The UK introduces new enforcement powers for breaches of financial sanctions
New enforcement powers for sanctions breaches and accompanying guidance indicate a strengthening of UK sanctions enforcement going forward. Civil liability for breach of UK sanctions can as of today be imposed on a strict liability basis.
As noted in our previous update on 13 June 2022, on 8 June 2022 the UK's Office of Financial Sanctions Implementation (OFSI) published an updated version of its enforcement and monetary penalty guidance (the "Guidance"), to reflect the recently introduced Economic Crime (Transparency and Enforcement) Act 2022 (the "Sanctions Enforcement Act"). The new measures and guidance entered into force on 15 June 2022. In this update, we take a more detailed look at the Sanctions Enforcement Act and OFSI's updated Guidance.
Enhanced enforcement powers
A key aspect of the Sanctions Enforcement Act is that OFSI, for financial sanctions breaches committed after 15 June 2022, will be able to impose civil monetary penalties on a strict liability basis. This replaces the previous requirement for OFSI to prove that a person had knowledge or reasonable cause to suspect that they were in breach of financial sanctions. Going forward, OFSI will simply have to prove the objective aspect of a breach (i.e. that a breach of financial sanctions has, on the balance of probabilities, occurred), without having to address any subjective (mental) aspects of an individual's knowledge or suspicion.
The Guidance's chapter on OFSI's compliance and enforcement approach has not changed from the previous version, indicating that OFSI intends to continue its existing enforcement approach (or lack thereof, as OFSI has only taken enforcement action against a total of six companies to date). That being said, OFSI's enhanced powers to impose monetary penalties indicate the UK's intention to align its sanctions enforcement regime more closely with the (notably more active) approach taken by OFAC in the US. Given the removal of a key legal hurdle to the imposition of monetary penalties, we are in due course likely to see some uptick in OFSI's enforcement activities (for breaches committed after 15 June 2022).
It is important to note that the new strict liability penalties are of a civil nature, and that there is no equivalent change to the criminal regime. For criminal liability to be attributed, the prosecuting authority is still required to prove, beyond reasonable doubt, that the person committing the alleged breach had knowledge or reasonable suspicion that their conduct would constitute a sanctions violation.
In a blog post accompanying the publication of the updated guidance, OFSI's Director underlines that the enhanced enforcement powers do not mean that OFSI will impose a monetary penalty in every case where there has been a breach of sanctions. In determining whether to impose a penalty, OFSI will still take into account factors such as whether the imposition of a penalty would be appropriate, proportionate and in the public interest. In contrast with the previous approach, however, this now includes consideration of whether the person committing the breach had knowledge or suspicion that their conduct would constitute a sanctions breach. In other words, the subjective element of a civil sanctions offence will in future be one of a number of factors to guide OFSI in its enforcement approach, rather than a legal hurdle to enforcement as has been the case until now.
Power to publicise details of enforcement cases
Unhelpfully, the updated Guidance (like its predecessor) fails to provide much direction to companies as to the extent of due diligence a company might be expected to undertake to satisfy itself that it is not in breach of sanctions. In the blog post, the OFSI Director simply notes that OFSI will continue to take into account efforts to prevent breaches when deciding on any enforcement action.
This lack of clarity, however, may in the medium- to long term be mitigated by OFSI's new power to publicise details of its enforcement cases, including any "compliance lessons OFSI wishes to highlight". Given the dearth of precedents to date, such practical enforcement guidance would be a welcome change for companies attempting to navigate the UK sanctions landscape.
The Sanctions Enforcement Act does not introduce any changes to the jurisdictional scope of UK sanctions. Nonetheless, it is notable that the new Guidance no longer includes the following express statement of OFSI's jurisdictional reach: "We will not artificially bring something within UK authority that does not naturally come under it". It is not clear why this qualification has been removed. There is no basis for concluding that OFSI intends to take a more expansionist extraterritorial approach going forward. Rather, the deletion may simply signal OFSI's wish to ensure it is not bound by self-imposed jurisdictional limitations in any given case.