The UK sanctions enforcement regime becomes tougher today due to changes made by the Economic Crime (Transparency and Enforcement) Act 2022 coming into force.
A failure to comply with UK financial sanctions legislation can constitute a criminal offence subject to fines and imprisonment. The Office for Financial Sanctions Implementation (OFSI), the UK financial sanctions enforcer, also has the power to impose civil penalties of up to GBP1 million or 50% of the value of the breach, whichever is higher. To date, this has been OFSI’s favoured method of enforcement.
Before today, OFSI could not impose a monetary penalty on a corporate or individual unless it was satisfied, on the balance of probabilities, that the person ‘knew’ or had ‘reasonable cause to suspect’ that their conduct breached a financial sanction or that they had failed to comply with their obligations under the regime. From today, this knowledge requirement is replaced by strict liability: in other words, a person’s intent or knowledge surrounding the breach is irrelevant to the question of whether OFSI has the power to impose a civil monetary penalty. OFSI must still show on the balance of probabilities that a breach occurred.
The new test, which is more akin to the U.S. model, increases the risk of a business being fined because OFSI will no longer have to show this knowledge requirement has been satisfied. Whilst it will still be a defence (to a criminal offence) for a company (or an individual) to say that they did not know, and could not have known or suspected, that their conduct breached a sanction, it will be no answer to the imposition of a civil fine. OFSI has published updated guidance on its new powers and revised approach to enforcement to breaches after today. The guidance makes clear that a sanctions breach will be regarded as more severe (and thus more likely to be met with a penalty) if the person or entity knew, or had a reasonable suspicion, that their conduct constituted a breach. So knowledge/suspicion is still relevant, albeit not strictly required in order for OFSI to be able to impose a penalty.
Also from today, there is an increased risk of reputational damage for anyone in breach of a financial sanction. OFSI already had the power to publish details of monetary penalties that had been imposed. But now OFSI has a new power to publicly ‘name and shame’ a company or individual that OFSI believes, on the balance of probabilities, has breached a financial sanction prohibition or failed to comply with an obligation, even where the company or individual has not been fined. This new power applies to breaches occurring after today.
