15 June 2022 sees the introduction of new provisions under the UK's Economic Crime Act to prevent individuals and businesses from committing sanctions breaches and severely penalising those who flout the rules.
As detailed in our article: Strict liability fines for inadvertent sanctions breaches are imminent | Fieldfisher, the Economic Crime Act (Transparency and Enforcement) Act 2022 ushers in amendments to s146 of the Policing and Crime Act 2017, regarding penalties for sanctions breaches.
The amendments will allow the UK's Office of Financial Sanctions Implementation (OFSI) to impose monetary penalties for sanctions breaches even where the person does not know, or have reasonable cause to suspect, that they are in breach of, or have failed to comply with, sanctions obligations.
This will create a strict liability offence and is designed to make it easier for OFSI to exercise its powers to impose fines on those who break the rules.
The changes, which take effect from 15 June 2022, have not been widely publicised so may catch many businesses and their officers unaware.
The risk of attracting the attention of OFSI is significantly heightened by the new regulations, and it appears there are plans to boost OFSI's ability to enforce the sanctions regime.
On 9 June 2022, the UK government said, in a response to a report by Parliament's Treasury Committee, that the number of OFSI staff should be at least doubled in 2022–2023 from current levels. This suggests there may be a noticeable uptick in OFSI's investigative and detection activities and its capacity to issue fines.
Another change (which will be alarming for business) that comes into effect at the same time is that OFSI will be allowed to publicly name organisations that have breached financial sanctions, even where it has decided not to impose a penalty.
The rationale for this decision is that the reputational risks for business of being named as having violated sanctions will prove a deterrent – particularly in today's climate of heightened ESG awareness.
We recommend businesses review their compliance regimes in light of the amendments and decide, in view of their business risk and risk tolerance level, whether these need to be altered.
For many, a sensible balance will need to be struck between increasing the stringency and regularity of checks and the enlarged burden (in terms of costs and time) that these will place on a business' compliance function.
This article was authored by Nicola Sewell, dispute resolution director at Fieldfisher.
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