Do I Need to Comply with Financial Sanctions?

Compliance Knowledge Base | FCA Compliance Training

Posted by: Rosie Anderson Published: Thu, 21 Nov 2019 Last Reviewed: Thu, 21 Nov 2019
Do I Need to Comply with Financial Sanctions?

The financial sanctions regime was implemented to improve our national security and foreign policy. The main purpose of financial sanctions is to restrict access to financial resources and services for individuals, entities and bodies that engage in criminal activities. The Office of Financial Sanctions Implementation (OFSI) is responsible for enforcing financial sanction orders. All UK and non-UK individuals, businesses and charities need to comply with financial sanctions if they carry out activities within the UK's territory and are established under UK law and operating overseas. This means that UK citizens need to comply with financial sanctions wherever they are in the world.

Who is subject to financial sanctions?

OFSI publishes the consolidated list to help businesses and individuals comply with financial sanctions. The list includes all designated persons subject to financial sanctions under EU and UK legislation, as well as those subject to UN sanctions which are implemented through EU regulations. The list is also updated within one working day for all new UN, EU and UK listings coming into force in the UK, and within three working days for all other amendments. This means it's almost always up to date, so businesses can be sure that their screenings are accurate and reliable.

Examples of financial sanctions

The most common types of financial sanctions include:

  • Asset freezes: If you have reason to suspect that you're dealing with a designated person you must 'freeze' them. This means ceasing to deal with them and report them to OFSI.
  • Restrictions on financial markets and services: These can apply to named individuals, entities and bodies, to specified groups or to entire sectors. Examples of these include investment bans and restrictions on access to capital markets. Businesses might also be required to notify or seek authorisation before certain payments are made or received.
  • Directions to cease all business: These directions will specify the type of business and apply to a specific person, group, sector or country.
Do I Need to Comply with Financial Sanctions?

Why do businesses need to comply?

Financial sanctions are designed to help achieve the UK's foreign policy and national security objectives. They're implemented to control the risks of terrorist financing, whilst also maintaining confidence in the integrity of the UK's financial service sector. However, financial sanctions are only effective if they're properly implemented by the relevant businesses. Failure to comply with financial sanctions has serious consequences, both legal and ethical.

What happens if you ignore financial sanctions?

Under the Policing and Crime Act 2017 (the 2017 Act), HM Treasury has enforcement powers to impose monetary penalties for breaches of financial sanctions. Breaches of financial sanctions are criminal offences, and you could be sentenced to up to seven years in prison. The monetary penalties regime created by the 2017 Act provides an alternative to criminal prosecution for breaches of financial sanctions legislation. However, the fines are severe, with companies paying up to £1 million or 50% of the estimated value of the funds or resources.

If your business becomes associated with an irresponsible approach to financial sanctions, you're also risking significant reputational damage. This often results in your business losing shareholder, which can lead to diminished sales. However, perhaps more importantly, failure to comply with these regulations means you're ignoring a serious ethical responsibility. The main purpose of financial sanctions is to keep our country safe. By adhering to the obligations, firms are doing their part to protect our country from potential harm.

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