The Office of Financial Sanctions Implementation (OFSI) helps to ensure that financial sanctions are properly understood, implemented and enforced in the United Kingdom. As part of our ‘Ask the Expert’ series, we ask Giles Thomson, Director of OFSI, about the UK’s key sanctions policies and priorities this year.
You’ve started in a newly created position at HM Treasury as Director of the Office for Financial Sanctions Implementation (OFSI) and Economic Crime. Could you tell us about your role and key responsibilities?
We have brought all of HM Treasury’s economic crime responsibilities together in one place. I lead OFSI, as the UK’s competent authority for financial sanctions implementation, and am responsible for HM Treasury’s broader economic crime policy. I am also the UK’s Head of Delegation to the Financial Action Task Force (FATF). The aim is to exploit the links between financial sanctions and the broader economic crime agenda and provide a senior focal point both inside and outside HM Treasury for our economic crime responsibilities.
Day-to-day, I make sure OFSI is running effectively and efficiently. This includes having oversight of the operational sides of OFSI like the Consolidated List, our stakeholder engagement, licence applications and suspected breaches of financial sanctions. I provide advice to Ministers on economic crime policy and am jointly responsible with my Home Office counterpart for driving implementation of the UK’s public-private Economic Crime Plan across government. Finally, I work with international partners to develop and maintain FATF’s international standards and peer review countries’ implementation of them.
Why are financial sanctions increasing in importance?
Financial sanctions have always been an important foreign policy and security tool and the UK has been one of the strongest advocates for using them. OFSI was set up five years ago to show the UK’s commitment to ensuring financial sanctions were properly understood, implemented and enforced and saw an increase in the resource dedicated to it from HMG.
Financial sanctions are used to target specific people or entities by restricting their access to financial markets, funds and economic resources. But different regimes are targeted for different reasons. For example, in Syria they are used to target those responsible for the violent repression of the civilian population, while sanctions on DPRK target those supporting the proliferation of weapons of mass destruction.
The UK’s first autonomous sanctions regime for Global Human Rights is aimed at deterring and providing accountability to those who are or have been involved in human rights’ violations. For example, we have recently designated a couple of large conglomerates, MEC and MEHL, which are effectively run by the Myanmar militia. This regime sits alongside the UK’s Global Anti-Corruption sanctions regime which was introduced in April and targets those involved in serious corruption (bribery and misappropriation of property).
How have OFSI’s ambitions changed since the end of the transition period?
The UK now has its own autonomous sanctions legislation which has given OFSI a bit more freedom than when it was within the EU.
Our initial focus was on managing the transition as smoothly as possible and supporting the private sector in understanding the new autonomous regimes. Going forward, we want to use the new legislation to be more responsive, proactive and act more freely than we could do when we needed the collective agreement of the other 27 member states.
Take for example licensing. A licence is a written permission to carry out an act that would otherwise be prohibited under financial sanctions regulations. Now we have UK autonomous sanctions, we have the ability to issue General Licences, where multiple parties can undertake specified activities without the need to apply for a specific licence each time.
We also have more flexibility to issue new guidance now and can provide more information on implementing sanctions to the private sector. We issued our first regime-specific guidance as a result, providing more information on Russia and then did a piece on Libya which are two quite complex regimes from a financial sanctions perspective. In preparation for this new autonomy, we also published the UK’s first piece of sectoral guidance for the Maritime sector in July last year, to really start putting the UK on the map in terms of setting its policy position and reinforcing its compliance messaging.
Also, as part of my new remit as Director of OFSI and Economic Crime, I want to more clearly connect financial sanctions implementation into public-private economic crime work. Although it has its specific requirements, financial sanctions compliance is generally part of private sector firms’ overall financial crime functions. It makes sense for government to take a similarly holistic approach.
Tell about OFSI’s approach to enforcement. Are you planning on issuing more monetary penalties?
Our enforcement approach has always been to educate by promoting compliance as the first step. We do this by issuing extensive guidance and providing tools such as our consolidated list of asset freeze targets and e-mail updates to subscribers, to make it easier for businesses to understand their obligations. We engage with a wide range of stakeholders through events, webinars and roundtables and have a helpline and an email address that people can contact us on.
There hasn’t been any change to our enforcement processes since we left the EU. We still assess every suspected breach reported to us and investigate the specific facts of each case. We have a variety of remedial tools at our disposal which depends on the nature of the breach. This could include a warning letter directing companies to our guidance or concluding our assessment that a breach has not occurred. The majority of cases reported to us do not result in a monetary penalty.
