Financial sanctions are restrictions put in place by the UN or UK to achieve a specific foreign policy or national security objective. The sanctions regime imposes serious and extensive restrictions on dealing with people or entities who are listed as “designated persons”.
Sanctions restrictions means you cannot:
- receive payment from or make funds available to persons on the sanctions list
- deal with their economic resources
- make even legitimate payments to those persons
Additionally, firms must not “knowingly and intentionally participate in activities that would directly or indirectly circumvent financial restrictions or enable or facilitate the commission of any sanctions offence”
The restrictions apply to a wide range of legal work, as we have set out below. As part of your customer due diligence activities, you should also consider whether a potential client may be subject to any financial sanctions.
Failure to adhere to sanctions requirements is a serious offence which may result in a criminal prosecution or a significant monetary penalty.
The Office of Financial Sanctions Implementation (OFSI) publishes a list of all those subject to financial sanctions imposed by the UK. This provides information to help you decide whether you are dealing with someone who is subject to sanctions. OFSI helps to ensure that financial sanctions are properly understood, implemented and enforced in the United Kingdom.
Financial Sanctions are not just focused on Russia
Following the UK Government imposing sanctions on Russia, you all have a vital role to play in ensuring all measures and restrictions are complied with. All regulators are working together to ensure firms and individuals understand their obligations so, if you work in a firm regulated by another regulator, do also check their own guidance.
Firms need to remember that whilst the current focus is on connections to Russia, the sanctions regime applies to other countries and individuals, including those with a connection to the UK. You will have seen the restrictions placed on Chelsea Football Club as to an example of the reach of sanctions.
Legal advice
Generally, you won’t be prohibited from providing legal advice under an asset freeze. The sanctions regime is not designed to prohibit access to legal services and to justice. However, the payment for legal services and the provision of legal services on credit do require an OFSI licence.
Also, where sanctions prohibit specific actions, e.g. restructuring of finance, you need to carefully consider whether your advice and support for the client is helping them comply with sanctions or is participating in or facilitating a breach. For example, if it is prohibited to raise capital on financial markets, providing advice on how this affects a business will be permitted. However, preparing documents to raise such capital may amount to an attempt to circumvent sanctions.
As can be seen in the case of compliance with sanctions, legal advice is not restricted to any particular area of law.
Fees for the provision of legal services
In most cases, you can provide legal advice to or act for a designated person without an OFSI licence, however, you cannot receive any payment for that legal advice without first obtaining an OFSI licence.
Both legal fees and disbursements must be reasonable. It is for the applicant to demonstrate to OFSI that the legal fees and disbursements are reasonable so they can be authorised. Firms are strongly encouraged to apply for a licence in advance of providing substantive legal services in order for them to have certainty as to the fees that will be recoverable whilst the designated person remains listed.
OFSI considers that the Supreme Court Cost Guides or the sums that could be expected to be recouped if costs were awarded, provide a useful starting point for assessing the reasonableness of legal fees and disbursements. Fees and disbursements must relate specifically to the provision of legal advice, involvement in litigation or in dispute resolution.
OFSI’s view is that both court fees and payments into court, for security for costs, can be licenced under the reasonable legal fees licensing ground.
Licensing
It is possible to apply for a licence to undertake certain activities that would otherwise be prohibited. OFSI’s Russia guidance and the schedule of the amendment regulations detail what grounds are available to apply for different licences. The available grounds vary depending on which activity you are undertaking.
It would be possible to provide legal services to a designated person without a licence, as they should have access to justice. However, you can only be paid for any legal services if you have a licence.
Please note: If any firm was to seek a licence, we would expect them to notify CILEx Regulation before doing so.
Asset freezes
Details of all individuals and entities subject to an asset freeze (designated persons) can be found on OFSI’s consolidated list. OFSI has a separate list of Russian entities named in relation to financial and investment restrictions. You can also find a list of designated persons in Russia on OFSI’s Russia regime page.
Whenever changes are made to the consolidated list, OFSI will update its subscribers through its e-mail alerts. The list can change quickly, so it is important to keep up to date with these changes.
The Russia (Sanctions) (EU Exit) Regulations 2019 came fully into force on 31 December 2020 and several amendment regulations to the regime have been laid since. These can be found on the OFSI website
Reporting to OFSI
You are legally obliged to report to OFSI if, as a relevant firm you know or suspect that a breach of financial sanctions has occurred, that a person is a designated person, or you hold frozen assets and that knowledge or suspicion came to you while conducting your business. You must contact OFSI at the earliest opportunity using the reporting form on gov.uk.
Know your obligations
- Breaching the financial sanctions requirements can result in criminal prosecution or a fine by OFSI.
- You have responsibilities under this regime to safeguard the UK and protect the reputation of the legal services industry.
- Your firm must have appropriate policies in place to ensure you comply with sanctions legislation, including carrying out regular and appropriate checks of sanctions lists, and we expect to see this evidenced.
- If your firm is using an electronic verification system for customer due diligence and sanctions checks, check they are refreshing sanctions lists with sufficient frequency.
Our Code of Conduct requires all firms and individuals that we regulate to keep up to comply with the law and regulations relating to their work. Therefore, we would take disciplinary action should we see evidence of serious non-compliance.
Our Expectations
We would expect our firms and individuals to:
- Comply with the sanctions regime as required by the CILEX Code of Conduct, Principle 4 ‘You must understand and comply with the law and regulation applicable to you’.
- Understand the reputational risk and implications of acting for a sanctioned individual or entity.
- Notify CILEx Regulation before seeking a licence to act for a sanctioned individual or entity.
- Have in place a policy on how a firm will deal with sanctioned individuals and firms and whether they would seek to act for one if identified.
CILEx Regulation has published a Sanctions Risk Assessment which firms should refer to in setting their policy and procedures.
Further sources of support and guidance
- OFSI’s consolidated list of asset freeze targets
- OFSI’s Russia regime page
- Russia regime specific guidance
- Russia statutory guidance
- OFSI’s general guidance
- OFSI’s general licences
- Apply for a licence
- Report to OFSI
- OFSI contact email
- CRL Anti Money laundering – further information
Email: ofsi@hmtreasury.gsi.gov.uk
Telephone: 020 7270 5454.
