The UK's Financial Sanctions regime is regulated by the Office of Financial Sanctions Implementation (OFSI). The scheme involves imposing restrictions on financial activities with a person or organisation (known as 'targets') if there is a reason to believe that they're engaging in criminal activities. Such measures were introduced to prevent the financing of terrorism and reduce the development of nuclear arms.
HM Treasury (HMT) maintains a list of these targets. Any individual or entity on this list is subject to financial sanctions under UK law, which is regulated by OFSI. To ensure that your business activities are safe and legal, you must implement sanctions screenings whenever you take on new customers. Screening helps businesses to identify sanctioned individuals and organisations, which means they can make appropriately compliant risk decisions.
When conducting a screening, you may get a name match, otherwise known as a 'fuzzy' match. These occur when the customer you're dealing with partially matches the details of a designated person on the consolidated list. However, this does necessarily mean that you have a target match as many different people can share the same or similar details. Human error also might cause slight differences, for example, spelling mistakes or incomplete data.
To ensure that matches are as accurate as possible, firms must calibrate the system in line with the risk profile of their business. Companies should also use human intervention to assess which results are false positives. You can use other information on the list to determine whether they're fuzzy or true matches. For example, you have a name match for someone who is listed as a Syrian general commanding troop in Syria at the start of the civil war. However, after checking the additional information, you see that the customer is a retired sweetshop owner with a different date of birth. This is most likely a name match, rather than a target match. It's important to note that the decision-making process must be documented in writing.
If the individual or entity you are dealing with matches all the information on the consolidated list, this is likely to be a target match. In this situation, the business is legally obliged to freeze the funds or economic resources that it controls and report to HMT's Asset Freezing Unit. All businesses, organisations and individuals are under obligation to report information about sanctions breaches to the OFSI.
When reporting to OFSI you must include the information that led to your suspicions, and any information you hold about the person or designated person so that they can be identified. You must also state the nature and amount or quantity of any funds or economic resources involved with your proposed transaction with the customer. If you're unsure of your reporting obligations, you should seek independent legal advice.
What happens if you ignore suspicions?
If you don't freeze the assets of a customer that was on the financial sanctions list, you're committing a criminal offence. OFSI has enforcement powers to impose substantial fines and even prison sentences, depending on the severity of the breach. Financial penalties can be up to £1 million or 50% of the estimated value of the funds or resources, whichever is greater. Those found guilty of non-compliance could also spend up to 7 years in prison. More importantly, the assets or funds could be used to finance terrorism or other crimes. Obviously, this would cause irreparable reputational damage and diminished sales, but it could also put lives and national security at serious risk.
OFSI posit raising awareness about financial sanctions as their most important responsibility. As part of their commitment to helping businesses understand financial sanctions, OFSI publishes guidance on their website, including detailed FAQs with information and advice about their enforcement powers. They also regularly attend and speak at financial crime, financial services, foreign policy and other industry events and meetings. This kind of interactive engagement with the compliance community provides them with the opportunity to respond to any concerns regarding financial sanctions and target matches. Therefore, if you don't feel confident with any of the procedures, including target and name matches, OFSI purports to respond to any queries in an efficient and detailed manner.