UK sanctions enforcement changes come into force: high civil penalties, low burden of proof

On April 1, 2017, Part 8 of the Policing and Crime Act 2017 (the Act) came into effect. The Act empowers the Office of Financial Sanctions Implementation (OFSI) to impose monetary penalties for breaches of financial sanctions. OFSI has published guidance on these penalties and their imposition (the Guidance). These penalties are wide reaching and may be imposed on individuals within a company, as well as the company itself.

The Act does not alter the sanctions themselves but rather makes it far easier for the Treasury to levy penalties for suspected breaches through a civil enforcement mechanism. Criminal breaches now carry a longer maximum term of imprisonment (seven rather than two years), and the use of deferred prosecution agreements (DPAs) and Serious Crime Prevention Orders is extended to prosecutions of financial sanctions offences.

New penalties, lower burden of proof

Previously, the Treasury’s avenue for enforcing suspected breaches was via criminal prosecution. Now, OFSI can impose monetary penalties if, on a civil standard of proof, i.e. the balance of probabilities, there has been a breach of financial sanctions and those involved knew of (or should have suspected) the breach. The penalties may be £1,000,000 or 50% of the value of the breach, whichever is higher.

Enforcement based effect of breach on policy, voluntary disclosure

The Guidance sets out a civil enforcement mechanism for the use of OFSI’s new powers. Before it imposes a monetary penalty, OFSI will establish that the apparent breach involves one of the following factors: (i) funds have been available directly to a designated person; (ii) evidence of circumvention; (iii) a penalty otherwise seems appropriate and proportionate; or (iv) information required has not been provided by the respondent.

The Guidance also states that OFSI will reduce its penalties significantly – up to 50% - where a company voluntarily discloses the apparent violation. OFSI has stated that it will choose whether to levy penalties in part on the anticipated effects of the proposed penalty and the public interest in doing so.

Civil enforcement and appeals process

The new enforcement process will be based on representations made to OFSI by those accused of a breach, which could include: (i) matters of law; (ii) the facts of the case; (iii) OFSI’s interpretation of the facts; (iv) whether OFSI have followed their own processes; (v) whether the penalty is fair and proportionate; and (vi) the effect publication of the penalty will have on the person or the company. The Guidance states that written representations will be the norm; in-person hearings will be considered, but generally not granted.

The appeals process will run through relevant ministers, not through OFSI itself. Following the ministerial review, an appeal to the Upper Tribunal may be made.

Publication of enforcement activity

OFSI envisions publication of enforcement activity as a strong deterrent to other would-be violators. The Guidance states that OFSI will normally publish details of enforcement action, including  (i) the identities of the parties involved; (ii) the case facts; (iii) the breach value; (iv) the penalty imposed; (v) the lessons OFSI wishes to highlight; and (vi) the reasoning behind the penalty. The Guidance also states that OFSI may use the media to draw attention to the case.

The Guidance makes clear that non-publication will be rare and dependent on publication not being in the public interest, or where the impact would be disproportionate. However, the case may still be reported in anonymised reports, or in statistical, or aggregated, reports.

DPAs and the Act

As a result of the Act, a DPA may be entered into where a company has breached financial sanctions and offers an alternative for companies that face criminal prosecution as a result of a breach. This increase in scope signals increased confidence in the use of DPAs, which have been utilised by the Serious Fraud Office in Bribery Act prosecutions, including recent cases with Rolls-Royce and Standard Bank.

Implications

The Act, in theory, makes it far easier for OFSI to penalise companies and individuals who breach financial sanctions legislation, both via civil enforcement and through DPAs. These changes may herald a new, more robust chapter in sanctions enforcement in the UK. Corporates and financial institutions would do well to re-assess existing compliance processes and sanctions risk assessments, including escalating the importance of effective engagement with the UK authorities.