UK: OFSI's Penalty Against Travelex – More Than Meets The Eye

Last Updated: 10 July 2019
Article by Jason Hungerford and Paul Whitfield-Jones

The UK's Office of Financial Sanctions Implementation (OFSI) announced on 24 May that it had levied its second-ever civil monetary penalty, against Travelex (UK) Ltd. in the amount of £10,000. This enforcement action is related to OFSI's previous (and first) civil monetary penalty of £5,000 against Raphaels Bank in January of this year, which we previously reported on. Whilst the amounts involved are not large and the facts are relatively straightforward, like a Magic Eye picture these cases yield useful insights, if you stare at them hard enough.

The facts

OFSI found that Raphaels Bank violated asset freeze restrictions by dealing in £200 belonging to an individual designated under sanctions relating to Egypt. OFSI determined that £10,000 was an appropriate penalty but discounted this by 50% because Raphaels Bank disclosed the violation and co-operated with the investigation. 50% is the maximum discount for "serious" cases, dropping to 30% for "most serious" cases (OFSI will not issue a civil monetary penalty if it regards a case as less than "serious").

The action against Travelex appears to relate to the same individual and transaction as the Raphaels Bank matter. Both Travelex and Raphaels Bank had access to the passport of the individual, and Travelex also met them in person. However, in Travelex's case no discount was applied for voluntary disclosure, and it was hit with the full £10,000.

Keeping your disclosure "voluntary"

It is not a requirement that OFSI receive a disclosure before it learns about the matter from another source for it to be "voluntary". Whilst OFSI considers the facts and timing of each investigation, "The mere fact that another party has disclosed first will not necessarily lead to the conclusion that later disclosure has any lesser value"1 Furthermore, a disclosing party will have "automatic access" to a reduction once they affirm that their disclosure is materially complete2. That said, OFSI does "expect breaches to be disclosed in a timely fashion, as soon as reasonably practicable after discovery of the breach"3.

We do not know whether Travelex failed to disclose at all, or whether it made a disclosure that was somehow deficient. It may be that OFSI mandated disclosure by Travelex using its statutory powers, as a result of learning about the breach from Raphaels Bank.

Corporates in particular should bear in mind that banks and other regulated entities have express obligations under UK financial sanctions regulations to report suspected violations of asset freezes. Banks tend to have streamlined reporting processes due to the frequency with which they make regulatory reports, and so banks often report to OFSI long before their corporate client has investigated the matter.

It is possible then that a party could get a discount even if OFSI is aware of the issue before they disclose to OFSI. This is somewhat different to the position of the US Office of Foreign Assets Control (OFAC). OFAC's guidance specifically defines a voluntary disclosure as a "...self-initiated notification to OFAC of an apparent violation...prior to or at the same time that OFAC, or any other federal, state, or local government agency or official, discovers the apparent violation or another substantially similar apparent violation"4.

That said, a company does not want to be waiting for OFSI to knock on its door. OFSI recognises that a party may need some time to assess a potential violation and possibly take legal advice, and does not believe there should be any conflict between timeliness and making sure that a disclosure is materially complete. Therefore, where full disclosure is not possible in the first instance, OFSI recommends making an early disclosure with partial information, subject to making a full disclosure as soon as possible.

Root causes

The moral that OFSI draws from these cases is that "Companies should take care to make sure they carry out appropriate financial sanctions screening or checks, and act on the results in the correct way." This will not be news to any company that takes its responsibilities under financial sanctions seriously. What OFSI have not made clear, however, is the root cause of these violations.

For any party investigating a potential violation with a view to making a disclosure, it is essential to find out why the violation occurred. Only then will it be possible to devise corrective actions that effectively remediate the problem and prevent the same violation from occurring again in future. It is all too easy, especially under time pressure, to conduct a shallow analysis that only looks at the immediate cause of the violation, and not the underlying causes. In particular, attributing a violation to "human error" often (though not always) indicates a superficial analysis. If a human made an error, why did they make an error: insufficient training, an unclear procedure, a poorly designed tool?

In the case of Travelex and Raphaels Bank, the problem appears to have been that they had access to information about the designated person, which ought to have led them to freeze the funds at issue, but failed to do so. It is not clear whether they failed to screen the passport information, or whether they did screen it but then failed to take appropriate action. But even if they failed to screen it, and so did not know that they were dealing with a designated person this sort of ignorance is not an excuse as far as OFSI is concerned. OFSI takes the view5 that the list of sanctioned persons is publically available, and therefore if a company fails to conduct appropriate screening and deals with a designated person, it effectively has "reasonable cause to suspect" that it is in possession of or dealing with the assets of a designated person.

Travelex and Raphaels Bank should have asked themselves (not to say that they haven't) why either the individual was not screened or appropriate action was not taken. Was there some deficiency in the screening or escalation procedures, perhaps in relation to individuals physically located in the UK? Or if the procedures were sufficient, why were they not followed by the relevant employees? Was there a lack of training? Was it unclear who was responsible for what under the procedures? Was there a lack of attention because of the small value of the transaction? It is imperative to conduct a searching analysis of what has gone wrong.

OFAC typically provides more illumination about the root causes of the violation in its published information about enforcement actions. It has also provided a typology of root causes in its recently published "A Framework for OFAC Compliance Commitments", which is recommended reading for everyone concerned with sanctions compliance. This sort of information is extremely helpful for businesses (and their legal advisors!) and it is hoped that OFSI includes more of it in its published enforcement information going forwards.

A clear message

Notwithstanding the relatively low level of penalties in the Travelex and Raphaels Bank cases, these cases communicate OFSI's readiness to exercise its civil monetary penalty powers wherever this is appropriate, and not just on large cases. Moreover, the fact pattern they involve – compliance failures as opposed to deliberate breaches – will undoubtedly re-emerge, and may well be the dominant theme, in future OFSI enforcement actions, especially those involving banks and payment service providers, which have to deal with large volumes of transactions on a daily basis.

When companies do face compliance failures that may lead to voluntary disclosures, it is critical that they think through both the timing but also the completeness of their disclosure, to preserve their entitlement to a discount from any penalty, and that they devote sufficient attention to what went wrong, so that it does not happen again in future.

Footnote

1 Monetary Penalties for Breaches of Financial Sanctions, OFSI, paragraph 3.36.

2 Ibid. paragraph 4.11.

3 Ibid. paragraph 3.33.

4 Appendix A to 31 C.F.R. Part 501.

5 See for example, Financial Sanctions – Guidance, OFSI, FAQ 3.1.

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
 
Related Video
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