UK introduces amendments to multiple sanctions regimes to improve ability to implement and enforce financial sanctions

In this post we provide an overview of the changes introduced by the Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations 2024 (the "Regulations"), which introduce a range of legislative amendments intended to assist the Office of Financial Sanctions Implementation ("OFSI") to implement and enforce financial sanctions.

The Regulations were published on 14 November and make amendments to a number of different UK sanctions regimes (both geographic and thematic). The majority of the changes introduced by the Regulations will come into force on 5 December.

OFSI has stated that the amendments will improve its intelligence on industry's compliance with UK financial sanctions, enable OFSI to deal with licensing applications more efficiently, and clarify financial sanctions legislation where there is existing uncertainty. The changes are said to have been prompted by an internal review of OFSI's procedures, following a significant increase in UK financial sanctions over recent years, and feedback from industry engagement.

Companies should review the amendments carefully, since certain of the changes do not apply to financial sanctions imposed by the UK to implement UN sanctions. This means that for some "mixed" regimes (where the UN has imposed sanctions, but the UK has unilaterally designated additional targets), different designated persons may be subject to different provisions.

We have summarised the key changes introduced by the Regulations below. OFSI has also amended relevant guidance documents to reflect these changes – see the general guidance, Russia guidance, Libya guidance, guidance on reporting, guidance on enforcement and monetary penalties, and guidance for high value dealers and art market participants.      

Financial sanctions reporting obligations

The Regulations expand the definition of "relevant firms" which are subject to financial sanctions reporting obligations to include high value art dealers, art market participants, insolvency practitioners and letting agencies. Firms operating in these sectors will be subject to an obligation to report suspected breaches of financial sanctions to OFSI. Unlike the other changes introduced by the Regulations, this extension of scope will come into force on 14 May 2025, and OFSI has stated that it intends to complete further industry engagement ahead of this measure taking effect.

OFSI has also published new guidance for letting agents and insolvency practitioners. 

The existing financial sanctions reporting requirements are also being amended (with effect from 5 December for those sectors already in scope). Firms were previously required to report suspected sanctions offences. The new requirement will be to report suspected breaches of financial sanctions, i.e. if they know or have reasonable cause to suspect that a person has breached a relevant prohibition or failed to comply with an obligation imposed under sanctions legislation (irrespective of whether that breach would be regarded as a criminal offence under the relevant legislation). As per the Explanatory Memorandum to the Regulations, firms will no longer need to consider whether a person's conduct may amount to a criminal offence "but simply whether they know or have reasonable cause to suspect the conduct was contrary to a prohibition or requirement under the relevant sanctions legislation". The Explanatory Memorandum states that this aligns the reporting requirements with OFSI's broader civil enforcement powers.

The Regulations also introduce a requirement for persons to provide an annual report to OFSI if they hold any frozen funds or economic resources (i.e. funds/economic resources that are owned, held or controlled by a designated person). The Explanatory Memorandum confirms that this amendment is intended to codify the existing annual frozen asset review process undertaken by OFSI, providing "certainty and clarity to the persons that must comply, while also providing a robust base for OFSI to take enforcement action where persons fail to report. Historically, OFSI has faced challenges with persons missing the information request or failing to report on time."

Licensing and exceptions

The Regulations make three changes to the standard licensing and exceptions provisions in relevant sanctions legislation.

1. The licensing ground which previously allowed payments out of frozen funds in satisfaction of pre-existing judicial decisions has been amended to cover payments to and from designated persons in satisfaction of a decision made either pre- or post-designation. This licensing ground requires any funds paid to a designated person to be credited to a frozen bank account or subject to the relevant asset freeze provisions.
2. A new insolvency licensing ground has been introduced. This is intended to allow OFSI to license various payments and other activity in relation to insolvency, restructuring and related proceedings, provided that any payments made directly or indirectly to a designated person are credited to a frozen account. The Explanatory Memorandum states that insolvency is an area where sanctions may create adverse consequences for non-designated persons, with existing grounds not always sufficient to license insolvency-related activity.
3. A new exception has been introduced in respect of "required payments". This permits various payments to be made from, or for the benefit of, designated persons to authorities such as Companies House, HM Revenue & Customs and local authorities without the need for a licence. Some such payments were previously covered by general licences; those licences will be revoked once the exception comes into force on 5 December. Those seeking to rely on this exception should note that it is subject to a reporting obligation.

The Regulations also amend the notification requirements on HM Treasury, the Department for Business and Trade ("DBT"), the Department for Transport and the Insolvency Service when issuing, varying, suspending or revoking a specific sanctions licence.

Monetary penalties

The Regulations amend the Russia (Sanctions) (EU Exit) Regulations 2019 (the "Russia Regulations") to provide OFSI with the power to impose a civil monetary penalty for violations of the "land" restrictions: restrictions on investing in land in non-government controlled Ukrainian territory or in Russia. The Regulations also move existing land-related provisions in the DPRK sanctions legislation from the financial services part of the relevant regulations to the trade section to make it clear that these provisions will be implemented by DBT for the DPRK regime.

The Explanatory Memorandum explains that the difference in approach as between the Russia and DPRK regimes is because the Russia restrictions are "bound up in wider financial sanctions in respect of investment".

Other clarificatory / miscellaneous amendments

The Regulations make a number of other amendments, including the following:

• Updating the definition of "designated person" in the licensing and exceptions provisions of certain sanctions legislation to confirm that this also covers persons owned or controlled by a designated person. This mirrors existing practice, in that OFSI already issues licences in respect of activity involving entities owned or controlled by a designated person, and the Explanatory Memorandum confirms that there is no change to policy or practice arising from this clarification.
• Amending certain asset freeze provisions to explicitly state that they apply to persons owned or controlled by a designated person.
• Clarifying the trust services restrictions in the Russia Regulations to confirm that acting as a nominee shareholder, when that involves the use of a trust or similar arrangement, should be considered a prohibited trust service. According to the Explanatory Memorandum, this reflects the fact that the Russia Regulations were not as clear as they could be on this point and so the amendment seeks to clarify the policy intention behind these restrictions.
• Clarifying the scope of HM Treasury's functions in connection with sanctions.
• Modifying the existing specific reporting requirements in relation to the assets of those persons listed in Regulation 18A of the Russia Regulations.