The Economic Crime (Transparency and Enforcement) Act 2022 (the Act) has introduced changes to the enforcement of UK sanctions laws that parallel enforcement powers held by the Office of Foreign Assets Control (OFAC) in the United States.
The Act introduces a new strict civil liability test for imposing monetary penalties for breaches of the financial sanctions regime, thereby removing the previous requirement for the Office of Financial Sanctions Implementation (OFSI) to prove that a person had knowledge or reasonable cause to suspect that they were in breach of financial sanctions.
OFSI is already required to publicise details of financial sanctions where a monetary penalty is imposed. However, the Act also introduces the power for OFSI to publicise details in cases where it has not imposed a monetary penalty but is satisfied, on the balance of probabilities, that a person has failed to comply with financial sanctions legislation.
The new power for OFSI to publish reports on individuals or corporates that have breached financial sanctions, in circumstances where other enforcement activity is not pursued, should give rise to serious concern for companies, as the reputational cost of such adverse publicity may well outweigh the mere financial cost of a penalty that might otherwise be imposed.
The changes brought about by the Act will undoubtedly strengthen OFSI’s ability to take appropriate enforcement action against persons (including both natural and legal persons) that fail to ensure they are not dealing with sanctioned entities or adhere to their financial sanctions obligations.
However, there have as yet been a limited number of enforcement actions taken by OFSI for breaches of financial sanctions. This year has seen only one monetary penalty imposed so far, when Tracero Limited was fined £15,000 for having made finds available for the benefit of designated person in breach of financial sanctions in Syria.
Tracerco, a supplier to the oil and gas industry, made two payments totaling £2,956.43 to designated entity, Syrian Arab Airlines, between May 2017 and August 2018 for flights to bring an employee home. Tracerco booked the flights through a United Arab Emirates travel agency and then refunded the agency for the flights.
This case serves as a reminder that financial sanctions breaches are possible even where funds pass through a third-party intermediary, in this instance a travel agency, with financial sanctions legislation also prohibiting the indirect provision of funds or economic resources to or for the benefit of a designated person.
Tracerco's voluntary disclosure of the breach resulted in a 50% reduction of the possible monetary penalty, in line with OFSI’s published enforcement guidance. The other mitigating factors considered by OFSI in determining the level of fine were the indirect, non-deliberate and low-value nature of the breaches committed by Tracero.
The penalty imposed upon Tracero for a relatively minor breach of financial sanctions and the new enforcement powers brought about by the Act both serve to highlight the necessity for companies to adopt and maintain effective sanctions screening due diligence, and a reminder that reliance on a third party to conduct its own due diligence is unlikely to be sufficient.
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