OFSI Utilises New Enforcement Power to Enhance Financial Sanctions Compliance

31 August 2023 | NEWS

In a pivotal move to bolster the enforcement of financial sanctions, the Office of Financial Sanctions Implementation (OFSI) has employed its newly acquired Disclosure enforcement power for the first time. This strategic initiative, undertaken on 31 August 2023, marks a significant step toward reinforcing the UK’s commitment to safeguarding national security and financial integrity.

The context in which financial sanctions operate has gained prominence due to their crucial role in the international response to Russia’s invasion of Ukraine. As threats to core values persist, effective implementation and enforcement of financial sanctions have taken on paramount importance.

OFSI recognizes that the private sector serves as the frontline of defense in the battle against financial misconduct. Its primary objectives are centered on aiding the private sector in understanding and implementing sanctions effectively, curbing illicit finance inflows into the UK’s financial system, and aligning with the nation’s security and foreign policy objectives—all while minimizing adverse impact on the UK economy and legitimate entities.

While the majority of UK businesses are committed to adhering to financial sanctions, it’s acknowledged that a robust enforcement mechanism is vital to the efficacy of these regulations. Such enforcement not only penalizes severe breaches but also serves as a deterrent and educational tool for the broader industry.

The Disclosure enforcement power, enabled by the Economic Crime (Transparency and Enforcement) Act 2022, allows OFSI to publiciSe the details of financial sanctions breaches in cases where a civil monetary penalty is deemed excessive. This tool is wielded to address moderately severe breaches, striking a balance between leniency and excessive punishment. By publishing breach details, OFSI aims to set a precedent, deter potential wrongdoers, and share valuable compliance insights with the industry.

OFSI’s inaugural Disclosure case unveils important lessons in sanctions compliance. The case underscores the necessity of adequate resourcing to manage sanctions risk and prompt response when identifying such risks. Firms are advised to maintain proportionate sanctions screening and alert review processes while promptly restricting access to funds or economic resources upon identifying risks.

In addition to the first Disclosure case, OFSI has released updated guidance that outlines how the enforcement power will be wielded and categorized. The revised guidance emphasizes OFSI’s commitment to proportionate action tailored to each case’s circumstances. For cases of lesser severity, OFSI will anonymize the publication to focus on the compliance lesson rather than the involved party.

This groundbreaking step in enforcement not only showcases OFSI’s dedication to its mandate but also elevates the compliance landscape for the industry. As OFSI continues to enhance its enforcement toolkit, industry stakeholders are encouraged to engage in compliance diligence and contribute to the broader objective of preserving the integrity of the financial system.

For further details and guidance, interested parties are encouraged to refer to Chapter 10 of the updated Monetary Penalty and Enforcement Guidance on the OFSI website.