Following its recent publication on compliance threats relating to banks and non-bank payment service providers, the OFSI issued a Legal Threat Assessment outlining OFSI’s assessment of threats to sanctions compliance of legal service providers.
The report is relevant for solicitors’ firms, barristers’ chambers, trust and company service providers (TCSPs), notarial service providers and sole practitioners providing legal or notarial services.
Although the Legal Threat Assessment is not regime-specific, over 75% of sanctions designations introduced by the UK Government since February 2022 are specific to Russia.
The OFSI makes the following recommendations for legal service providers to ensure sanctions compliance:
1. TCSPs should ensure breaches are self-disclosed in a timely manner.
The OFSI identified substantial delays in identifying and reporting suspected breaches, observing that not all suspected breaches led to reports.
Additionally, despite receiving suspected breach reports concerning TCSPs, many were not self-disclosed and, instead, submitted by other firms.
Since February 2022, only 2% of suspected breach reports submitted to the OFSI from UK legal service providers came from TCSPs and providers other than solicitors’ firms and barristers’ chambers.
2. Carefully review OFSI licence permissions to avoid non-compliance.
The OFSI found that non-compliance from UK legal services is predominantly due to a “pattern” of non-compliance relating to OFSI licence conditions.
Legal services can strengthen compliance by ensuring robust due diligence is conducted where relevant, namely:
- Considering the terms of OFSI licences when billing designated person clients. While the provision of legal services when billing designated persons under an asset freeze is permitted, receiving payment for said services requires a licence.
- Reviewing licence reporting requirements.
- Identifying licence reporting failures by their designated person clients and report to OFSI.
- Since February 2022, many UK legal services providers left Russia. The OFSI encourages legal service providers to ensure that any operations involving Russia and/or persons connected with Russia are conducted in accordance with general and specific licence permissions.
- Adhering to asset freeze prohibitions.
3. Remain alert to the ownership and control of assets held through complex corporate structures.
The OFSI have identified complex corporate structures through which Russian designated persons and their family members have obfuscated the ownership and control of their assets.
Legal services providers should carefully consider the ownership and control of assets held through complex corporate structures, and report suspected breaches arising from non-designated individuals or entities dealing with frozen assets held through these structures.
4. Remain alert to the use of enablers by designated persons to evade UK sanctions.
Since February 2022, the OFSI observed several Russian designated persons removing themselves from complex corporate structures to mitigate the risk of financial sanctions.
Consequently, this has created uncertainty over whether assets held through the same structures should be frozen.
Summary
The legal services sector plays a crucial role in ensuring sanctions compliance within and outside the sector. Strengthening due diligence and compliance frameworks will ensure they are equipped in enforcing and circumventing sanctions.
Updated: 28 April 2025
How Gherson can assist
The Gherson team have years of experience advising on compliance matters, including sanctions. We regularly advise clients on sanctions laws and can assist companies develop policies and systems aimed at prevention of sanctions risks.
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