At a time when sanctions are very much in the spotlight, the UK government has proposed amendments to its sanctions regime in order to introduce a 'strict civil liability' test for sanctions breaches. This change brings the UK regime in line with its U.S. equivalent and should make it easier for the Office of Sanctions Implementation ("OFSI") to impose significant financial penalties against organisations that breach sanctions. Further changes would see OFSI given the power to 'name and shame' entities that have breached financial sanctions, even where a fine has not been imposed.
Russia's invasion of Ukraine has resulted in significant global sanctions actions as the UK, EU and United States have used the economic measures available to them as their principal response to put pressure on Russia to cease its military actions (see our client alerts dated 14 February 2022 here and 28 February 2022 here). Now the UK government has brought forward the Economic Crime (Transparency and Enforcement) Bill (the "Economic Crime Bill"), which was initially planned for the 2023/24 Parliamentary session, in an attempt to tackle economic crime and 'crack down on dirty money in the UK and corrupt elites'.
The key provisions of the Economic Crime Bill relating to the enforcement of the UK's financial sanctions are:
- There is no longer a requirement that the recipient of a financial penalty either 'knew or had reasonable cause to suspect' that it was in breach of the sanction. The bill introduces a strict liability test, where the fact that an entity has breached a sanctions prohibition or failed to comply with a sanctions obligation allows OFSI to impose a financial penalty, regardless of the entity's intent or knowledge.
- Recipients of monetary penalties following a sanctions breach continue to have the right for such imposition to be reviewed, but this review no longer needs to be carried out by the Minister personally. This will allow the Minister to delegate responsibility for reviewing monetary penalties, reducing the procedural burden once a financial penalty has been issued.
- OFSI are to be granted a new power to publish periodic reports that 'name and shame' entities that have breached financial sanctions but where a fine has not been imposed.
These changes demonstrate the UK government's aim to make civil enforcement of breaches of financial sanctions easier. Therefore, in an environment where the OFSI is likely to increase its enforcement action, identification and management of potential sanction risks should remain a key focus for businesses.
The Economic Crime Bill also proposes important changes to the identification of foreign owners of UK property and authorities' ability to make Unexplained Wealth Orders. These changes are discussed in our client alert.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
© Morrison & Foerster LLP. All rights reserved