But for serious breach cases where it is proportionate to do so, we do have the powers to impose civil monetary penalties in. We can impose penalties of up to £1 million or 50% of the total value of the breach, whichever is the greater. It’s always difficult to say when we will issue more penalties, as the very nature of investigations means it can often take a long time from when a breach is first reported to us to when it is concluded, not to mention that the initial reports to us are, by their very nature, always retrospective. We don’t have a set amount of penalties that we aim to impose each year as OFSI is not stats-driven, but we will use whichever enforcement method is most appropriate in each instance of a confirmed breach.
What is the best way for companies to manage their sanctions risk?
The most important thing is due diligence. It seems obvious to emphasise the importance of carrying out appropriate due diligence before undertaking transactions, but it’s also worth saying that it’s your responsibility to carry out that due diligence. Don’t rely on another party in the transaction chain having carried out that due diligence, or in the case of a company other than a bank, don’t assume that the bank will carry out your due diligence for you.
Sanctions affect a wide range of sectors, so you need to consider how financial sanctions might impact all aspects of your business. This might not just be your core business, it could relate to wider aspects you may not have previously considered, for example human resources or insurance.
Also, act fast. If any compliance issues are identified, and especially if you’re a relevant institution, you are under a legal obligation to report any breaches of UK financial sanctions to HM Treasury. It’s worth being aware that there is also a potential significant discount (up to 50%) for voluntary disclosures if the case goes forward for a monetary penalty decision. If you don’t yet have full details of the breach as you are carrying out an internal investigation you can still report this to OFSI, submitting an interim disclosure and then updating us once a full review has taken place. As well as reporting the breach to OFSI you should also carry out a thorough review of any other breaches that may have occurred, and act quickly to take remedial action on any compliance risks identified. Again, these factors will be considered when OFSI considers what enforcement action, if any, is appropriate and may affect a monetary penalty amount if that is considered appropriate.
What impact has the pandemic had on HM Treasury’s economic crime policy planning? Have you seen an evolution in trends or behaviour?
We have seen some evolution in trends and behaviours that we, and operational partners, have had to respond to. We have seen fraud moving even further online, and a rise in fraud targeting public sector Covid-19 stimulus measures.
From a money laundering perspective, the pandemic initially made cash-based money laundering more challenging given the restriction of movement, and prompted an increase in mobile banking, e-payments and cash stockpiling. Money laundering through crypto assets was already on the increase before Covid-19 but their use to facilitate proceeds of crime is now likely to increase even further.
Demand for certain goods and services as a result of the pandemic has presented additional trade-based money laundering risks as supply chains are disrupted and businesses are transacting with potentially new and unfamiliar clients. This increases the risk of fraud and money laundering for trade nationally and internationally. But, overall, the challenges and problems remain largely the same and HM Treasury’s policy planning has remained relatively consistent.
How has OFSI adapted its use of technology over the last year?
As with everyone else, the pandemic has made us adjust the way we work. In terms of engagement, we did our first webinars alongside the FCDO in the run up to the end of the transition period. Although this way of doing events was forced upon us by circumstances, it has proved incredibly successful, and enabled us to reach a far wider audience than we would otherwise have done. We’ve also been able to partake in them more frequently as working virtually means we can cut out travel time!
Internally, we have developed our technology for user accessibility and introduced a “fuzzy search” facility into OFSI’s consolidated list of designated persons on GOV.UK, making it easier to search for sanctioned people and entities. The list comes in various different formats to give flexibility to users to consume and integrate the information. This is perfect for smaller businesses and NGO’s who may not have large budgets for compliance software.
What are the key priorities this year when it comes to the UK’s wider economic crime policy?
Following the February Economic Crime Strategic Board – bringing together senior Ministers and CEOs – we published a Statement of Progress on how we are delivering against the Economic Crime Plan 2019-2022. I am really pleased with some of the progress that has been made with achievements ranging from implementing the 5th Anti-Money Laundering Directive to publishing the UK’s third National Risk Assessment on Money Laundering and Terrorist Financing.
However, we know there remains much work ahead of the us. The Statement of Progress outlined seven priority actions for the Government to deliver, in conjunction with industry, over the coming months. Of a particular priority for HMT will be our call for evidence on the Money Laundering Regulations, which we plan to issue this summer. We are also working hard at designing and developing a new economic crime levy, which will help make sure the ambition of the Economic Crime Plan is fully realised.