On 31 August 2023, the Office of Financial Sanctions Implementation (“OFSI“) published several updates to its Enforcement Guidance. These provide some further clarity about OFSI’s assessment of financial sanctions breaches, and approach to its power to publish details of a financial sanctions breach where it has decided not to impose any monetary penalty (a “Disclosure Report“).
The updates provide that:
- OFSI categorises financial sanctions breaches as follows: lesser severity, moderate severity or sufficiently serious to justify a civil monetary penalty. Those categories were not previously referred to in OFSI’s Enforcement Guidance.
- Lesser severity cases are likely to be dealt with via a private warning letter, provided there are no significant aggravating factors, and the breach does not form part of a wider pattern. Moderate cases are likely to be dealt with via a Disclosure Report if OFSI considers a warning letter would be too lenient but a monetary penalty would be disproportionately punitive.
- In addition to moderately severe cases, Disclosure Reports may also be considered to be fair and appropriate under other circumstances, including where there are valuable lessons to be learnt for the industry and, exceptionally, where it is not in the public interest to issue a monetary penalty (e.g. in humanitarian cases). Reports highlighting industry lessons may focus on an individual case or several cases of a similar nature which may be aggregated.
- Disclosure Reports will usually publicly name the firm or individual who has committed the breach and provide a summary of the facts of the breach. Where such a person is named, OFSI will contact them in advance to provide them with the opportunity to make any representations in relation to its finding.
Also on 31 August 2023, OFSI published a Disclosure Report for the first time. Firms will wish to consider this report and whether it has any read-across value for their systems and controls.
When OFSI first acquired the power to publish Disclosure Reports in June 2022, there was uncertainty about how, and how extensively, this would be used. This was particularly so in light of the relatively low number of monetary penalties imposed by OFSI to date for breaches of UK financial sanctions. The updates to OFSI’s Enforcement Guidance, and first Disclosure Report, provide a clear indication of OFSI’s intention to use this type of report to communicate its expectations about sanctions compliance. Many will welcome an increase to the level of guidance and commentary provided by OFSI, given the comparatively limited practical guidance available to those seeking to comply with UK financial sanctions. Equally, there remains significant interest in whether and when OFSI will take enforcement action against persons who have deliberately sought to breach financial sanctions, as opposed to financial institutions who have sought to comply, made an error, and self-reported their breach.