After a relatively quiet period, UK sanctions updates have picked up pace in recent weeks. We have seen the announcement of an enhanced partnership between US and UK sanctions agencies, updates to reporting requirements, the introduction of new civil penalty powers, and a clarification of asset freeze rules. In addition, new waves of sanctions against Russia's military industrial complex, Russian-backed mercenary groups and Russian oil tankers have been announced.
Enhanced UK/US collaboration
On 19 November 2024, the UK's Office of Financial Sanctions Implementation ("OFSI") announced that its recent meetings with the Office of Foreign Assets Control ("OFAC") in the US had resulted in the signing of a Memorandum of Understanding between the two agencies, which will further support their information sharing and collaboration efforts.1 OFSI also noted that the agencies had conducted joint private sector outreach, and that the OFSI/OFAC reciprocal secondment scheme is continuing into its second year.
Although there are instances of misalignment in the foreign policy objectives underpinning some aspects of UK and US sanctions schemes (for example the countries' approaches to Cuba), this latest announcement indicates the efforts of OFSI and OFAC to work together when it comes to regulation and enforcement.
Changes to reporting requirements and other rules
Regulations amending all UK sanctions regimes ("the Regulations") were laid in Parliament on 14 November 2024.2 Changes made include the following:
- Certain asset freeze prohibitions now expressly prohibit making funds or economic resources available to a person who is owned or controlled directly or indirectly by a designated person. Most people assumed that this prohibition was implicit in the previous legislation, but by making it explicit, the UK Government perhaps indicates that it is trying to clarify the application of the ownership and control rule. However, much of the opacity in this rule comes from the difficulties in determining whether a person satisfies the ownership and control test, rather than knowing when the rule applies. It is therefore unfortunate that this amendment does not help address this issue.
- Firms subject to reporting obligations will now be required to report to OFSI any suspected regulatory breach of sanctions regulations, in addition to any suspected criminal breach. Under the 'Finance: reporting obligations' section of the statutory instruments for each of the UK sanctions regimes, relevant firms3 will be obliged to inform OFSI as soon as practicable if they know or reasonably suspect that a person has breached a prohibition or failed to comply with an obligation under UK sanctions rules. This is an expansion of the previous requirement, which only required reporting of suspected criminal offences.
- High value dealers, art market participants, insolvency practitioners and letting agencies will be added to the list of relevant firms subject to OFSI financial sanctions reporting obligations. OFSI has published new guidance for these sectors, which provides further information on the new obligations.4
- HM Treasury has been given new powers to impose civil monetary penalties on persons that transact with Russian land or land in non-government controlled territory in Ukraine.
- Any changes made to licences issued by OFSI must be communicated by OFSI to the person or business that the licence concerns.
- OFSI will be given powers to issue licences to implement court decisions or for insolvency purposes.
Most of the changes included in the Regulations come into force on 6 December 2024, although some (including the expansion of reporting requirements to high value dealers, art market participants, insolvency practitioners and letting agencies) will not come into force until 14 May 2025.
New waves of designations
On 7 November 2024, the UK announced 56 new sanctions against persons connected to Russia's invasion of Ukraine, in its largest sanctions package against Russia since May 2023.
The package targets entities based in China, Turkey and Central Asia that are involved in the supply and production of goods including machine tools, microelectronics and components for drones. It also targets private mercenary groups that have links to the Kremlin, including Africa Corps, and 11 individuals associated with Russian proxies.
This was followed on 25 November 2023 by the designation of 30 Russian oil tankers, marking the largest UK sanctions package against Russian ships to date. There has been an increased focus in the UK on targeting ships part of Russian's so-called "Shadow Fleet", since the UK announced a "call to action" in July 2024, seeking global cooperation in curtailing Russian oil exports.5 Ships designated by the sanctions package are now barred from entering UK ports, and will be refused access to the UK Ship Register.
What does this mean for UK companies and US companies with a UK office?
These updates to the UK sanctions regime will not require wholesale changes to be made to companies' anti-financial crime systems and controls, but enhancements should be considered as part of ongoing risk assessments and screening of sanctions risks.
As the link between the UK and US agencies continues to strengthen, we can expect that the collaboration may lead to greater alignment between UK and US sanctions regimes. This might be reflected both at the level of the structure and obligations relating to their programmes, and at the level of individual designations, with increased cohesion across the board.
Footnotes
2. https://www.legislation.gov.uk/uksi/2024/1157/contents/made
3. As defined in the 'Information and records' section of each of the UK sanctions regimes.
4. https://www.gov.uk/government/publications/financial-sanctions-guidance-for-letting-agents; https://www.gov.uk/government/publications/financial-sanctions-guidance-for-insolvency-practitioners; https://www.gov.uk/government/publications/high-value-dealers-art-market-participants-guidance.
5. https://www.gov.uk/government/publications/the-shadow-fleet-a-call-to-action
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