Increased sanctions risk as OFSI hints at Iran crackdown

The head of the UK’s Office of Financial Sanctions Implementation (OFSI) indicated in an interview (registration required) that the body – set up a decade ago – was to increase scrutiny on dealings with Iranian companies and individuals after sanctions were restored last September.

Giles Thomson, who has been director of OFSI since late 2020, told the Financial Times: “In recent months, Iran sanctions have expanded in scope and we’re also increasingly looking at where there might be enforcement action we might want to take there.”

Stacy Keen, a sanctions expert with Pinsent Masons, said it was essential for companies and organisations to remember that it wasn’t just banks and financial services firms that were exposed to risk from sanctions.

“UK sanctions extend to all UK incorporated entities – regardless of sector – and UK nationals, including whilst outside of the UK,” she warned.

“They also apply to activities that taken place in the UK.  

“Almost half of the civil monetary penalties that have been imposed by OFSI have targeted financial institutions, but action has also been taken against those operating in a range of other sectors including, for example, the technology, legal, shipping, non-profit, and telecommunications sectors.  

“Although the article refers to Russia as the number one priority, the calling out of Iran suggests it’s a close second.”

For organisations which might run up against sanctions enforcement by OFSI comes an increased risk of higher penalties, with Thomson stating that legislation is due to come into force in the next few months that will double the maximum available penalty for a breach of financial sanctions to the greater of £2 million or 100 per cent of the value of the breach.

Keen warned that it was important for organisations which might be exposed to sanctions risk to understand how to identify those risks in order to implement suitable control measures.

“Risk can be different across an organisation’s activities, relationships, and transactions,” she explained.

“Conducting a risk assessment that considers an organisation’s geographic, counterparty, products and services and transactional exposure is the foundation of a sanctions compliance programme.

“Around 25 countries are currently targeted by UK sanctions regimes, ranging from the targeted to comprehensive – with Iran and Russia being examples of the more comprehensive regimes. Alongside country regimes, there are also thematic regimes which target specific issues and activities – for example, human rights abuses, cyber attacks and terrorism - rather than focusing on a particular country.” 

The comments from Thomson come just days after OFSI issued a record fine against a technology firm for attempting to circumvent sanctions against Russia.

Sabre Global Technologies was hit with a £1million fine after being found to have committed multiple breaches (8-page/158KB PDF) of sanctions against Russia imposed in the wake of the invasion of Ukraine.

The penalty marked the first instance of OFSI employing its powers to crack down on circumventing sanctions, after the UK arm of Sabre – which provides travel technology services – continued to provide sanctioned Russian airline Ural Airlines access to its global distribution network, and engaged in attempts to find ways around payment blocks on the carrier.

“This penalty marks the increasing focus on sanctions circumvention and OFSI's willingness to use its new settlement policy,” explained Karien Scribante, an intelligence analyst with Pinsent Masons.

As set out in the Sabre OFSI penalty notice: “Settlement is an agreement between OFSI and the subject of an enforcement action to resolve a monetary penalty case following a time-limited negotiation. As a condition of settlement, the subject must agree: 1) to pay the penalty as imposed; and 2) to waive their rights to a ministerial review and to appeal OFSI’s decision to the Upper Tribunal concerning the matters within the scope of the settlement.

“In return, the subject will have the opportunity as part of the negotiations to input into the summary of the case that will be published, and under the new scheme will also be entitled to a discount to the baseline monetary penalty (in addition to any other available discount) if they sign a settlement agreement within the applicable timeframe, usually 30 business days.”

Despite being notified of the sanctions against Ural when they took effect in May 2022, Sabre allowed the carrier access to its global distribution service for seven months.

When payments of nearly £750,000 from Ural to Sabre’s UK bank were frozen over sanctions concerns, the technology company sought alternative ways of receiving the money – including asking Ural to send a test payment of around £175 to a US-based bank account it operated, with the intention of receiving future settlements in this manner.

The penalty marks the first OFSI has issued to a company for engaging in circumvention activities.

Sabre had made a voluntary disclosure to OFSI and cooperated through the investigation to agree a settlement with the Treasury over the breaches. However, it was criticised that the cooperation was prompted by requests for information by OFSI.