Weak enforcement has long been the Achilles’ heel of the UK’s fight against economic crime, and the early signs suggest that sanctions enforcement is unlikely to be an exception to that broader trend. But comments from the Foreign Secretary yesterday signalled that the government is thinking seriously about how to ramp up sanctions enforcement.
With only one £15,000 fine for breaches of financial sanctions imposed by the Office of Financial Sanctions Implementation (OFSI) since 2022, zero criminal convictions for sanctions evasion since 2012, and less than £1 million in sanctioned assets permanently seized through civil or criminal action (despite £22.7 billion worth of assets reported as frozen), the UK’s flatline figures call for closer scrutiny of the challenges facing enforcement.
We therefore watched with interest the Commons Treasury Select Committee’s recent hearing with senior staff at OFSI to see if they said anything about plans to strengthen sanctions enforcement. We’ve put together a brief summary of some key points on sanctions enforcement that stood out for us.
Is more sanctions enforcement on the horizon?
Head of OFSI Giles Thomson admitted he would be “very disappointed” if OFSI has still only issued one fine for a post-2022 breach of Russia sanctions in a year’s time. He added that more “high value” cases demonstrating OFSI’s ability to tackle sophisticated sanctions breaches should be made public in the next few months.
This will be a key test of whether OFSI’s new intelligence unit is successful in moving to a more proactive enforcement approach rather than relying on self-reports from firms who think they may have slipped up.
We also heard an updated figure on the current caseload of open investigations, which stands at “400-odd”, quite an increase from the 172 live investigations at the end of March 2023.
While Thomson stressed that most of these cases will involve no further action, it is essential that where breaches are found, they meet with more robust enforcement action if there is to be a proper deterrent for violating sanctions. So far, less than 1% (10 out of 1,200) suspected breaches of financial sanctions reported to OFSI since its creation in 2016 have resulted in a fine.
On the criminal side, there has so far been just one (ongoing) case bringing charges of sanctions evasion since Russia’s full-invasion of Ukraine – a prosecution involving alleged violations of sanctions imposed on the former Russian deputy minister of trade, Dmitrii Ovsiannikov, which is set for trial in March 2025.
The recent news that law enforcement agencies have asked the Crown Prosecution Service to advise on charges in three cases involving suspected breaches of economic sanctions or export controls against Russia in 2024 is an encouraging sign that appetite for criminal prosecutions relating to sanctions evasion may be on the up.
Cooperation with law enforcement
Close cooperation by OFSI with law enforcement and regulators is essential for ensuring strong criminal and civil enforcement. But the public is mostly in the dark about the nature of this cooperation – OFSI’s annual review for example is silent on how many referrals it makes to law enforcement for suspected criminal breaches of sanctions, as well as on how many joint investigations it has undertaken with other agencies such as the Financial Conduct Authority (FCA).
When asked at yesterday’s hearing by new MP Yuan Yang why OFSI doesn’t disclose the number of cases it refers to law enforcement for criminal investigation, Deputy Director at OFSI Chris Watts outlined concerns that publishing these details could encourage people to ”game the system” by hedging their bets and not self-reporting breaches, if the number of referrals at any one time was considered low.
When pressed by Yang, Watts denied that this was because the number of referrals would be too low to serve as a deterrent, claiming instead that it was simply because the National Crime Agency did not want to “set a precedent” of transparency in relation to sanctions that it would be expected to carry across to other areas of work.
This is typical of a wider reluctance by law enforcement to disclose information about their work which, while aimed at protecting their investigations, has the consequence of making it much harder for the public to hold them to account.
Robust enforcement or gentle nudges towards compliance?
On the basis of yesterday’s hearing, the tendency for OFSI to gently encourage compliance behind the scenes appears set to continue, with Beth Davies, another Deputy Director at OFSI who leads on enforcement, emphasising that OFSI is “really focused on a proportionate approach to enforcement and working with industry to support their compliance”.
While fines are only one aspect of a wider enforcement approach, a single £15,000 fine for a post February 2022 sanctions breach will not cut it as a proportionate, effective deterrent given the risks and consequences of evasion. As Parliament has given OFSI strong powers to impose penalties on a no-fault basis, we hope that OFSI develops a bigger appetite to make full use of its powers in taking faster and more robust enforcement action.
This measly fine was also overshadowed by the FCA’s hefty £29 million fine issued shortly afterwards against Starling Bank for “shockingly lax” sanctions and financial crime controls. Given OFSI estimates its investigations may take two to three years, it was encouraging to hear that it is “looking closely” at the FCA fine which followed a 14-month investigation by the regulator, to explore how it can improve the efficiency of its enforcement approach.
What should the government do to ramp up sanctions enforcement?
We were encouraged to hear confirmation yesterday from the Foreign Secretary that the government has “instigated a review” into sanctions, and his comment that sanctions enforcement is “absolutely key”.
We hope this review considers the following recommendations from our recent report on the government’s so far underwhelming record on sanctions enforcement:
- Develop and publicise a clear and ambitious cross-system enforcement strategy.
- Establish a cross-departmental sanctions task force, overseen by a single minister responsible for sanctions delivery, to improve domestic coordination on sanctions enforcement.
- Launch a sanctions transparency tracker to collate and publish centralised data on sanctions.
We also recommended that the incoming chairs of parliamentary committees should collaborate on a comprehensive, cross-committee inquiry into the UK’s sanctions regime and establish parliamentary mechanisms for the routine oversight of sanctions.
This week’s hearing is a good initial step but, as Foreign Affairs Committee Chair Emily Thornberry noted in a hearing yesterday with the Foreign Secretary, greater parliamentary scrutiny of sanctions policy is essential. The Foreign Secretary’s agreement that sanctions do need “more scrutiny” is really welcome and we hope select committee chairs seriously consider how they could come together to better scrutinise sanctions policy, implementation and enforcement.
For too long, weak enforcement of UK sanctions has provided an insufficient deterrent for sanctions breaches and evasion. Only time will tell if recent encouraging words from the government are the first step towards sanctions having less bark, and more bite.
