On 10 March 2021, the UK Office of Financial Sanctions Implementation (OFSI) published its revised guidance on Monetary Penalties for Breaches of Financial Sanctions (Guidance), which replaces the prior 2018 version and comes into force on 1 April 2021. From this date, the new Guidance will apply to all cases where OFSI becomes aware of a potential breach. It should be noted that only four fines have been imposed by OFSI since it obtained new powers in 2017 to impose civil monetary penalties for sanctions breaches.
Whilst a number of the revisions appear to be minor adjustments, we set out five key takeaways from the Guidance that indicate OFSI may be seeking a more extensive use of its existing penalty powers:
1 Jurisdiction
OFSI has removed certain wording in respect of what may constitute a “UK nexus”, including clarification under the old guidance that it would not “artificially bring something within UK authority that does not naturally come under it” and removing an assurance that the guidance did not alter the reach of UK financial sanctions. There have been no changes to the underlying law in respect of jurisdiction, which leaves open the question of why the wording from the old guidance has been removed and whether OFSI will be looking to take a broader approach to its jurisdiction.
2 Privileged Material
It was made clear by OFSI under the old guidance that legal professional privilege was a “reasonable excuse” not to disclose a document. This wording has been deleted in the Guidance, instead noting that protections for legally privileged materials “may apply even where not explicitly referenced”. Again, there has been no change to the legal position that would explain this revision to the Guidance, but companies dealing with OFSI should ensure that they are properly advised when disclosing material to ascertain whether legal privilege applies.
3 Voluntary Disclosures
In addition to what appears to be more discretion when assessing the seriousness of a breach (see below), under the Guidance there is no reference to “automatic access” to a voluntary disclosure reduction once a company affirms that the disclosure is materially complete. Instead, there is a focus on factors where a reduction for a voluntary disclosure may not be given. This change in emphasis is reinforced by OFSI as it states that it will assess matters on a case-by-case basis and a reduction may not be given if (among other things) any of the factors set out in the Guidance have transpired (see para 4.10 of the Guidance).
4 Assessment of ‘most serious’ cases
The discretion that OFSI will apply when assessing the seriousness of a breach includes a number of factors which should be reviewed in detail (including the aggravating and mitigating factors that OFSI will take into account). One change that is potentially most significant is the definition of what OFSI will consider the “most serious” cases, which is stated in the Guidance to include any “particularly poor, negligent or intentional conduct”. While the wording used is still vague and may also raise questions when referencing the required standard under the Policing and Crime Act 2017, it could be interpreted as considerably wider than the previous wording of “blatant flouting of the law”.
5 Written Warning
Under the old guidance, OFSI included in its response to potential breaches that it could “issu[e] correspondence requiring details of how a party proposes to improve their compliance practices”. This has been removed under the Guidance and states that OFSI may issue a “written warning”, which signals both a more formal and aggressive initial step in response to a potential breach and would presumably allow OFSI to refer to a prior warning letter as a basis to increase penalties for any future breaches.
It remains to be seen whether these changes in the Guidance will result in OFSI adopting a tougher approach to sanctions enforcement. Companies should ensure that they carefully consider their obligations to report potential breaches of financial sanctions and take advice on the complex legal framework alongside the Guidance.
The authors would like to thank Oliver Thompson, trainee, for his assistance in preparing this blog post.