Sanctions in the UK: enforcement and proactive supervision
The Financial Conduct Authority (FCA) provided a written response to the House of Commons Treasury Committee ‘Russia: effective economic sanctions’ inquiry highlighting its financial sanctions responsibilities considering recent geopolitical developments. The National Crime Agency (NCA) and Office of Financial Sanctions Implementation (OFSI) issued a Red Alert on Financial Sanctions Evasion Typologies and Russian elites and enablers. The alert, together with the FCA’s response to the Treasury Committee highlight the direction supervisory bodies and law enforcement agencies are taking in tackling the ever-growing landscape of sanctions evasion typologies.
FCA letter – Key Takeaways:
The FCA are being more proactive and increasing effectiveness of firms’ sanctions framework. This is further highlighted by increasing resources in this area
There is new guidance to Firms carrying out manual screening checks, who will need to demonstrate how the approach taken is proportionate and effective in managing complex Russian sanctions
The FCA and OFSI have a Memorandum of Understanding in place which sets out their cooperation arrangements and the exchange of information for suspected breaches
Increased focus on information that can be used to identify firms at risk of, actually breaching or circumventing sanctions
They are utilising new ways of conducting assessments, including a newly developed analytical tool using test data of approx.100,000 entries. This is shared with firms to process ahead of a visit, and will also be used in conjunction with on-site reviews
The FCA assesses that the risk is lower in FCA registered crypto asset firms (as opposed to those who failed to apply for registration), as they utilise third party blockchain analysis providers as part of their financial crime controls.
NCA/OFSI Red alert Key Takeaways:
The alert includes 34 indicators suspected of being used to evade sanctions and are categorised in three buckets: detection of frozen asset transfers (e.g., changes of ownership); detection of enablers (e.g., banks and close associates of Designated Persons); and detection of suspicious payments (e.g., private equity funds from jurisdictions with close ties to Russia).
Action for firms
Firms should review the FCA’s letter and NCA’s Red alert and take appropriate action as they could be used to assess firms’ compliance with sanctions down the line. This should include:
Review existing risk appetite statement(s) and wider financial crime risk assessments and consider whether they are impacted by the changes
Review and enhance policies and procedures incorporating the indicators/red flags contained in the alert and ensure appropriate escalation and reporting mechanisms are in place
Uplift sanctions screening and TM related controls to incorporate indicators mentioned on the alert
Conduct appropriate due diligence in line with risk identified, whilst ensuring all appropriate documentation is obtained, particularly around the origin of wealth and funds
Assess presence of complex ownership arrangements and whether sufficient justification given as to why ownership is structured this way – care must be given around ownership aggregation and different approaches in the UK, US and EU
Avoid placing reliance on legal opinions around transfer of ownership provided directly by the company – obtain an independent legal assessment
Avoid taking transactions at face value particularly when assessing the DPs’ transfer of control to their enabler (but they remain ‘defacto’ controllers), and therefore the risk of indirect sanctions exposure
Consider the crossover of sanctions and money laundering once the person becomes designated, their assets become criminal property and subject to the Proceeds of Crime Act (POCA). Firms are encouraged to report information deemed useful but does not meet SAR requirements, this will be difficult and firms should define what ‘useful information’ actually is
Document the actions taken and be ready to answer the Regulator’s questions and demonstrate the adequacy of systems and controls to identify, assess and mitigate any sanctions risks.
Please do get in touch with us at contact@avyse.co.uk to discuss any questions you may have around potential targeted sanctions health-checks, re-calibration of TM and screening tools, or even training in enabling your staff to identify pertinent red flags.
