CORPORATE COMPLIANCE IN THE UK: NAVIGATING LEGAL REQUIREMENTS – PART 3

06 Feb 2024, 50 mins ago

Reporting to OSFI: A Guide to Financial Sanctions Compliance

Are you Complying with Your OFSI Reporting Obligations?

With new updates and requirements being regularly introduced, it is evident that the realm of sanctions is continuously evolving, with no sign whatsoever of a slow-down in the near-future.

This blog is the third in a series (following our first blog on anti-money laundering compliance (linked here) and our second blog on anti-bribery and corruption compliance (linked here)) delving into various aspects of corporate compliance and offering actionable strategies to help ensure that your company remains in full alignment with the current legislation in force.

Sanctions compliance is multi-faceted.  In this blog, we focus on financial sanctions compliance; more specifically, on reporting obligations as set out by HM Treasury’s Office of Financial Sanctions Implementations (OFSI).

Who needs to report to OFSI?

Reporting obligations apply to ‘relevant firms’.

The specifics and definitions of relevant firms are very detailed and depend heavily on which sanctions regime is in play.  Entities such as financial services permit holders, currency exchange offices, auditors, legal service providers, estate agents and others fall under this categorisation.

By way of concrete examples provided by OFSI, relevant firms that are subject to specific reporting obligations include:

  • a person who has permission under Part 4A of the Financial Services and Markets Act 2000 (FSMA 2000) (Permission to carry on regulated activities);
  • an undertaking that by way of business operates a currency exchange office, transmits money (or any representations of monetary value) by any means or cashes cheques which are made payable to customers;
  • a firm or sole practitioner that is a statutory auditor or local auditor;
  • a firm or sole practitioner that provides by way of business: accountancy services, legal or notarial services, advice about tax affairs, or certain trust or company services
  • a firm or sole practitioner that carries out, or whose employees carry out, estate agency work;
  • the holder of a casino operating licence;
  • a person engaged in the business of making, supplying, selling (including selling by auction) or exchanging articles made from gold, silver, platinum, palladium or precious stones or pearls;
  • a cryptoasset exchange provider;
  • a custodian wallet provider;

Understanding Reporting Obligations: What information do you need to report?

Relevant firms are required to inform OFSI as soon as practicable if they “know or reasonably suspect a person is a designated person or has committed an offence under financial sanctions regulations.” 

This duty to report applies during the course of conducting business operations, making it a broad-reaching responsibility that must be taken into account at all times when carrying out day-to-day business activities.

Understanding Designated Persons

Designated persons’ are individuals, entities or ships subjected to sanctions under UK legislation.  OFSI’s consolidated list of asset-freeze targets details these entities, and financial sanctions extend to those owned or controlled by designated persons.

Additional Reporting Requirements

Reporting requirements are continuously refined and updated by the relevant authorities (in this case, OFSI), particularly regarding the Russia (Sanctions) (EU Exit) Regulations 2019.  This means that extra caution has to be taken by relevant firms to ensure that their reporting efforts continue to align with their evolving obligations.

Most recently, as of December 2023, a relevant firm is required to inform OFSI as soon as practicable if it “knows, or has reasonable cause to suspect, that it holds funds or economic resources for a person to whom financial services must not be provided to under regulation 18A(1) (a “prohibited person”).”

How to report to OFSI

OFSI reporting procedures revolve around a compliance reporting form which provides clarity as to what information is required in each of its sections.  The form, alongside any ancillary documents, are then to be emailed to OFSI.

Freezing Assets and Reporting

Funds or resources linked to designated persons must be frozen.  Reporting these assets to OFSI, both during annual reviews and outside these periods as required, is a crucial step in compliance.

Understanding Breaches

Actions contrary to financial sanctions constitute breaches.  Reporting such suspected breaches to OFSI promptly is a vital part of ensuring compliance with your legal obligations.

Consequences of Breaching Sanctions Obligations

OFSI and associated enforcement bodies are responsible for evaluating breaches by considering various factors, including the relevant firms’ reporting procedures and compliance policies.  Enforcement actions can range from warnings and requests for improved compliance to potential monetary penalties or even legal prosecution.

Conclusion

In these constantly changing times, it is extremely challenging for relevant firms to keep on top of the various obligations.

The consequences for any breaches are severe.

In addition, firms that deal with cryptoassets, and additionally have exposure to firms that do, will need to carefully consider all their systems and controls to ensure that they are able to comply with all relevant AML and sanctions regulations.

Adhering to reporting obligations and comprehending the nuances of financial sanctions are integral for firms.

As the world of sanctions regimes continues to change, it is important to ensure that you implement a recurring and efficient horizon scanning exercise to be conducted by qualified individuals who can help identify any changes (whether removals or additions) to your reporting requirements.

Utilising Legal Expertise

Gherson’s white-collar crime and regulatory team can provide advice and assistance with creating, updating and/or evaluating every step of your AML and sanctions compliance process, including in situations involving cryptoassets:

How to address the risk of sanctions evasion via cryptoassets

UK cryptoasset firms and sanctions reporting

Additionally, the team has recently started a series on corporate compliance with respect to anti-money laundering and anti-bribery and corruption compliance:

Part 1: Introduction to AML/CFT Compliance

Part 2: UK Bribery Act 2010: Anti-Bribery & Corruption Regulations in the UK

How Gherson can assist

Gherson’s regulatory, white-collar and investigations team are highly experienced in providing assistance, advice and guidance on how you can successfully navigate and adhere to legal requirements regarding corporate compliance. This includes providing a comprehensive and unparalleled range of regulatory and compliance services to prospective customers.

If you have any questions arising from this blog, please do not hesitate to contact us for advice, send us an e-mail, or, alternatively, follow us on XFacebookInstagram, or LinkedIn to stay-up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2024