Click Questions to see example responses, some of which include embedded links to reference sources.
Financial sanctions are imposed by the UK and other national governments. Requirements may result in asset freeze or block, to prevent asset movement by a sanctioned person, a sanctioned body/entity, or a body/entity which may not itself be named on a sanctions list, but which if it is owned or controlled by a sanctioned person, would nevertheless be subject to the same asset freeze or blocking measures.
Depending on the law/regulation implementing a particular blocking measure, it may be possible to progress with a transaction or arrangement, subject to licensing (or approval to proceed). In general terms, Financial Sanctions relate to:
The UK uses sanctions to support UK foreign policy and national security objectives, as well as maintaining international peace and security, and preventing terrorism:
Sanctions issued by the United Nations Security Council (‘UNSC’) take different forms.
Restrictive measures or Sanctions issued by the European Union are determined under the EU's Common Foreign and Security Policy (‘CFSP’).
When transacting in U.S. Dollar, or if a UK business has a U.S. nexus, consideration must be afforded to economic sanctions administered by the U.S. Office of Foreign Assets Control (‘OFAC’); which administers and enforces economic sanctions programs - primarily against countries and groups of individuals, such as terrorists and narcotics traffickers, but these can also apply to certain aircraft and vessels – with an extra-territorial impact, such as:
For more information on OFAC, click: ’here’.
Financial sanctions apply to all transactions, without de minimis financial limit:
The Office of Financial Sanctions Implementation (‘OFSI’) is the lead authority with responsibility for ensuring UK financial sanctions are properly understood, implemented and enforced.
OFSI maintains two lists of those subject to financial sanctions:
The Consolidated List consists of the names of people, businesses, organisations and financial institutions which are specifically subject to restrictions under UK law. Other business or organisation names may not be included on the consolidated list, but they also could be subject to financial sanctions restrictions. For example, where they are:
OFSI’s list of persons subject to specific financial and investment restrictions (i.e., via the Capital Markets) is not included in the consolidated List. These are linked to, for example, restrictions on dealing with transferable securities or money-market instruments, or the granting or entering-into arrangements to grant loans or credit.
Depending on jurisdictions in (or through which) a company transacts or does business, multiple country list sources might need to be considered, where each respective country might maintain its own local list(s).
OFSI publishes lists on U.K. financial sanctions relating to specific countries or terrorist groups (i.e., known as ‘regimes’). Regulations and Designated Person lists for each regime are accessible via the UK Government website – Click: ’Financial sanctions targets by regime’
OFSI also provides:
As a member of the United Nations Security Council, the U.K. is obliged to implement measures for each listed name (as specified by the U.N. Sanctions Committee).
Note: The SSI list is not part of the SDN list, although individuals and/or companies on the SSI list may also appear on the SDN list.
The U.K. sanctions regime requires absolute compliance. A person who breaches an obligation under a relevant Statutory Instrument or Act of Parliament will be guilty of a criminal offence unless a defence is available, relevant to circumstances of the breach. A person guilty of an offence is liable on conviction to imprisonment and/or a fine.
Firms should consider carrying out an assessment, to understand which parts of their business might carry a greater likelihood of breaching financial sanctions and embargoes. Such assessment may, inter-alia, include:
Where a firm believes it holds funds or assets for a sanctioned party, this must be reported to OFSI as soon as practicable.
In limited circumstances, OFSI may issue a licence to allow arrangements or transactions to proceed and protect third parties who are not sanctions targets – for example, the payment of staff salaries, for humanitarian purposes, or to allow the assets of a Designated Person to be appropriately safeguarded and managed.
OFSI licences do not cover activities in other jurisdictions, nor trade imports or exports subject to trade sanctions. If the firm, or the activity it is seeking to have licensed, is subject to more than one sanctions regime (because of overseas ownership, for example) the firm may need to apply to the overseas authorities for a separate licence from them.
Guidance published, includes:
The FCA’s role is to ensure the firms it regulates have appropriate systems and controls to comply with the U.K. sanctions regime. Its guidance includes - Financial Crime Thematic Reviews (‘FCTR’); Chapter 8 (Financial services firms’ approach to UK financial sanctions) – Click ’here’. In particular:
FCA regulated firms are also expected to notify the regulator about sanctions evasion issues, where they relate to firms on the Financial Services Register, the FCA’s other registers, or to companies with UK listed securities – Click ‘here’ .
Guidance published by the Joint Money Laundering Steering Group (‘JMLSG’) recognises that international and UK legislative frameworks for financial sanctions do not prescribe the processes which firms have to adopt to achieve compliance with their legal obligations.
Chapter 5 in Part I of JMLSG Guidance describes the U.K regime facing persons and entities subject to financial sanctions [Sec. 5.3.54 to 5.3.62].
