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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

OFSI updates monetary penalty guidance

OFSI has issued new guidance on the monetary penalties for breaches of financial sanctions in the UK, which comes into force on 1 April 2021. The amendments highlight some subtle but potentially important changes to enforcement risk which we discuss below in more detail.

The Office of Financial Sanctions Implementation ("OFSI"), which is the authority responsible for the implementation of the UK's financial sanctions, issued new guidance on 10 March 2021 on the monetary penalties for breaches of financial sanctions.

Case Factors

OFSI has updated the factors it says it will take into account when determining how serious a case is and therefore whether to take enforcement action. This includes:

  • Removing a statement that OFSI is likely to treat a case that directly and openly involves a designated person more seriously than one that is a breach of financial sanctions but does not make funds or economic resources available to a designated person. This presumably reflects the fact that its most significant enforcement case to date was treated as "most serious" and yet did not involve funds being made available to designated persons.
  • Removing a statement that if a person simply falls below a high standard, OFSI will consider whether or not it is proportionate to impose a penalty if that is the only distinguishing factor in a case, particularly when the person has acted swiftly to remedy the cause of the breach. That is not to say OFSI will still not have to act proportionately, but they find themselves less bound in future to discount cases where they are dealt with swiftly.
  • Changing the definition of the "most serious" type cases (which attract higher penalties and lower discounts for voluntary self-disclosure) from "very high value, blatant flouting of the law, or severe or lasting damage to the purposes of the sanctions regime" to "very high value, particularly poor, negligent or intentional conduct or severe or lasting damage to the purposes of the sanctions regime" (emphasis added). There is no doubt this is intended to broaden the type of case which OFSI may now treat as "most serious".

Penalties

Whilst the statutory maximum penalty has not changed (the greater of £1 million or 50% of the value of the breach), the new guidance states that in assessing the level of the penalty OFSI will seek to ensure there is a "relationship between the value of the proposed penalty and a holistic assessment of all the other factors present in the case. This does not mean that a penalty should necessarily be either a specific percentage or multiple of the breach amount" (emphasis added).

The guidance also now notes that if there is no transaction value to base a calculation (for example, if a penalty is imposed for an information offence) OFSI will impose such penalty as seems reasonable and proportionate to the facts of the case, but with a maximum of £1 million.

OFSI has removed the section of the guidance which stated that it had the discretion to not impose a penalty in certain circumstances (including where it would have not meaningful effect, where it would be perverse or where it is not in the public interest to impose a penalty).

Voluntary Disclosure

OFSI has made it clear that it expects "all evidence relating to the facts of the breach" when a party voluntarily discloses a breach, rather than disclosures being "materially complete". This is relevant both to an assessment of the case factors (see above) as well as the likely credit available for a voluntary disclosure. OFSI has made it clear that if there is a series of breaches and only some were voluntarily disclosed, that will be taken into account when determining any reduction of a penalty. Further, the voluntary disclosure reduction may not be given where there is not a complete disclosure, if disclosure is only made because of a belief that OFSI is already aware or if the organisation disclosing refuses to provide further information upon request.

Privilege

OFSI still recognises that some documents may be protected by legal professional privilege. However, it has removed the statement that it may be a reasonable excuse to rely on legal professional privilege where there is no explicit provision for this in the regulations.

Timeline

The period of time which a person under investigation has to make written representations after being told that OFSI intends to impose a penalty has been extended from 28 calendar days to 28 working days from the date of OFSI's initial letter. There has also been an extension so that OFSI has 28 working days (rather than calendar days) to consider and respond to those representations. Where a monetary penalty is imposed, this must be paid within 28 working days (rather than the previous timeframe of "within a reasonable time").

Ministerial Review/Publication of the Penalty Details

There have been a number of changes in the guidance in relation to both the ministerial review process and the publication of penalty details, most notably reference to the fact that there may be agreement in some cases for representations to be made orally rather than in writing.

Conclusion

Whilst some of the amendments to the guidance appear to be minor, there is a subtle shift in position by OFSI towards what appears to be a potentially broader discretion for imposing tougher penalties. This is consistent with our expectation that OFSI will seek to impose more penalties in appropriate cases to cement the importance of compliance with the new UK sanctions regime. Watch this space.