally publish the case summary until after the penalised person has had the opportunity to exercise their right to a Ministerial review. If, after an unfavourable Ministerial review, a subsequent appeal is made to the Upper Tribunal, and the tribunal subsequently amends or quashes the penalty, OFSI will publish amended information setting this out in place of its original report.
Conclusion
While the revised Guidance does not depart greatly from the previous Guidance, it does give a potential insight in to the intended direction of OFSI. It would appear that, by broadening its jurisdictional reach and discretion to impose higher penalties, OFSI is seeking to establish itself as a regulator with teeth which will actively and aggressively pursue wrongdoing to enforce the UK’s sanctions regime.
Whether this will result in greater fines, both in volume and/or amount, only time will tell. What is clear however, is that companies will need to ensure that their sanctions compliance programmes, and any voluntary disclosure of a potential breach, reflect the changes in OFSI’s approach to enforcement.
