UK businesses have long been subject to sanctions, supporting everything from foreign policy and national security objectives, to international peace and security, and terrorism prevention. When the country was an EU member state, these sanctions were derived from the European Union and consistent across all member countries. Now, as we shift to a post-Brexit era, the UK has derived its own set of similar but divergent sanctions, which will affect businesses both from the perspective of compliance, and that of licensing exemptions across different jurisdictions.
So, what do the changes entail?
From 1 January 2021, the UK became subject to its own sanction regime: the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act). This is the new legal basis for the UK to impose, update and lift sanctions, and is of particular importance for accountants to be familiar with, to ensure any activity with a sanctioned country or entity remains fully compliant. It also means there are two lists of sanctions which apply in the UK: the UK Sanctions List, which covers all sanctions made under the Sanctions and Anti-Money Laundering Act 2018, or The Office of Financial Sanctions Implementation (OFSI) Consolidated List of Financial Sanctions Targets, which covers all financial sanctions designations. OFSI is part of HM Treasury. Together, these create a list of persons, entities or ships that companies are restricted from dealing with. Accountants and accounting firms will need to consider this new reality for their clients.
Fundamentally, in the short term, the list is largely the same as the one we have just left behind from the EU. As the simplest strategic decision, the UK has undertaken to transfer all current EU sanctions measures into UK law. The aim is to ease the burden of transfer for both the country and its businesses, by delivering a familiar, substantially similar policy. Long term, it is likely that the UK sanctions will begin to diverge from the EU lists, which will make compliance reviews essential, particularly for businesses which trade internationally with the EU and entities further afield.
What do accountants need to do?
Accountants can support clients and employers to remain compliant by carrying out sanction checks regularly. It is your responsibility to screen against the financial sanctions list on an ongoing basis, as well as undertaking due diligence so that your clients know who they are dealing with, both directly and indirectly, for example screening the ownership and control of the organisation and its parent companies or groups.
The new UK Sanctions List and OFSI Consolidated Lists should be used for sanctions screening from 1st January 2021, so you need to ensure that your systems and processes have been updated to include these lists. If you use an electronic verification supplier for client due diligence, you will need to check your third-party software provider is now using the correct data for their due diligence checks.
Separately, there is still an EU-specific consolidated sanctions list maintained by the European Commission that should also be used for sanctions screening alongside the UK lists. This of course only applies to businesses who are continuing to work with EU companies, or who have EU operations as part of their organisation.
Does your client need a licence?
The government can grant a licence to specifically permit activities that would otherwise be prohibited, but only in specific circumstances. Your client may be able to apply for, or need one of these licences, which will be determined by the licensing authority. Some licences also require UN notification approval.
Why are the checks important?
Primarily, the biggest concern for accountants and their clients is not the sanctions themselves, but the sharp rise in sanctions violations and accompanying fines. In the financial year to March 2019, there were 99 reported sanction violations relating to transactions totalling £262 million. The financial year to March 2020 however, saw astronomical growth in both violations and transaction value, with 140 voluntary disclosures made to OFSI, for transactions totalling a whopping £982 million. Companies which breach sanctions face huge fines, like those levied on the Standard Chartered Bank, which was fined £20.47 million by OFSI in March 2020. The breaches are also a criminal offence and can result in a civil monetary penalty being imposed on a practice or an individual, with imprisonment of up to 7 years.
It is imperative that any suspected or actual breaches of financial sanctions are reported to OFSI. If you believe that you are dealing with an individual or organisation that is or was subject to sanctions at the time of the activity, you must not deal with or make funds or economic resources available to them, and must not do anything that would prevent the asset freeze. You must also report the matter to OFSI.
You can read about the new UK sanctions in full on the government website here.
This article has been provided by Anne Davis of The Institute of Financial Accountants. More information about the professional accountancy body can be found at www.ifa.org.uk.
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