OFSI Director Giles Thomson discusses UK sanctions developments

On Tuesday 6 September 2022 we attended a webinar where Giles Thomson, the director of the Office for Financial Sanctions Implementation (OFSI), spoke about recent developments in UK sanctions. Thomson specifically spoke about developments around the UK/Russia sanctions regime and what he views as OFSI’s priorities going forward. We thought that this may be of interest to you so we have summarised the key takeaways below.

Ownership and Control:

• During the webinar, Thomson fielded queries and concerns around the lack of guidance when determining whether an entity will be treated as “controlled” by designated persons and the difficulty in applying the control test to entities.
• Thomson stated that OFSI is conscious that this is big issue facing entities complying with UK sanctions.
• OFSI is working with the Foreign Office to ensure that any entities considered subject to UK sanctions are designated as such outright and upfront. OFSI would like to provide more clarify through upfront determinations and guidance on determining control. This is a big priority for OFSI to develop.
• OFSI is looking to evolve and improve its own approach to determining control. OFSI admitted that it cannot provide clarity on every case because often it will not have access to the same information as entities conducting due diligence.

Strict Liability:

• Since 15 June 2022, OFSI operates on a strict civil liability basis for imposing monetary penalties for a breach of UK sanctions. The introduction of this strict civil liability test provided OFSI with an additional tool to be able to properly enforce sanctions. However, OFSI will not fundamentally change its approach to enforcement in light of the introduction of the new strict liability test.
• OFSI will aim to develop and issue further guidance on the strict civil liability test in the future.
• Thomson reiterated that OFSI is not trying to catch people out with the new strict liability test. When investigating breaches, OFSI will consider whether the entity has an effective compliance system in place with appropriate systems and controls.

Enforcement priorities:

• The main enforcement issues and priorities are:
• the Russia regime, although OFSI will not ignore other regimes; and
• intentional breaches of sanctions of the kind that would involve the National Crime Agency (i.e., a complete failure to do basic checks or lack of awareness of risks).
• OFSI stated that it has only issued a relatively small number of penalties to date for non-compliance with sanctions but that this will likely increase with caseload and prioritisation of resources.

Licensing:

• Thomson highlighted the importance of submitting a comprehensive licence application as incomplete applications or a lack of detail may result in processing delays.
• Thomson also reminded applicants to clearly state why they are applying for a licence. OFSI has seen a surge in speculative licensing and OFSI will not prioritise these applications.
• The primary bases on which OFSI will prioritise licenses are:
• humanitarian grounds e.g. Ukraine or basic human rights; and
• sectoral impact if this is a cross-cutting issue affecting a number of businesses in a sector with widespread impact in one or two companies in a particular area.

OFSI Resourcing:

• OFSI expects to double in size by the end of the financial year in response to the scale, pace and complexity of Russia sanctions.
• Additional resource will allow OFSI to increase customer interaction and deal with its back log of cases while ensuring it offers the best service to its customers.
• Further, OFSI acknowledged that it has a number of licensing cases that it needs to work through and processing these cases is a priority over the Autumn which the additional resource will assist with.  

Engagement with stakeholders:

• Thomson stated that OFSI aims to increase its engagement with stakeholders to provide greater benefit to its customers.
• OFSI has looked at the EU model of Q&As and the US’ model of FAQs issued by OFAC as examples of meaningful engagement with stakeholders. Consequently, OFSI have regularly updated and issued guidance. Thomson hinted that we may expect further regularly updated guidance issued by OFSI align with the EU and US models of engagement.
• OFSI considers it more useful if stakeholders co-ordinate their proposals rather than submit individual suggestions – this will allow for wider groups (i.e., sectors) rather than individual organisations to benefit from engagement with OFSI.  

While OFSI did not announce any changes or developments during the webinar that will immediately impact entities’ compliance with UK sanctions, it is clear that Thomson is aware of the areas most pressing for individuals and organisations complying with UK sanctions laws. We will continue to monitor developments in this space and look out for any guidance issued by OFSI as referenced throughout the webinar.

Next steps

As ever, please let us know if you have any questions concerning compliance with UK sanctions. We are happy to advise on specific issues and transactions as they arise.

Authored by Aline Doussin and Simi Malhi.