Chapter 4 in Part III of JMLSG guidance, provides an indication of controls and processes firms might adopt, to enable them to comply with sanctions obligations in an effective and proportionate manner. The guidance:
JMLSG Guidance makes clear:
To access JMLSG Guidance – Click ’here’.
Guidance is guidance – not a prescriptive set of rules or procedures. A key principle of the UK regulatory regime is the ability, generally, to implement a ‘risk-based approach’ to systems and controls, when mitigating money laundering and terrorist financing risk. But, it is important to note any transaction completed in breach of a sanction could lead to proceedings being taken against the transgressing firm and the person(s) (i.e. a firm and/or its employees) involved.
OFSI can impose a financial penalty on a person if it is satisfied, on the balance of probabilities, that a person breached a financial sanction and that they knew or had reasonable cause to suspect that they were committing a breach. Where a legal entity breaches a financial sanction, a monetary penalty can also be imposed on an officer of the entity if the officer consented or connived with the breach, or the breach was attributable to negligence of the officer.
From a systems and controls perspective, the FCA might consider whether a transgressing firm followed OFSI guidance, relevant provisions of JMLSG Guidance and/or other recognised guidance.
If a person, body or organisation is identified on the consolidated list, it means their assets may be frozen or subject to specific restrictions. Instances arise where OFSI will consider issuing a general or specific licence, which would allow a specific transaction (or transaction type) to proceed. However, save where such license is in place:
OFSI’s options for responding to a potential breach of financial sanctions include:
OFSI’s guidance indicates it may undertake several of these actions in any particular case.
OFSI publishes details of action it has taken as part of financial sanctions enforcement, including the size of financial penalties imposed – Click ’here’ for more information. Examples include:
The FCA is not responsible for enforcing asset freezes or sanctions, but expects firms to maintain adequate and effective systems and controls to mitigate the risk of financial crime, which includes meeting financial sanctions obligations:
Note: Examples of FCA Enforcement are outlined on our ‘Enforcement’ page.
It is also worth considering non-UK risk where action taken under another country’s legal or regulatory requirements could have a bearing. One of the more notable cases is the large fine linked to sanctions placed on BNP Paribas in June 2014. For background see BNP Paribas’ and its $8.9 Billion penalty for illegally processing financial transactions for countries subject to U.S. Economic Sanctions’.
The Financial Sanctions risk profile of your business is influenced by how and where your business operates, the type of service(s) you provide and who you do business with (e.g. suppliers, customers and other parties). However, if your firm/business is covered by The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, Regulation 18 requires you to carry out a written risk assessment to identify and assess the risk of money laundering and terrorist financing that your firm faces.
Our FAQ on ”What are the main AML risks facing my business” identifies some risk factors to cover in an anti-money laundering (‘AML’) risk assessment. They include:
The Regulations require consideration of, inter-alia, geographical risk factors, including countries’ subject to sanctions, embargos or similar measures issued by, for example, the European Union or the United Nations.
In addition to UK, EU and UN financial sanctions, which apply to individuals (i.e., natural persons), corporate, unincorporated and other bodies, a firm may also have to consider the potential for risk associated with entities subject to capital market restrictions, or Sectoral Sanctions issued under U.S. law (i.e. imposed on specified persons operating in sectors of the Russian economy under Ukraine-/Russia-related Sanctions issued by OFAC).
As noted in an earlier FAQ ’Where can I obtain copies of the relevant lists?’ lists are available of people, companies and other entities, subject to sanction, some of which are regime/country specific. However, which lists are relevant to your business is something to assess, possibly as part of an enterprise-wide AML and sanctions risk-assessment; taking account of where your main suppliers, customers and other business counterparties are located, operate from or where you transact through.
Commercial service providers incorporate aggregated / multiple source-list data into a single data file, which could be incorporated into your in-house risk assessment tool, or accessed via a web-based GUI, or other means. The following might be of interest if this is your preferred way forward (NB: These are provided as examples only and not a SYSC326 endorsement or recommendation of their functionality above other providers in the market):
UK regulated firms/businesses must, as a minimum take account of the following:
Dual-use items are goods, software, technology, documents and diagrams which can be used for both civil and military applications. They can range from raw materials to components and complete systems, such as aluminium alloys, bearings, or lasers. They could also be items used in the production or development of military goods, such as machine tools, chemical manufacturing equipment and computers. Dual-use goods are subject to legislative control.
The UK’s Department for International Trade and The Export Control Joint Unit issued ’Guidance’ on arms embargoes, trade control restrictions, defence export policies and restrictions on terrorist organisations. Guides are also available with details of EU or Organization for Security and Co-operation in Europe (‘OSCE’) embargoes and stricter trade controls for particular countries.
Financial sanction framework arrangements should include:
For more on our Anti-Money Laundering and Financial Sanctions Services - See AML & FS Services