Clients, suppliers and other third parties can expose your business to sanctions risk. A key control in managing this risk is to undertake a sanctions risk assessment.
UK sanctions regime
The UK uses sanctions to fulfil a range of purposes, including supporting foreign policy and national security objectives, as well as maintaining international peace and security, and preventing terrorism.
The UK implements a range of sanctions regimes through regulations made under the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act). The Sanctions Act provides the main legal basis for the UK to impose, update and lift sanctions.
The UK’s sanctions list is published by the Foreign, Commonwealth & Development Office. The list contains all individuals, entities and ships specified/designated under Sanctions and Anti-Money Laundering Act (SAMLA) 2018. The list includes all those designated under the types of sanctions including financial, immigration, trade and transport.
The Office of Financial Sanctions Implementation (OFSI) which is part of HM Treasury issues a list of all those subject to financial sanctions imposed by the UK – known as the consolidated list.
Further guidance and legislation on sanctions and compliance is available on the main UK sanctions gov.uk website page.
Sanctions risk assessment
Firms (including sole practitioners) conducting an anti-money laundering (AML) risk assessment, should also consider how likely it is that their clients may be on a sanctions list. A firm may apply a risk-based approach to checking clients against a sanctions list.
The firm’s sanctions risk assessment should consider exposures of clients to the sanctions regime. The risk assessment should be looking for connections of clients to jurisdictions in the sanctions regime. Factors that increase the risk of a person being on a sanctions list, and so increase the reason for checking the list, include but are not limited to:
- clients or transactions with links to jurisdictions subject to sanctions, even if the clients are based in the UK. UK nationals and UK residents can be on the sanctions list, so your firm may still be at risk if client checks are focused on nationality or country of residence;
- clients or transactions involving politically exposed persons (PEPs) from jurisdictions subject to sanctions;
- clients or transactions involving complex business structures and ultimate beneficial owners in jurisdictions in the sanctions regime;
- clients who seem not to be able to evidence the source of funds or wealth;
- clients who seem unable to receive funds or send funds from bank accounts in their name, for no valid reason;
- clients who make frequent and regular travel to sanctioned jurisdictions; and
- clients who have connections to others related parties in sanctioned jurisdictions.
There is a strong link between sanctions risk assessment for clients and initial and ongoing customer due diligence assessments of clients.
Checking clients against sanctions lists
Depending on the information you are looking for, you will either need to refer to the UK Sanctions List, which covers all sanctions made under the Sanctions and Anti-Money Laundering Act 2018, or the OFSI Consolidated List of Financial Sanctions Targets, which covers all financial sanctions designations.
If your firm has clients that are low risk for sanctions, you can directly check against the above sanctions list by using Ctrl+F. If a client comes up as a possible sanctions match, it is important that the identity of the client is also verified to avoid a false positive identification. The UK sanctions list includes information on name, date of birth, nationality, passport or identify card numbers and last known address.
If your firm has higher risks for dealing with clients on a sanctions list, it may be more appropriate to check your client list against a sanctions list on a database which uses an e-verifier to check identify information.
Acting for a client on a sanctions list
If the firm wants to continue to act for a client on a sanctions list, the firm will have to apply for a licence before proceeding. The most relevant licensing authority for the accountancy professional is likely to be OFSI for asset freezes and other financial measures (OFSI@hmtreasury.gov.uk). However, it is important to note that other licensing authorities exist which deal with trade and transport measures.
Having applied for a licence from OFSI, the firm must:
- suspend the transaction while waiting for advice from the licensing authority;
- contact the licensing authority to deal with the funds; and
- consider whether the firm needs to make a suspicious activity report for money laundering or terrorist financing to the National Crime Agency (NCA).
Please note that discussions with OFSI regarding a client’s sanctioned status are not subject to “tipping off” regulations, since the sanctions lists are public information.
Reporting to OFSI
Firms are legally obliged to report to OFSI if it knows or has reasonable cause to suspect that a breach of financial sanctions has occurred, that a person is a designated person, or that the firm holds frozen assets and that knowledge or suspicion was acquired during the course of business. Failure to notify OFSI is a criminal offence.
If a known or suspected breach has taken place, the firm must contact OFSI at the earliest opportunity with the following information:
- information or other matter on which knowledge or suspicion is based;
- any information that the firm holds on the relevant person by which they can be identified;
- (where relevant) the nature and amount of funds or economic resources the firm holds for the relevant person.
Key points to remember
- Sanctions exist. Breaching sanctions can have a big impact on you and your business. For example, breaching financial sanctions is a criminal offence and can result in a civil monetary penalty being imposed on your business or you, with imprisonment of up to 7 years.
- It is your responsibility to check. Firms are expected to undertake due diligence and risk assessments about their clients to know who they are dealing with, both directly and indirectly, for example, looking at ownership and control of an organisation. This includes checking that clients are not listed in the sanctions lists.
- You may need a licence. In certain circumstances, the government may grant a licence to permit an activity that would otherwise be prohibited. It is up to the licensing authority to determine whether a licensing application is in line with the purposes
- You must report any suspected or actual breaches of financial sanctions to OFSI. If you believe that you are dealing with an individual or organisation that is or was subject to sanctions at the time of the activity, you must report this to OFSI, not deal with or make funds or economic resources available to them and not do anything that would circumvent the asset freeze.