By Anne Davis of The Institute of Financial Accountants
As the UK marks the beginning of a new dawn post-Brexit, one of the areas that SMEs may need to consider is the sanctions regime and licensing exemptions affecting many businesses across different jurisdictions.
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.
Now no longer subject to EU sanctions, the UK’s legal framework for this has changed. It marks the introduction of the UK’s sanction regime, the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act).
It is pivotal for company accountants to carry on sanctions checks as part of client onboarding and on an ongoing basis to ensure that they remain compliant
The Sanctions Act provides the legal basis for the UK to impose, update and lift sanctions. It is of overriding importance for a business undertaking activity relating to a sanctioned country or entity to fully understand what the change means and to ensure that they are still compliant. Here is what businesses can do to prepare for this new reality.
What does the change entail?
The good news is that the changes are broadly similar in principle to the EU regime, though not identical and there are some important differences. For example, those designated under the Ukraine (Sovereignty and Territorial Integrity) and those businesses subject to restrictive measures under the current EU Regulations will both move to the new Russia sanctions regime.
Since January 1, businesses now 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 Office of Financial Sanctions Implementation (OFSI) Consolidated List of Financial Sanctions Targets, which covers all financial sanctions designations. OFSI is part of HM Treasury.
So, although many of the lists remain the same, it is pivotal for company accountants to carry on sanctions checks as part of client onboarding and on an ongoing basis to ensure that they remain compliant with the various sanctions that are relevant to them. In the case of some companies, both lists will need to be checked.
What’s the importance of it?
With sanctions violations sharply increasing, OFSI revealed a record number of 140 voluntary disclosures of potential sanctions violations related to transactions worth a total of £982 million between April 2019 and March 2020. This is a staggering £720 million more in relation to 99 reports from the previous year. Companies that breach these regulations face huge fines, as the Standard Chartered Bank can attest to in March 2020 after the OFSI announced it had imposed a £20.47 million fine on the firm.
Breaching financial sanctions is also a criminal offence and can result in a civil monetary penalty being imposed on a company or an individual, with imprisonment of up to 7 years.
It is a company accountant’s responsibility to screen all new and existing client organisations against financial sanctions lists on an ongoing basis, and are expected to undertake due diligence so that they know who they are dealing with, both directly and indirectly, for example, looking at ownership and control of an organisation.
How should firms maintain effective sanctions checks?
The new UK Sanctions List and OFSI Consolidated Lists should now be used for sanctions screening, so accountants should have updated their internal systems and processes to include these lists.
There is also an EU-specific consolidated sanctions list maintained by the European Commission that should also be used for sanctions screening alongside the UK lists, which applies to all businesses working with EU companies.
Accountants may also need a licence when working with some businesses. In specific circumstances, the government may grant a license to permit an activity that would otherwise be prohibited.
The licensing authority will determine whether a licensing application is in line with the purposes; some licenses require UN notification approval.
While companies navigate their way through unchartered waters over the coming weeks and months, there is going to be much uncertainty. However, one thing that remains certain is that robust and accurate sanctions checks are going to bear more relevance than ever.
What is of importance is for business owners to maintain best practice in this area by adhering to the new sanctions, to avoid significant repercussions.