As the UK marks the beginning of a new dawn post-Brexit, new sanctions have come into force that will require full compliance from all agents and accountants. The sanctions regime and licensing exemptions affect many businesses across different jurisdictions. The UK uses sanctions to fulfil a range of purposes, including supporting foreign policy and national security objectives, as well as maintaining international peace and security, and preventing terrorism, writes Anne Davis at the Institute of Financial Accountants
Now no longer subject to EU sanctions, the UK’s legal framework for this has changed, with the introduction of the UK’s sanction regime, the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act).
The Sanctions Act provides the legal basis for the UK to impose, update and lift sanctions. It is of overriding importance for agents undertaking activity relating to a sanctioned country or entity to fully understand what the change means and to ensure that they are still compliant. Here is what accountants and accounting firms can do to prepare for this new reality.
What does the change entail?
The good news is that the changes are broadly similar in principle to the EU regime, though not identical and there are some important differences. For example, persons designated under Ukraine (Sovereignty and Territorial Integrity) and those businesses subject to restrictive measures under the current EU Regulations will both move to the new Russia sanctions regime.
Depending on the information accounting professionals are looking for, since 1 January 2021 they will now either need to refer to the UK Sanctions List which covers all sanctions made under the Sanctions and Anti-Money Laundering Act 2018, or The Office of Financial Sanctions Implementation (OFSI) Consolidated List of Financial Sanctions Targets, which covers all financial sanctions designations. OFSI is part of HM Treasury.
So, although many of the lists remain the same, it will be pivotal for accountants to carry on sanctions checks as part of client onboarding and on an ongoing basis to ensure that their firms remain compliant with the various sanctions acts that are relevant to them. In the case of some clients, both lists will need to be checked.
What is its importance?
With sanctions violations sharply increasing, OFSI revealed a record number of 140 voluntary disclosures of potential sanctions violations related to transactions worth a total of £982m ($1.3bn) between April 2019 and March 2020. This is a staggering £720m more in relation to 99 reports from the previous year. Companies that breach these regulations face huge fines, as Standard Chartered Bank could attest in March 2020 after the OFSI announced it had imposed a £20.47m fine on the firm. Breaching financial sanctions is also a criminal offence and can result in a civil monetary penalty being imposed on a practice or an individual, with imprisonment of up to seven years.
It is an agent’s responsibility to screen their new and existing clients against financial sanctions lists on an ongoing basis, and they are expected to undertake due diligence so they know who they are dealing with, both directly and indirectly, for example, looking at ownership and control of an organisation.
How should accountants maintain effective sanctions checks?
The new UK Sanctions List and OFSI Consolidated Lists should be used for sanctions screening from 1 January 2021, so accountancy firms need to ensure that their systems and processes are updated to include these lists. If firms use an electronic verification supplier for client due diligence, they will need to check their third-party software provider is using the correct data for their due diligence checks. There is also an EU-specific consolidated sanctions list maintained by the European Commission that should also be used for sanctions screening alongside the UK lists, which applies to all businesses working with EU companies.
Accountants may also need a licence. In specific circumstances, the government may grant a license to permit an activity that would otherwise be prohibited. The licensing authority will determine whether a licensing application is in line with the purposes; some licenses require UN notification approval.
It is imperative that any suspected or actual breaches of financial sanctions must be reported to OFSI. If an accountant believes that they are dealing with an individual or organisation that is or was subject to sanctions at the time of the activity, they must not deal with or make funds or economic resources available to them and not do anything that would prevent the asset freeze, and report the matter to OFSI.