Russia/Ukraine war: The importance of pre-employment sanctions checks in the spotlight

The Russian invasion of Ukraine on the 24th February 2022 has resulted in the UK and other countries across the world implementing the largest package of sanctions ever imposed against a G20 nation. The UK have so far imposed financial, trade, transport and immigration sanctions against over 1,000 individuals and businesses since the start of the invasion. This has thrust sanctions, and the importance of compliance with the rules for dealing with sanctioned entities and individuals, into the spotlight and reaffirmed the importance of a robust sanctions checking regime, both as part of the employee onboarding process and dealing with clients and vendors. It is also im-portant to note that the rules surrounding dealing with sanctioned entities and individuals apply to all businesses and not just those in the financial services sector, who have historically been more likely to include sanctions checks due to regulatory requirements.

What are sanctions checks?

Sanctions are preventative measures implemented by govern-ments or international bodies with the intention of prohibiting certain behaviour (often related to finan-cial transactions) by certain indi-viduals or groups who are deemed to be “high risk.” Activities which tend to result in sanctions include:

• Terrorist activity or financing terrorist activity

• Construction or financing of weapons and arms

• Violations of human rights

• Money Laundering

Individuals or groups who are sub-ject to sanctions, are compiled into lists by both governments and in-ternational bodies; it is these lists that are checked, as part of em-ployee onboarding processes or due diligence activity.

When should sanctions checks be carried out?

It is sometimes assumed that the requirement for sanctions checks only ap-plies within the financial sector, however, all sectors are obliged to carry out such checks. Regulators have been turning their attention to other sectors for some time, and guidance has been released to other sectors (such as the charity sector) in recent years.

Complying with this obligation confirms that adequate controls are in place within an organisation to prevent financial crime, terrorist financing or money laundering from taking place.

The ever-shifting landscape of sanctions, especially during periods of significant conflict (such as the current war in Ukraine), presents potential risks to organisations looking to hire employees or trade with third-parties; ensuring a robust process of regular sanctions checks allows organisations to keep pace with such risk and to remain compliant.

What are the consequences for being found guilty of breaching sanctions (e.g. employing or trading with a sanctioned individual or group)?

In the UK, it is a criminal offence to contravene trade, aircraft, shipping or financial sanctions, as well as enabling contravention of them. Breaches of the main financial sanctions can carry a maximum sentence of 7 years imprison-ment, a large fine, or both.

There are some circumstances wherein trading with a sanctioned individual or group is permitted, however these instances require a general or in some cas-es, specific license which is issued by the Office of Financial Sanctions Imple-mentation (OFSI) on behalf of the HM Treasury.

What happens if a check reveals that an individual or organisation being dealt with is subject to sanctions?

Checks may present possible matches that have not been fully confirmed (sometimes due to how com-mon a name is, or limited information), these results should be addressed and interrogated straight away, with a clear process for escalation if found to be a direct match.

According to the gov.uk website, the general guid-ance if you believe to be dealing with a sanctioned individual or group, is as follows:

• stop dealing with them

• freeze any assets you are holding for them

• Inform the Office of Financial Sanctions Imple-mentation (OFSI) as soon as possible by either emailing ofsi@hmtreasury.gov.uk or by calling their general enquiries line: +44 (0)20 7270 5454

For further guidance on UK Financial Sanctions under the Sanctions and Anti-Money Laundering Act 2018, click here.