The Office of Financial Sanctions Implementation (OFSI), part of Her Majesty’s Treasury, has a web page with some guidance documents on it. One of them is a general one about sanctions, while the other covers all aspects of enforcement.
In Chapter 3 (“Case Assessment”) OFSI first gives some background on what its options in case there are sanctions breaches, and its guiding principles:
3.2 OFSI can respond to a breach of financial sanctions in several ways, depending on the case. The steps we could take in response to a breach include:
- issuing correspondence requiring details of how a party proposes to improve their compliance practices
- referring regulated professionals or bodies to their relevant professional body or regulator in order to improve their compliance with financial sanctions
- imposing a monetary penalty
- referring the case to law enforcement agencies for criminal investigation and
potential prosecution Section 146(1) of the 2017 Act says:
(1) The Treasury may impose a monetary penalty on a person if it is satisfied, on the balance of probabilities, that—
(a) the person has breached a prohibition, or failed to comply with an obligation, that is imposed by or under financial sanctions legislation,
(b) the person knew, or had reasonable cause to suspect, that the person was in breach of the prohibition or (as the case may be) had failed to comply with the obligation.
3.3 ‘Balance of probabilities’ is the civil standard of proof and means it is more likely than not that something has happened. We will not be seeking to prove the facts beyond reasonable doubt (the criminal standard), but to make a judgement on whether it is more likely than not that they are true.
3.4 Reasonable cause to suspect refers to an objective test that asks whether there were factual circumstances from which an honest and reasonable person should have inferred knowledge or formed the suspicion that the conduct amounted to a breach of sanctions.
Establishing whether there is a breach and “knowledge” or “reasonable cause to suspect”
3.5 OFSI will seek to establish whether there is a breach of a prohibition or a failure to comply with an obligation. If there is not, we will close the case. We see a few cases like this, often where individuals have taken a cautious approach to their responsibilities or might have been confusing their sanctions obligations with responsibilities under different national sanctions regimes.
3.6 A breach does not have to occur within UK borders for OFSI’s authority to be engaged. To come within OFSI’s enforcement of sanctions, there has to be a connection to the UK, which we call a UK nexus. This is not a new concept, and neither this guidance nor the 2017 Act extends or alters the reach of UK financial sanctions.3.7 A UK nexus might be created by such things as a UK company working overseas, transactions using clearing services in the UK, actions by a local subsidiary of a UK company (depending on the governance), action taking place overseas but directed from within the UK, or financial products or insurance bought on UK markets but held or used overseas. These examples are not exhaustive or definitive – whether or not there is a UK nexus will depend on the facts in the case.
3.8 We will not artificially bring something within UK authority that does not clearly and naturally come under it. Some breaches of financial sanctions do involve complicated structures or relationships, where a genuine UK nexus exists but is not immediately apparent. In every case, we will consider the facts to see whether the potential breach comes within our authority.
3.9 If we come across breaches of financial sanctions in another jurisdiction, we may use our information-sharing powers to pass details to relevant authorities if this is appropriate and possible under UK law.
3.10 If we conclude that the person did not know and did not have reasonable cause to suspect they were in breach, we cannot impose a monetary penalty. However, we may be able to take other action that would respond effectively to the matter, such as requesting information on how the person intends to improve compliance in the future.
Being fair and proportionate in our assessment
3.11 We will treat each suspected breach on its own merits. We will assess the facts to decide on an outcome that is fair, proportionate and best enforces the regime.
3.12 We may take a number of factors into account when assessing a case. We will consider each factor by referring to our strategy, policy, guidance and processes, and to the specific facts of the case. We may also seek legal advice, and advice from law enforcement agencies.
3.13 To ensure our response is proportionate, we will assess overall how severe or serious the breach is and the conduct of the individuals involved. Broadly, the more aggravating factors we see, the more likely we are to impose a monetary penalty. The more serious the breach, and the worse the conduct of the individuals, the higher any penalty is likely to be.
3.14 Mitigating factors may reduce a penalty we impose or lead us not to take enforcement action. We will take mitigating factors into account when deciding how to proceed with a case. However, with some breaches we will normally always impose a penalty or refer the matter for criminal investigation.