On December 1, 2016, the U.K. Office of Financial Sanctions Implementation (OFSI) published its draft guidance on the process of imposing monetary penalties for breaches of financial sanctions. The draft guidance is now open for comments from stakeholders in the context of a public consultation launched by OFSI.
By way of background, OFSI was established on March 31, 2016 within Her Majesty’s Treasury, with a remit to help “ensure that financial sanctions are properly understood, implemented and enforced in the United Kingdom.” The Policing and Crime Bill, which has been working its way through the UK Parliament, is likely to receive royal assent in 2017. Once enacted, the Policing and Crime Act 2017 (the Act) will confer on OFSI the power to impose monetary penalties under civil law for financial sanctions violations. Information on the Policing and Crime Bill, and its passage through parliament is available here.
The draft guidance provides detailed information in order for stakeholders to comment on the powers to be granted to OFSI by the Act, the amount of monetary penalties that can be imposed, and the procedure for their imposition and the rights of interested parties. Below is a summary of some key elements of the draft guidance and of the Act:
- Circumstances in which monetary penalties can be imposed – pursuant to the Act, OFSI may impose penalties “if it is satisfied, on the balance of probabilities, that — (a) the person has breached a prohibition, or failed to comply with an obligation, that is imposed by or under financial sanctions legislation, and (b) the person knew, or had reasonable cause to suspect, that the person was in breach of the prohibition or (as the case may be) had failed to comply with the obligation.”
- Maximum amount of monetary penalties permitted – if the breach relates to funds or economic resources the value of which can be estimated precisely, the maximum penalty will be the greater of £1 million or 50% of the estimated value of the funds or resources. In all other cases the maximum penalty permitted will be £1 million.
- Serious violations – OFSI will enjoy some discretion in deciding whether or not to impose a monetary penalty. The imposition of a penalty is thus more likely for serious violations. According to OFSI, examples of violations likely to lead to a penalty are: (a) cases in which the breach has involved funds or economic resources being made available directly to a designated person; (b) circumvention of financial sanctions; (c) cases in which aggravating factors are present (e.g., repeated, persistent or extended breaches, violations involving large sums of money, or the existence of professional facilitation by advisors of financial institutions); and (d) failures to comply with OFSI requests to provide information. In the event of very serious violations, OFSI may decide to refer a case for criminal investigation to the National Crime Agency.
- Advantages of voluntary disclosure – voluntary disclosure of financial sanctions violations may lead to a reduction of up to 50 percent of the monetary penalty (or up to 30 percent in the event of very serious violations). Voluntary disclosures must be made in good faith, be complete and made within a reasonable period of time from the discovery of the breach. The submission of an incomplete disclosure, for reasons other than simple error or the emergence of new facts, will normally lead to the imposition of a penalty.
- Procedure and rights of defense – before imposing a monetary penalty, OFSI will have to inform the individual concerned of its intention to do so. That person will then be able to make legal and factual representations responsive to the determination made by OFSI, and any relevant aspect of the case. OFSI’s final decision will follow a review of such representations. This decision will be appealable before the competent Minister and subsequently before the Upper Tribunal.
All stakeholders are invited to participate in the public consultation by replying to a set of questions on the draft guidance. The replies must be received by OFSIConsultation@HMTreasury.gsi.gov.uk no later than January 26, 2016.
For more information, contact: Charles De Jager, Gordon McAllister, Lorenzo Di Masi