Complying with the UK Financial Sanctions Regime for Russia

The Regime consists of financial, trade, aircraft, shipping, and immigration sanctions imposed under the Sanctions and Anti Money Laundering Act 2018 (the Sanctions Act). The aim of which is to encourage the Government of Russia to cease actions that destabilise, undermine or threaten Ukraine’s territorial integrity, sovereignty and independence.

The Office of Financial Sanctions Implementation (OFSI) within HM Treasury is responsible for monitoring compliance with the UK’s Financial Sanctions Regime and for assessing suspected breaches. It has powers to impose monetary penalties for breaches of financial sanctions and to refer cases to law enforcement agencies for investigation and potential prosecution. In response to the ongoing situation in Ukraine the list of those sanctioned by the UK Government is regularly being added to in an unprecedented way.

Who must comply with Financial Sanctions?

UK financial sanctions extend to all persons within the territory and territorial sea of the UK and to all UK persons, irrespective of where they are in the world. This means that:

• All individuals and legal entities who are within or undertake activities within the UK’s territory must comply with UK Financial Sanctions in force.
• All UK nationals and legal entities established under UK law, including their branches, must also comply with UK Financial Sanctions in force, irrespective of where their activities take place.

There are different types of sanctions relating to finance and investment restrictions concerning Russia.

Asset freezes

Targeted asset freezes apply to named individuals and entities, restricting their access to funds and economic resources. Information regarding persons subject to an asset freeze in the UK are listed on OFSI’s Consolidated List. Those listed are referred to as “designated persons”. The OFSI updates the Consolidated List to reflect new additions and amendments.

Where the financial sanction is an asset freeze, it is generally prohibited to:

• deal with the frozen assets, belonging to or owned, held or controlled by a designated person
• make funds or economic resources available, directly or indirectly, to, or for the benefit of, a designated person
• engage in actions that, directly or indirectly, circumvent the financial sanctions prohibitions.

An asset freeze does not involve a change in ownership of the frozen assets, nor confiscation or transfer to OFSI for safekeeping. Instead, any funds or economic resources owned or controlled by a designated person must be frozen immediately by anyone in possession or control of them.

Funds generally means financial assets and benefits of every kind. Economic resources generally refers to assets of all kinds which are not funds, but which may be used to obtain funds, goods or services. This might include precious metals or stones, fine art and antiques, vehicles and property. The everyday use by a designated person of their own economic resources is not itself prohibited on designation.

Restrictions on a wide variety of financial markets and services

These can apply to named individuals and entities, specified groups, or entire sectors. A few examples are:

• Bans on investment
• Requirements to notify or seek authorisation before certain payments are made or received
• Restrictions on the provision of financial, brokering, insurance, advisory services, or other financial services
• Capital market access restrictions. The OFSI maintains a separate list of entities subject to specific capital market restrictions, which you can see here. These entities are not contained on the Consolidated List.

Exceptions

Specific exceptions are contained in the sanctions regulations made under the Sanctions Act and can allow otherwise prohibited transactions and prohibited activity to take place in some situations. There are limited exceptions to the prohibitions. These include the crediting of a frozen account with interest or other earnings by a relevant institution, and the receipt or transfer of funds relating to obligations arising or concluded before the date of the designated person’s sanction. You should check whether any of the statutory exceptions may apply to you and your circumstances and any associated notification requirements.

Licenses

Where a person is subject to financial sanctions, they or their representative may apply for a specific licence from the OFSI to use their funds or economic resources for particular purposes. Some examples of grounds on which a licence may be granted include meeting:  basic needs, reasonable professional fees, extraordinary expenses, prior obligations, medical goods and services and the maintenance of frozen assets and economic resources. You should check whether any of the licensing grounds may be applicable. Licences cannot be issued retrospectively. Carrying out an act that required a licence, without first obtaining one, may represent a breach of a financial sanction.

A general licence, issued by OFSI on behalf of HM Treasury, allows multiple parties to undertake specified activities which would otherwise be prohibited by sanctions in force, without the need to have been granted a specific licence. OFSI does not accept applications for general licences – it issues them where HM Treasury deems appropriate. They will usually be considered in response to unforeseen circumstances, where it has been decided that issuing a general licence will best support the government’s policy priorities.

Enforcement

It is a serious criminal offence to breach the sanctions in force, to enable or facilitate a breach of, or to circumvent, the sanctions regime (including a breach of the terms of any general licence in force).

Any breach of financial sanctions is an either way offence carrying a maximum prison sentence on indictment of 7 years, a fine (or both). Breaches can also expose the organisations involved to the risk of a civil monetary penalty of up to £1m or 50% of the value of the breach, whichever is the greater.

The OFSI monitors compliance with financial sanctions and works closely with other government departments, supervisory bodies, and regulators to consider all cases of suspected breaches reported to it.

Important actions to take if necessary

If you know or have reasonable cause to suspect that you are in possession or control of the funds or economic resources of a designated person, then you must immediately:

• Freeze any of the assets you are holding
• Cease dealing with them or make them available to, or for the benefit of, the designated person, unless: there is an exception in the legislation that you can rely on, or you have a licence from the OFSI
• Report them to the OFSI as soon as possible, by either calling their general enquiries line: +44 (0)20 7270 5454 or emailing: ofsi@hmtreasury.gov.uk

If you are a relevant firm, institution, business or profession (as defined in the legislation) you are also under additional reporting requirements where, in the course of carrying out your business, you have knowledge or reasonable suspicion that a designated person has breached sanctions relating to them.

Further guidance and notices concerning the UK Financial Sanctions Regime applicable to Russia can be found on GOV.UK. If you have any questions please contact our team to speak with a public law and regulatory specialist.