Current Guidelines for Sanctions Compliance in the UK
Overview of Sanctions Compliance
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The UK's sanctions compliance landscape is primarily overseen by the Office of Financial Sanctions Implementation (OFSI). The guidelines aim to ensure that entities comply with financial sanctions imposed by the UK, which often align with international sanctions.
Ownership and Control Stipulations
- Identifying Ownership and Control Structures: Entities must ensure they do not engage in transactions with sanctioned individuals or entities. This includes identifying ownership and control structures to prevent circumvention of sanctions. If the ultimate beneficiaries of a trust are the family members of a Designated Person, further enquiries should be made.
- Risk-Based Approach: The UK encourages a risk-based approach to sanctions compliance. This involves assessing the likelihood of sanctions breaches and implementing measures to mitigate those risks.
- Reporting Obligations: There are specific reporting obligations for regulated financial services firms and law firms, especially concerning breaches of trade sanctions.
Evolution of Enforcement Outlook Over the Past 12 Months
Recent Developments
- Enhanced Enforcement Proposals:
- Consultation Paper: On 22 July 2022, OFSI published a consultation proposing reforms to enhance enforcement effectiveness, transparency, and deterrent impact. This includes a new case assessment matrix, a formal settlement scheme, and increased civil penalties up to 100% of the breach value[1].
- Streamlined Processes: Simplified enforcement for technical breaches and a revised discount structure are also proposed[1].
- Cryptoasset Sector Guidance:
- On 21 July 2022, OFSI released guidance on sanctions compliance for the cryptoasset sector. This includes assessments of threats and guidance on risk-based compliance approaches[3].
- Russia Sanctions Updates:
- New designations and a reduced oil price cap have been introduced as part of strengthened Russia sanctions. There are also warnings about sanctions evasion involving cryptoassets[5].
- New Civil Penalties for Trade Sanctions:
- From 10 October 2023, a new body (OTSI) can impose strict liability civil penalties for breaches of certain UK trade sanctions. Mandatory reporting obligations have been introduced for regulated firms[2].
Overall Trends
- Increased Focus on Compliance: There is a growing emphasis on maintaining robust compliance programs, especially in sectors like cryptoassets.
- Strengthened Enforcement: The UK is moving towards more stringent enforcement measures, including higher penalties and clearer guidelines for breaches.
- Risk-Based Approach: The UK continues to advocate for a risk-based approach to sanctions compliance, ensuring that entities prioritize their specific vulnerabilities.
In summary, the UK's sanctions compliance landscape has evolved significantly over the past year with a focus on clearer enforcement guidelines, stricter penalties, and specific sectoral guidance, particularly for the cryptoasset sector.
[1] HM Treasury (2022). Consultation on reforms to the sanctions enforcement regime. Available at: https://www.gov.uk/government/consultations/reforms-to-the-sanctions-enforcement-regime
[2] OFSI (2023). New civil penalties for trade sanctions. Available at: https://www.gov.uk/government/news/new-civil-penalties-for-trade-sanctions
[3] OFSI (2022). Guidance for the cryptoasset sector. Available at: https://www.gov.uk/government/publications/guidance-for-the-cryptoasset-sector
[4] OFSI (2022). Russia sanctions updates. Available at: https://www.gov.uk/government/publications/russia-sanctions-updates
[5] HM Treasury (2022). Warning about sanctions evasion involving cryptoassets. Available at: https://www.gov.uk/government/news/warning-about-sanctions-evasion-involving-cryptoassets
- The cryptoasset sector, in line with the UK's emphasis on maintaining robust compliance programs, should implement risk-based approaches to sanctions compliance to prioritize their specific vulnerabilities, as per the guidance released by OFSI in July 2022.
- The UK's move towards stricter enforcement measures, including higher penalties and clearer guidelines for breaches, aligns with its financial business operations, as shown by the proposed reforms to the sanctions enforcement regime outlined in the HM Treasury consultation paper dated 22 July 2022.
