It would be an understatement to describe the difference in fines levied by the US Office of Foreign Assets Control (“OFAC”) and the UK Office of Financial Sanctions Implementation (“OFSI”) as a gulf. Prior to 31 March 2020, OFSI had concluded a total of three enforcement actions, the most significant of which resulted in a fine of just over £146,000.
By comparison, OFAC has levied nearly $9 million in fines in the first few months of 2020 and during the previous year levied nearly $1.3 billion in total. The largest of these was a fine of $657 million that was handed down to Standard Chartered Bank (“Standard Chartered”) for violations of numerous sanctions regulations. The majority of the OFAC settlement was part of a global settlement that included numerous US federal and state regulators, as well as the UK’s Financial Conduct Authority (which handed out a £102 million fine for anti-money laundering breaches).
On 31 March 2020, OFSI, too, finally revealed its teeth in sanctions enforcement, handing out a £20.47 million fine for breaches of Article 5(3) of EU Council Regulation 833/2014 and Regulation 3B of The Ukraine (European Union Financial Sanctions) (No. 3) Regulations 2014. The recipient? Once again, Standard Chartered.
In July 2014, the European Union (“EU”) imposed restrictions on any actions deemed to be undermining the sovereignty and integrity of Ukraine. These restrictions intended, in particular, to prevent certain Russian banks, companies and their subsidiaries from accessing EU primary and secondary capital markets. Between 8 April 2015 and 26 January 2018, Standard Chartered made 102 loans to Denizbank A.Ş.; a subsidiary of a Russian entity, Sberbank, that was subject to restrictions under Article 5(3) of the EU Regulation.
While some of the 102 loans were deemed to fall within an exemption under the EU Regulation that allowed the legitimate financing of non-prohibited goods between the EU and any third country, 70 loans – with an estimated value of over £266 million – did not. OFSI viewed 21 of these loans as the most serious breaches and dealt with 14 loans as one investigation and the remaining seven as a separate investigation.
The fine imposed by OFSI actually, however, represents a discount from the penalties originally sought. In August 2019 the UK press initially broke the news that Standard Chartered was bracing itself for fine of more than £10 million for sanctions violations. The penalty notice released by OFSI provides further information, confirming that on 5 August 2019 OFSI originally imposed a penalty of £11.9 million for the first of the two investigations. Standard Chartered was entitled to seek UK ministerial review of the penalty and reached agreement with OFSI that the time required for a decision regarding exercise of the right would be delayed until the bank was notified of OFSI’s decision in the second investigation. OFSI notified Standard Chartered on 6 December 2019 of its decision to impose a penalty of £19.6 million in relation to the second investigation, thereby imposing a total penalty of £31.5 million.
One month later, on 7 January 2020, Standard Chartered exercised its right under the Policing and Crime Act 2017 to have a Minister review both penalties.
The Minister – the Economic Secretary to the Treasury – upheld OFSI’s decision to impose both penalties and agreed that a “most serious” breach of financial sanctions had taken place. He did, however, note the fact that Standard Chartered had not willfully breached the EU sanctions regime, had acted in good faith, had intended to comply with the relevant restrictions, had fully cooperated with OFSI during its investigation and, finally, had implemented remedial steps. In the Minister’s view, these factors should have been given greater weight in determining the penalty to be levied and, accordingly, each of the two penalties was reduced – the first from £11.9 million to £7.6 million and the second from £19.6 million to £12.7 million.
Notwithstanding the reduction in these two penalties, the total penalty is by a clear margin the largest fine imposed by OFSI since the office was established within the UK Treasury in 2016. The question now remains – does this landmark fine represent the shape of enforcement actions to come, with OFSI finally showing its teeth – or does it represent something of a one-off in relation to a bank already subject to an immeasurably greater fine from OFAC for its US sanctions violations?