UK: What Can We Learn From OFSI's First Civil Monetary Penalty?

Last Updated: 20 March 2019
Article by Jason Hungerford and Paul Whitfield-Jones

On 21 February, the agency responsible for administering the UK's financial sanctions regime, the Office of Financial Sanctions Implementation (OFSI), used its civil monetary penalty powers for the first time to impose a penalty of £5,000 on Raphaels Bank for failing to freeze a payment of £200.

OFSI's first use of these powers, which it gained in April 2017, had been anticipated for some time, with OFSI stating in its latest annual report that is had received reports of suspected breaches totalling some £1.35bn, and that penalties were likely to be imposed by the first half of 2019. A penalty for a single violation of financial sanctions can be significant in terms of both financial and reputational impact and therefore businesses – banks, in particular – and their lawyers, keenly aware of the sometimes astronomical penalties levied by US agencies for sanctions violations, wanted to know what approach OFSI would take.

The fact, then, that OFSI has used these powers for the first time to levy a very small penalty against a small bank in relation to single, very small transaction, has raised questions about why OFSI selected this particular violation for the first demonstration of its new powers, and what lessons can be drawn about its approach to enforcement.

What powers does OFSI have to impose civil monetary penalties?

Prior to April 2017, violations of financial sanctions in the UK were a matter of criminal law only. Prosecution of companies was difficult because (similar to other kinds of crime) it is necessary to identify one or more individuals involved in the crime who represented the "directing mind and will" of the company. In April 2017, OFSI gained powers under the Policing and Crime Act 2017 (the Act) to impose civil monetary penalties for financial sanctions violations, of up to the greater of £1 million or 50% of the funds or assets involved, employing the lower civil standard of proof (balance of probabilities) rather than the higher criminal standard (beyond reasonable doubt). This contrasts with the United States, where the US Treasury's Office of Foreign Assets Control (OFAC) has long had the power to levy civil fines for sanctions violations.

Why did OFSI select this case for its first civil monetary penalty?

One might have expected OFSI to lead with a high-profile, high-value penalty against a well-known financial institution, to assert its authority and send a message about compliance. However, a case like that would likely be factually complex and burdensome (in terms of investigatory resources and cross-border coordination, e.g.) for the relatively new agency. The Raphaels Bank case, by contrast, is low value and at least appears to be factually very simple, although we do not know if there other potential violations that OFSI chose not to penalise. This perhaps suggests that OFSI wanted to test its powers (and, no doubt, its internal processes) with a relatively straightforward case before moving on to something more significant.
There is a cryptic note in OFSI's notice about Raphaels Bank: it refers to certain ongoing enquiries that which do not concern Raphaels Bank, following the conclusion of which more details may be published about Raphaels Bank. One wonders – although this is speculative – whether the Raphaels Bank case may be linked to an enforcement action against another party, and whether there is bigger picture here that we do not yet see.

What does this case tell us about OFSI's enforcement approach?

This case indicates that OFSI will investigate all apparent violations, and that even those of low value may be penalised. Banks and their lawyers cannot assume that, if they uncover some minor breach, OFSI would not be interested in it. In its annual review, OFSI stated that it "takes action in every instance of reported non-compliance". Some such instances may not in fact be breaches, and – OFSI continues – the "majority of cases...will be resolved by enforcement activity short of a penalty".

The available information on the Raphaels Bank case is limited. We know that the amount at issue was £200, and that Raphaels Bank voluntarily disclosed the violation to OFSI and cooperated with OFSI's investigation. OFSI fined the bank £5,000, having discounted the original £10,000 fine by 50% due to the voluntary disclosure and cooperation. The fact that OFSI levied a financial penalty at all indicates that OFSI regarded the violation as a "serious" one, in accordance with its published guidance, but not a "most serious" one, for which the maximum discount is 30%. Given that the sum involved (£200) is so small, OFSI must have determined that there were other factors at play to make the matter serious, although we are not told what they are. This is in contrast to OFAC practice regarding the information it publishes about civil penalties.

Although the penalty is small in absolute terms, it represents 2,500% of the underlying transaction. Whilst the amount of the penalty itself may not cause bank compliance officers to lose sleep, OFSI's choice to take action in relation to a single and apparently minor transaction, and levy a penalty at a very significant mark-up on the transaction value, may give them to pause to think what OFSI would do if a bank had engaged in multiple violations, even minor ones. The £1,000,000 cap (or 50% of sums at issue, if greater) applies on a per violation basis, and thus a penalty for multiple violations could increase total fines quickly.

Why has this happened now and not earlier?

It has been almost two years since OFSI gained its civil monetary powers in April 2017. Whilst we do not know why OFSI has not used its powers previously, it is worth remembering that only violations committed since April 2017 qualify for civil penalties. It will have taken some time for OFSI to become aware of post-2017 April violations, investigate them, and assess its first penalty. Once OFSI has decided to levy a penalty and has informed the target, the target will then have the opportunity to make representations to OFSI, which OFSI must consider and respond to. OFSI's guidance indicates that this back-and-forth will generally happen within a couple of months, but it may take longer.

Can we expect all civil monetary penalty cases to be reported?

The Act requires that OFSI publish reports about monetary penalties levied pursuant to its civil enforcement powers, and its official guidance states that it will normally publish a summary of individual cases that name the target of the penalty and provides certain details and "other information required to give a true understanding of the case".

OFSI's notice on the Raphaels Bank case arguably falls short of OFSI's own published standard, although as noted above more details may be forthcoming. In any case, the Act's requirement highlights an important dynamic in sanctions enforcement: reputational damage through public shaming. In recent years, OFAC has used its enforcement actions as teaching moments for similarly situated entities, and it appears that it may be OFSI's intention to do the same.

What can we expect from OFSI in future?

Since OFSI's establishment, and even more so during the course of Brexit negotiations, the question has been whether the UK will emerge as a serious enforcement authority from a generally inactive European environment. OFAC's position as the most formidable sanctions regulator seems safe for now, but it now seems certain that UK sanctions will be enforced with more vigour than other EU regimes. What remains unclear is whether OFSI will be a regulator that – at least in the foreseeable future – focuses on assessing small penalties for minor and simpler breaches, or whether the Raphaels Bank matter is a test signal for more significant actions in the future.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions