Post-Brexit UK: Understanding the new sanctions
As the UK shifts to a new post-Brexit mindset, new sanctions have now come into force that will require full compliance of the sanctions regime and licensing exemptions affecting many businesses across different jurisdictions.
The UK uses sanctions to fulfil a range of purposes, including supporting foreign policy and national security objectives, as well as maintaining international peace and security, and preventing terrorism.
Now no longer subject to EU sanctions, the UK’s legal framework sees the introduction of the UK’s sanction regime, the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act). The Sanctions Act provides the legal basis for the UK to impose, update and lift sanctions. It is of overriding importance for accountants undertaking activity relating to a sanctioned country or entity to fully understand what the change means and to ensure that they are still compliant. So, what does the change entail for you and your business?
“The good news is that the changes are broadly similar in principle to the EU regime, though not identical and there are some important differences,” explains Anne Davis, IFA director of professional standards. “For instance, persons designated under the Ukraine (Sovereignty and Territorial Integrity) and those businesses subject to restrictive measures under the current EU Regulations will both move to the new Russia sanctions regime.”
UK Sanctions and OFSI lists
Depending on the information you are looking for, since 1st January 2021 you will now either need to refer to the UK Sanctions List which covers all sanctions made under the Sanctions and Anti-Money Laundering Act 2018, or The Office of Financial Sanctions Implementation (OFSI) Consolidated List of Financial Sanctions Targets, which covers all financial sanctions designations.
Although many of the lists remain the same, it is vital that you carry on sanction checks on an ongoing basis to ensure that compliance is maintained. In some cases, both lists will need to be checked.
Increasing sanctions violations
The importance of all of this is reflected in the sharp rise in sanctions violations. Last year, OFSI revealed a record number of 140 voluntary disclosures of potential sanctions violations related to transactions worth a total of £982 million between April 2019 and March 2020. This is a staggering £720 million more in relation to 99 reports from the previous year. Companies that breach these regulations face huge fines, as the Standard Chartered Bank can attest to in March 2020 after the OFSI announced it had imposed a £20.47 million fine on the firm. Breaching financial sanctions is also a criminal offence and can result in a civil monetary penalty being imposed on a practice or an individual, with imprisonment of up to seven years.
Maintaining effective checks
It is an accountant’s responsibility to screen against financial sanctions lists on an ongoing basis, and they are expected to undertake due diligence so that they know who they are dealing with, both directly and indirectly, for example, looking at ownership and control of an organisation.
The new UK Sanctions List and OFSI Consolidated Lists should be used for sanctions screening from 1 January 2021, so you need to ensure that your systems and processes are updated to include these lists. If you use an electronic verification supplier for client due diligence, you will need to check your third-party software provider is using the correct data for their due diligence checks.
There is also an EU-specific consolidated sanctions list maintained by the European Commission that should also be used for sanctions screening alongside the UK lists, which applies to all businesses working with EU companies.
Do you need a licence?
You may also need a licence. In specific circumstances, the government may grant a licence to permit an activity that would otherwise be prohibited. The licensing authority will determine whether a licensing application is in line with the purposes; some licenses require UN notification approval.
It is imperative that any suspected or actual breaches of financial sanctions must be reported to OFSI. If you believe that you are dealing with an individual or organisation that is or was subject to sanctions at the time of the activity, you must not deal with or make funds or economic resources available to them and not do anything that would prevent the asset freeze and report the matter to OFSI.
You can read about the new UK sanctions in full on the government website here.