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Own up to UK Russian sanctions breaches, businesses advised

City of London financial district

Businesses that breach UK sanctions imposed on Russia should notify the authorities if they wish to be eligible for lenient treatment, an expert in sanctions compliance has said.

Stacy Keen of Pinsent Masons was commenting after new data obtained by Pinsent Masons revealed that, as at May 2023, 127 UK companies have voluntarily disclosed to breaching financial sanctions against Russia since its invasion of Ukraine in February 2022. The data was referred to by Labour MP Stephen Doughty in an urgent question raised in the UK parliament on Thursday morning.

The UK government added hundreds of Russia-affiliated individuals and entities to its financial sanctions list following the 2022 invasion of Ukraine.

The UK sanctions regime is overseen and enforced by the Office of Financial Sanctions Implementation (OFSI) and HM Revenue and Customs (HMRC). There are various potential outcomes in the event a breach is identified, ranging from no action being taken or a warning letter being issued, to civil penalties being imposed or even criminal prosecution. Action can be taken against bodies and individuals, with prison sentences possible for individuals that breach sanctions. The highest monetary penalty that has been issued to-date is a £20.5 million fine levied against a UK bank.

Keen said it is hard for companies to be fully aware of potential breaches of financial sanctions due to issues over control of companies by UK asset freeze targets and disguised ownership or control. Russia was also more closely integrated into the global economy than other countries subject to comprehensive sanctions regimes, such as Iran, Syria and North Korea, with many Russian businesses and linked individuals having had strong connections to the UK economy.

It may not be immediately apparent who the ultimate beneficial owners or controllers are of companies that trade with UK businesses, making it harder to identify whether a transaction would breach the rules. Many businesses outside of Russia also have Russian shareholders, sometimes with the shares held through a shell company or trusts. This may not be discovered until much later, which explains why so many businesses have chosen to ‘self-report’ to the OFSI. Keen said, though, that risk-based diligence can help identify ultimate beneficial owners and controllers but that where businesses identify there have been breaches, they should consider disclosing them.

“The challenge of navigating Russian sanctions risk dwarves the complexity of Iranian or Syrian sanctions risk for UK businesses” Keen said. “Businesses should consider ‘coming clean’ if they think they may have been doing business with sanctioned entities.”

“Given how well-hidden the ultimate ownership of some Russian-linked businesses can be, it is surprisingly easy for a business to accidentally trade with a sanctioned individual if their due diligence is lacking. Failing to conduct risk based due diligence and sanctions screening is no defence or excuse,” she said.

“Businesses need to ensure they are undertaking rigorous checks before dealing with any organisation that presents a potential ‘sanctions risk’. Monitoring changes in ownership and control structure should also be undertaken,” Keen added.

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