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OFSI Reporting Obligations to Change Come August

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In a webinar hosted by the UK government on August 11, 2022, the HM Treasury, specifically the Office of Financial Sanctions Implementation (or, OFSI) outlined new policies for the reporting of breaches to financial sanctions. This webinar covered new requirements and obligations that are applicable to all firms to further enforce financial sanctions. Particularly, the webinar set out changes in reporting obligations for crypto asset exchange provider and custodian wallet providers, or e-wallets.  

The Office of Financial Sanctions Implementation (or, OFSI) is part of the HM Treasury and is the authority for implementation of financial sanctions in the UK. It provides guidance and a consolidated list of asset freeze targets, such as those imposed on Russia due to the invasion of Ukraine.  

On top of this, OFSI monitors compliance to these policies and frozen assets, assesses suspected breaches, and imposes penalties on those who breach the impose policies. As such, they are the authority that imposes changes in policies concerning financial sanctions.  

Following the publication of The Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2022 and The Sanctions (EU Exit) (Miscellaneous Amendments) (No.2) Regulations 2022 on 19 July 2022, the changes went into effect on August 30th, 2022.  

What are financial sanctions? 

Financial sanctions imposed by the OFSI apply to all persons within the territorial sea of the UK and to all UK citizens, despite their location in the world. The most common form of sanctions is an asset freeze that can be applied to a named individual or entities. This prohibits certain activities and lowers the economic options for the target. For example, having committed a severe enough crime, an individual might have their assets frozen so that they cannot leave the country and escape the legal system. Another example is, of course, Russia, whose invasion of Ukraine caused western countries to impose sanctions to display their offense to the act, without going to war, and imposing the secondary tactic of squeezing Russia’s resources to stop the invasion.  

The UK Financial Sanctions guidance for the Anti-Money Laundering Act of 2018 outlines the four reasons for financial sanctions as to coerce, constrain, signal disapproval and protect the value of assets and point out that the United Nations and various UK government departments are involved in making and implementing sanctions.  

What is changing? 

The main change to the OFSI policies is the reporting obligations of relevant firms. The applicable firms are required to report certain information to OFSI as soon as possible in order to keep OFSI as informed as possible. The webinar outlined that failure to comply with this policy will be considered an offence by OFSI and by extension the UK government and might result in a criminal prosecution or monetary fine if found to be in breach of the regulation.  

The information expected to be shared includes that the customer is a designated person and has committed a financial sanctions offence. It should include the naming of which firms the information is based on, and some way to identify the designated person, plus the nature and quantity of any funds or economic resources held, (such as antiques, cash and cheques, crypto assets, precious metals or stone, property, vehicles etc.). 

Who are the “relevant firms”? 

The relevant firms are defined by the Regulations of the OFSI, which is found on their website. It covers a range of industry sectors, including financial institutions and legal service providers, but noteably, as of July 19th, 2022, the Regulations definition of “relevant firms” includes crypto asset exchange providers and e-wallet providers.  

What are financial sanctions offences? 

If a firm is found to have committed a financial sanctions offence, they are likely to also be subject to a criminal prosecution or monetary fine. Financial sanctions offences include making funds or economic resources available to a designated person, dealing with fund or economic resources owned, held, or controlled by a designated person, activities intended to circumvent sanctions, knowingly enabling, or facilitating the contravention of sanctions, or providing false information for the purpose of obtaining a Treasury Licence and failing to comply with conditions of a Treasury Licence.  

How to report to the OFSI? 

If you or your firm suspects a targeted individual of breaching the financial sanctions you can report a suspected designated person, a suspected breach or frozen assets to OFSI on the UK government website, GOV.UK. Forms can be found on the main page under “Report a financial sanctions breach” where you can download a Compliance Reporting Form and email it to OFSI@hmtreasury.gov.uk 

Refer back to the relevant information outlined in the sections above and be sure to include the Group ID of the designated person which is a unique 4 or 5-digit code found in the Consolidated List Entry.  

These changes to the reporting obligations came into effect on August 30th 2022. For more information on the requirements and reporting obligations, visit the OFSI’s website here 

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