In February 2022, the UK announced a tranche of sanctions in relation to Russia. The full details of the measures are available on the Foreign, Commonwealth & Development Office website at https://www.gov.uk/government/collections/uk-sanctions-on-russia.
This sanctions regime is aimed at encouraging Russia to cease its actions destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine. New designations of individuals and Russian entities were announced on 22 February and the UK government also announced that sanctions already imposed in relation to Crimea will be extended to non-government-controlled territory in the so-called breakaway republics of Donetsk and Luhansk.
The FCA expects firms to have established systems and controls to counter the risk that they might be used to further financial crime, including compliance with financial sanctions obligations. Where the FCA identifies failings in financial crime systems and controls, it can impose restrictions and/or take enforcement action. Additionally, the Office of Financial Sanctions Implementation (OFSI) has the power to impose civil monetary penalties for breaches of financial sanctions and works with law enforcement for cases where criminal prosecution may be considered. For example, in February 2021, it imposed a penalty of £36,393 on Clear Junction Ltd for its breaches of the EU 2014 sanctions legislation – these breaches involved client transactions on accounts held at the Russian National Commercial Bank, which had been involved in destabilising Ukraine.
Firms should screen against the UK Sanctions List (https://www.gov.uk/government/publications/the-uk-sanctions-list) to meet these new sanctions measures and should screen against the OFSI list of asset freeze targets for financial sanctions obligations (https://www.gov.uk/government/publications/financial-sanctions-consolidated-list-of-targets/consolidated-list-of-targets). Firms must also ensure that they are not receiving or sending client funds to a financial institution on the sanctions list.
They are legally obliged to report to OFSI if they know or suspect that a breach of financial sanctions has occurred, if a person they are dealing with, directly or indirectly is a designated person, if they hold any frozen assets or if knowledge or suspicion of these comes to them while conducting business. In this case, firms must contact OFSI at the earliest opportunity, and should also notify the FCA.
Expectations of firms’ systems and controls in relation to compliance with financial sanctions are set out in FCG 7 of the FCA’s Financial Crime Guide, including examples of good and poor practice in relation to firms’ governance, risks assessment and approaches to screening in relation to financial sanctions.
Where transactions give rise to concerns about sanctions evasion or money laundering, firms should also consider their obligations to report to the UK Financial Intelligence Unit (UKFIU) at the National Crime Agency (NCA) under the Proceeds of Crime Act 2002.
As the Russia-Ukraine crisis escalates, it is likely that further sanctions will be implemented on Russian oligarchs and Russian corporations. Firms must be prepared to continually assess their current client base and onboarding client pipeline against the latest sanctions lists.
If you’d like to know more about how we can help you with your AML or sanctions arrangements, or with any other regulatory compliance issues, our specialist team is here to help.
Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.