The UK Government has passed new amending sanctions regulations which grants its financial sanctions regulator – the Office of Financial Sanctions Implementation (“OFSI”) – greater intelligence gathering and enforcement powers, and enables OFSI to deal with licensing applications more efficiently.   

The majority of the amendments introduced by The Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations 2024 (the “Regulations”) will come into force on 5 December 2024, although the extension of reporting obligations to new sectors will apply from 14 May 2025.

Expanded mandatory reporting requirements

Presently a number of so-called “relevant firms”, including UK financial institutions and law firms, are subject to mandatory sanctions reporting obligations.  Relevant firms are required to report to OFSI when they know or have reasonable cause to suspect that a person has committed an offence under financial sanctions legislation (there are certain additional reporting requirements under the UK’s Russia sanctions regime). 

The Regulations make two key changes to the reporting requirements. 

1. First, it broadens the definition of relevant firm to cover additional sectors, namely high-value dealers, art market participants, insolvency practitioners and letting agencies. Industry reporting is a key mechanism through which OFSI can monitor compliance with UK financial sanctions, and this amendment will expand reporting requirements and so enable greater scrutiny of higher-risk industries which to date have not been compelled to report sanctions breaches.

OFSI has published new guidance to assist such firms to comply with their obligations (see here (for high value art dealers and art market participants), here (for insolvency practitioners), and here (for letting agents)).  These new requirements do not take effect until May 2025 (i.e., in six months).  During that period, OFSI will be undertaking further industry engagement to ensure industry are introducing adequate internal policies and procedures to assist with compliance.   

2. Presently, relevant firms are only required to report any known or suspected offences under legislation (in other words, where the person’s conduct may amount to a criminal offence). Now the UK is lowering that standard and relevant firms will be required to report any suspected breaches of a prohibition or failures to comply with an obligation imposed under sanctions legislation, regardless of whether that could amount to a criminal offence or result in civil enforcement.

OFSI has civil enforcement powers by being able to impose civil monetary penalties if it satisfied, on the balance of probabilities, that a person has breached or failed to comply with a financial sanctions prohibition. This is lower than the criminal standard which requires the prosecution to prove beyond reasonable doubt that a person has committed a criminal offence. The expanded reporting requirement will now align with this civil enforcement power.

Annual Frozen Assets Review

OFSI presently utilises its general information gathering powers to require all UK persons (not just relevant firms) to provide information on a yearly basis about any funds or economic resources they hold which are owned, held or controlled by a UK asset freeze target.  This annual reporting requirement is now being codified into a proactive legal requirement and failure to report could result in either criminal or civil enforcement. The report must include the nature and amount, or quantity of assets held (as at 30 September) and be sent to OFSI (no later than 30 November) each year.

The Government has stated that this amendment will provide certainty and clarity for persons who must comply. The amendments also seek to counter the high level of non-compliance with existing requirements by providing a robust basis for OFSI to take enforcement action where persons fail to report.  

Other Amendments

The Regulations also introduce the following additional changes:

• Amending notification requirements so that regulators who have issued sanctions licences will only need to notify the person who applied for the licence if the issuer is varying, suspending or revoking the licence (rather than every person authorised to act under the licence).
• Changes to financial sanctions licensing grounds and exemptions for the UK’s autonomous financial sanctions regimes (being those which are not implementing UN sanctions) including (i) expanding the pre-existing judicial decisions licensing ground to cover judicial decisions made after the designation of a person; (ii) extending the grounds for OFSI to license various payments and other activities relating to insolvencies and restructuring; and (iii) establishing an exemption for various payments to be made from asset freeze targets to UK government agencies.
• Providing express legal grounds for OFSI to issue licences in cases which do not involve a named designated asset freeze target, but do involve entities owned and controlled by the designated person. The Government has stressed that this is not a change of policy, but rather clarifies the legal definition.
• Amending asset freezing prohibitions to explicitly prohibit the making available of any funds and/or economic resources for the benefit of an entity that is owned or controlled by a designated person, as well as the named designated person themselves (again this has been phrased as a clarification as presently the legislative drafting has some ambiguity).
• Providing OFSI with new powers to impose civil monetary penalties for violations of UK sanctions restrictions on acquiring ownership interests in land located in Russia and the non-Government controlled regions of Ukraine. As these are trade sanctions, OFSI did not have a firm legal basis to impose civil penalties for violations. Given these restrictions are bound up in wider financial investment sanctions (e.g., restrictions on acquiring interests in Russian companies), OFSI retains its responsibilities for these sanctions (whereas equivalent sanctions under the UK’s North Korea regime are being transferred to OTSI). 

The package of measures has been introduced following an internal review of OFSI’s procedures and has been promoted by the significant increase in UK financial sanctions in recent years – most pertinently the extensive UK sanctions imposed on Russia since 2022.  Collectively, these amendments will give OFSI greater teeth to monitor and enforce sanctions.  This aligns with the UK Government’s increasing focus on sanctions enforcement, as evidenced through the recent launch of a standalone UK trade sanctions regulator (see our blog post on OTSI here).