The UK Government has codified the annual "Frozen Assets Review" under its sanctions regimes, through the Sanctions (EU Exit) (Miscellaneous Amendments) (No 2) Regulations 2024 ("Amending Regulations").
This change applies across all UK financial sanctions regimes, including the Russia sanctions regime, and makes it explicitly clear that failure to comply carries criminal penalties.
In this article, we break down the key requirements, penalties, and steps businesses can take to stay compliant ahead of the annual 30 November deadline.
What is the Frozen Assets Review?
The Frozen Assets Review is an annual process managed by the Office of Financial Sanctions Implementation ("OFSI") to help monitor compliance with UK sanctions law and ensure accurate records of frozen assets.
For the last few years, OFSI has issued a notice each year that requested persons holding assets owned, held or controlled by a designated person ("DP"), or by an entity owned or controlled (directly or indirectly) by a DP, to provide a report with the details of these assets (also known as a "Frozen Assets Report").
However, as those who submitted Frozen Asset Reports in 2024 will be aware, the notice-based process has caused confusion over reporting requirements, deadlines, and the reporting period, leading to a deadline extension. This played a part in OFSI issuing a two-week extension of last year's deadline. Further, the Explanatory Memorandum ("EM") to the Amending Regulations noted that, historically, OFSI has faced challenges ensuring compliance as persons have missed the information request or failed to report on time.
The codification of the review as a legal obligation aims to:
- Provide clarity and consistency for businesses and individuals.
- Enable proactive compliance preparation.
- Strengthen OFSI's ability to enforce penalties for non-compliance.
What does the Frozen Assets Review require?
The Frozen Asset Review's requirements are uniform across the UK's financial sanctions framework. Here, as an example, we look at the requirements in relation to the UK's sanctions regime against Russia under regulation 70(4A) of the Russia Regulations:
Who Must Report
- All individuals and companies holding assets in the UK that are owned, held, or controlled (directly or indirectly) by a designated person.
- UK nationals and UK-incorporated companies that are based overseas, who hold assets owned, held, or controlled (directly or indirectly) by a designated person, must also submit a report to OFSI. This is because, under section 21 of the Sanctions and Anti-Money Laundering Act 2018, the UK's sanctions regime has extra-territorial effect, meaning it applies to UK nationals and UK-incorporated businesses whether they are in the UK or overseas.
- Persons and businesses that are incorporated in the British Overseas Territories and Crown Dependencies do not have to submit a report to OFSI. However, their own sanctions regulations may request similar information.
Reporting Details
- Reports must include the nature, amount, or quantity of frozen assets held as of 30 September each year.
- 'Assets' here means funds or economic resources (both defined in the Sanctions and Anti-Money Laundering Act 2018), e.g. cash, deposits, debt, loans, property, vehicles, cryptocurrency, shares.
Submission Deadline
- Reports must be submitted to OFSI by 30 November annually.
Penalty
- Failure to submit a report without reasonable excuse, or knowingly providing false or misleading information, is now a specific criminal offence under Regulation 70 (6A), with a monetary penalty up to the maximum amount of £1,000,000.00 (or 50% of the value of the unreported assets, whichever is higher). For this purpose, the person need not know or have reasonable cause to suspect that the assets were subject to sanctions.
How Can Businesses Be Proactive?
- Review Internal Records: Identify any frozen assets held or controlled by your organisation.
- Update Compliance Procedures: Ensure your sanctions compliance team is aware of the new requirement. Ensure your KYC procedures include checking whether new and existing customers are DPs (or companies they own or control).
- Plan Ahead: Compile asset details, as at 30 September, well before the 30 November deadline to avoid last-minute issues.
- Stay up-to-date: Businesses should be aware of changes to the UK's sanctions regime, including any new sanctions regulations or designations, as this can affect what you include in the report.
Key Takeaway
The UK Government has tried to increase compliance with the Frozen Asset Review by codifying the reporting obligation and setting out a fixed reporting deadline (30 November). In doing so, the government has shifted the burden of monitoring the Frozen Asset Review's annual deadline and the reporting obligations from OFSI to businesses and individuals. The government has also emphasised it expects compliance, since missing the deadline or failing to submit a Frozen Asset Report will attract monetary penalties.
Companies should act now to review their compliance processes and ensure timely reporting to avoid penalties. By staying proactive, companies can better navigate the complexities of UK sanctions law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
