On 14 October 2021, the Office of Financial Sanctions Implementation (“OFSI”) published its annual review for the financial year 2020-2021 (the “Annual Review”). Under the leadership of its new Director, Giles Thomson, appointed in November 2020, it has been a busy year for OFSI. This was in large part due to the implementation of the UK’s autonomous sanctions regime as the Brexit Transition Period came to an end on 31 December 2020. For further information on the introduction of the UK’s autonomous anti-corruption sanctions regime, please see our client alert.
We highlight the following key takeaway points from the Annual Review, which will be of interest to those in the UK private sector, as well as international players with business activities that have a UK nexus:
1. Changes to the Consolidated List
OFSI added 278 new designated persons to the consolidated list in the financial year 2020-2021, 159 of which implemented EU and UN legislation in the period before the end of the Brexit Transition period. 119 new designations were made under the Sanctions and Anti-Money Laundering Act 2018 (the “Sanctions Act”) between January 2021 and March 2021, which represents a 224% increase compared to the same period in 2020. During this period, there were almost 2000 changes to the OFSI consolidated list, including additions, amendments, and removals.
In the financial year 2020-2021, OFSI prioritised raising awareness and understanding of the UK’s new autonomous sanctions on both a domestic and international scale. In doing so, OFSI engaged with 99 jurisdictions, as well as representatives from multilateral bodies, including the United Nations, G7, and the European Union. OFSI also ran bespoke webinars collaborating with the Foreign, Commonwealth & Development Office, and hosted online events to wide-ranging audiences, such as stakeholders in the private sector. OFSI’s blog has also provided invaluable insight to the UK’s sanction regime. OFSI have also demonstrated that they are receptive to stakeholder feedback, as it published regime specific guidance for Russia and Libya.
3. Frozen Assets
UK institutions that hold frozen assets including funds and economic resources, are required to report such assets to OFSI. As a result of OFSI’s continued work with stakeholders to ensure reports submitted for the Frozen Asset Review are accurate, additional fields have been added to the reporting template. As of September 2020, frozen assets worth approximately £12.2 billion were reported as being held by UK institutions, with assets connected to the Libyan regime accounting for £11.53 billion of this amount.
In the financial year 2020‑2021, OFSI issued 43 new licences and made 75 amendments across 11 regimes, the majority of which were again related to the Libya regime. A new licensing ground was also introduced for extraordinary situations in respect of non-UN designated persons. The existing licensing grounds for ‘maintenance of frozen funds and economic resources’ and for the payment of legal fees and expenses, now both include an additional requirement of ‘reasonableness’, and entities are now covered (in addition to individuals) under the ‘basic needs’ ground.
5. Compliance and Enforcement
OFSI investigates every reported suspected breach of UK sanctions regulations. In the financial year 2020-2021, OFSI considered 132 reports of potential financial sanction breaches, which is a slight decrease from the previous financial year, however, still follows the upwards trajectory from earlier years. There are a number of different potential outcomes that can result from an investigation which is aimed to be proportionate to the nature of the breach. Potential enforcement action include a warning letter, civil monetary penalty, and, if serious enough, a referral to law enforcement bodies to consider criminal prosecution. OFSI also updated its monetary penalty guidance this financial year, the first update since May 2018, which now captures lessons learnt from previous cases that resulted in monetary penalties. This guidance should be referred to for all compliance cases reported to OFSI after 1 April 2021.
6. Compliance Trends
The Annual Review found that the diversity of organisations and companies reporting suspected breaches has increased, perhaps as a result of OFSI’s efforts to increase awareness of the UK’s sanction regime both domestically and internationally. The majority of reported breaches continue to come from the banking and financial service sectors, however an increasing number has been received from other sectors including legal, charity, insurance, media professional services, real estate, telecommunications, and travel. It has also been a success that reports under the UK’s Global Human Rights regime have been received since its inception in July 2020. To find out more about this regime, please see our client alert.
7. Counter-Terrorism Sanctions
The Terrorist Asset-Freezing etc. Act 2010 (“TAFA”) was repealed on 31 December 2020, leaving the new domestic Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019 (the “Counter-Terrorism Regulations”) to operate alone. The Counter-Terrorism Regulations empower HM Treasury to designate individuals, groups, and entities to further prevent terrorism and protect UK national interests. Between April 2020 and December 2020, HM Treasury renewed the designations of 10 individuals and entities under TAFA, and designated one individual under the Counter-Terrorism Regulations.
OFSI has continued to change in the financial year 2020-2021, in particular with the implementation of the UK sanctions regime following the end of the Brexit Transition Period. OFSI’s outreach to a range of stakeholders through webinars, events and consultations appears to have paid off, with an increase in the number of breach reports and licencing applications. The Annual Review highlights OFSI’s continued commitment to ensure the UK’s autonomous sanctions are thoroughly understood, implemented and enforced.
Carlotta Pregnolato, London Trainee Solicitor, contributed to the drafting of this alert.