Post-Brexit sanctions: what you need to know

Post-Brexit sanctions: what you need to know

By Anne Davis, Institute of Financial Accountants

As 2021 marks the UK’s official divorce from the EU, new sanctions have now come into force that will require full compliance from all agents and accountants with the sanctions regime and licensing exemptions affecting many businesses across different jurisdictions. The UK uses sanctions to fulfil a range of purposes, including supporting foreign policy and national security objectives, as well as maintaining international peace and security, and preventing terrorism.

New year, new legal framework

Now no longer subject to EU sanctions, the UK has its own sanction regime, the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act). The Sanctions Act provides the legal basis for the UK to impose, update and lift sanctions. If you undertake activity relating to an individual, sanctioned country or entity, the importance of fully grasping what the change means and ensuring that you are fully prepared for the new reality cannot be underestimated.

Small but significant changes

The good news is that the changes are broadly similar in principle to the EU regime, though not identical and there are some important differences. For example, persons designated under the Ukraine (Sovereignty and Territorial Integrity) and those businesses subject to restrictive measures under the current EU Regulations will both move to the new Russia sanctions regime.

Depending on the information you are looking for, from January 1, 2021 you will either need to refer to the UK Sanctions List, which covers all sanctions made under the Sanctions and Anti-Money Laundering Act 2018, or The Office of Financial Sanctions Implementation (OFSI) Consolidated List of Financial Sanctions Targets, which covers all financial sanctions designations.

Although many of the lists will remain the same, it will be critical to carry on sanctions checks as part of client onboarding and on an ongoing basis to ensure that your firm remains compliant with the various sanctions that are relevant to them. In the case of some clients, both lists will need to be checked.

Major consequences

Sanctions violations are on the rise. OFSI revealed a record number of 140 voluntary disclosures of potential sanctions violations related to transactions worth a total of £982m between April 2019 and March 2020, some £720m more in relation to 99 reports from the same period between 2018 and 2019. Companies that breach these regulations face huge fines, as the Standard Chartered Bank can attest to in March 2020 after the OFSI announced it had imposed a £20.47m fine on the firm. OFSI’s hard-line approach is clear and, with the highest fine up until then just £140,000, it sends out the message just how serious the potential fallout is. Breaching financial sanctions is also a criminal offence and can result in a civil monetary penalty being imposed on you or your practice, with a prison term of up to seven years.

Screen new and existing clients against financial sanctions lists on an ongoing basis is your responsibility, and due diligence is expected to be carried out so that you know who you are dealing with, both directly and indirectly, for example, looking at ownership and control of an organisation.

Be effective, be vigilant

The new UK Sanctions List and OFSI Consolidated Lists should be used for sanctions screening from January 1, 2021, so you need to ensure that your systems and processes are updated to include these lists. If your firm uses an electronic verification supplier for client due diligence, you will need to check your third-party software provider is using the correct data for your due diligence checks.

There is also an EU-specific consolidated sanctions list maintained by the European Commission that should also be used for sanctions screening alongside the UK lists, which applies to all businesses working with EU companies.

It is imperative that any suspected or actual breaches of financial sanctions must be reported to OFSI. If you believe that you are dealing with an individual or organisation that is or was subject to sanctions at the time of the activity, you must not deal with or make funds or economic resources available to them and not do anything that would prevent the asset freeze and report the matter to OFSI.

The new sanctions: key points

  • Sanctions exist – they can have a big impact on you and your business.
  • It is your responsibility to check whether individuals, organisations or countries that you are dealing with are impacted by the UK sanctions.
  • You may need a licence. In certain circumstances, the government may grant a license to permit an activity that would otherwise be prohibited. It is up to the licensing authority to determine whether a licensing application is in line with the purposes. Some licenses require UN notification approval.
  • You must report any suspected or actual breaches of financial sanctions to OFSI. Funds and assets of the individual or organisation in question must be freed immediately and report this to OFSI.

 

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