UK Sanctions Checks: The Economic Crime (Transparency & Enforcement) Act 2022

Earlier this year, the UK government passed the Economic Crime (Transparency & Enforcement Act) 2022, which had been fast-tracked through parlia-ment in response to the ongoing Russia/Ukraine War. Due to the speed at which this legislation came into force, key elements of the legislation may have been missed, including the significant shift in UK sanctions enforcement. Earlier this year, the UK government passed the Economic Crime (Transparency & Enforcement Act) 2022, which had been fast-tracked through parlia-ment in response to the ongoing Russia/Ukraine War. Due to the speed at which this legislation came into force, key elements of the legislation may have been missed, including the significant shift in UK sanctions enforcement.

Sanctions enforcement reforms

One of the key changes within the new act, is a more rigorous ap-proach to the enforcement of sanctions in the UK.

The OFSI imposing fines

The Office for Financial Sanctions Implementation (OFSI), who enforce UK sanctions can now impose monetary fines to organisations on the basis of “strict civil liability.”

Prior to the new legislation, the OFSI only imposed fines where they could prove that organisations “had knowledge or reasonable cause to suspect” that they were trading with a sanctioned party; the new legislation removes this requirement, meaning that organisations will be liable even if they had no knowledge that they were in breach.

The OFSI publishing names of organisations

In light of the new legislation, the OFSI can now publicly name organi-sations who have been found to be in breach of sanctions, even if they were not fined for it.

Fines

The maximum fine is £1 million, or 50% of the economic resources involved (whichever is greater). Where the OFSI can prove that the business did have knowledge of the sanctions, custodial sentences of up to 7 years may be imposed in addition.

For more information on the OFSI’s new enforcement powers, click here.

“This change will strengthen OFSI’s ability to take appropriate enforcement action against persons (including both natural and legal persons) that fail to ensure they are not dealing with sanctioned entities or adhere to their financial sanctions obligations.”

Giles Thomson, Director of OFSI

Sanctions checks

In order to avoid any fines, custodial sentences, or reputational damage that may arise from an unknowing breach of sanctions, it is advisable to carry out a sanctions check as part of a standard pre-employment screening package.

Sanctions checks usually serve as part of a “Know Your Customer (KYC)” check, and involve screening candidates against government sanction databases, to ensure that organisations are not unknowingly employing an individual who is subject to them.

Checking candidates against these databases is important due diligence, and also helps to pro-tect UK organisations from the effects of potential money laundering or the financing of crimi-nal or terrorist activities.

“Whilst we do not prescribe what due diligence should be undertaken to prevent breaches of financial sanctions, we will continue to take into account efforts to prevent such breaches when deciding on any enforcement action.”

Giles Thomson, Director of OFSI

Further economic crime legislation on the way

A second economic crime bill (The Economic Crime and Corporate Transparency Bill) is currently making its way through parliament and proposes greater powers for law enforcement agencies to obtain information for the purposes of preventing money laundering, alongside further re-forms of Companies House.

The Advisory Bureau will provide updates on this legislation as it develops.