Out-Law / Your Daily Need-To-Know

The UK government imposes sanctions – including restrictions on trade, finance, and entry into the country – to achieve specific foreign policy or national security objectives.

This guidance provides a high-level overview of the UK sanctions regime, practical advice on avoiding breaches of the regime and guidance on applying for licences to carry out otherwise prohibited activities. It is important to note that the regime is complex, and spans many individual pieces of primary and secondary legislation. Nothing in this guidance should be interpreted as legal advice.

The most significant pieces of legislation for the purposes of UK sanctions law are the 2018 Sanctions and Anti-Money Laundering Act (and its numerous statutory instruments); the 2008 Counter Terrorism Act; and the 2001 Anti-Terrorism, Crime and Security Act. References to ‘UK sanctions’ in this guide should be read as references to the prohibitions imposed by these pieces of legislation.

What are UK sanctions?

UK sanctions are restrictive measures imposed by the government to achieve a specific foreign policy or national security objectives. These come in different forms, and are administered and enforced by different government departments including the Office of Financial Sanctions Implementation (OFSI, part of HM Treasury); the Export Control Joint Unit (ECJU, part of the Department for Business and Trade); and HM Revenue & Customs (HMRC).

Financial sanctions are imposed on ‘designated persons’: individuals or entities that are the target of measures restricting access to funds and economic resources (referred to as an ‘asset freeze’). The prohibition also extends to those acting on behalf of the designated person, and to entities owned or controlled by the designated person.

‘Funds’ means financial assets and benefits of every kind, including but not limited to: cash, cheques, other payment instruments, bank deposits, debts and debt obligations, traded securities, debt instruments, interest, dividends, guarantees, performance bonds, letters of credit and other documents showing evidence of an interest in funds or financial resources.

‘Economic resources’ are assets of every kind – tangible or intangible, movable or immovable – which are not funds, but may be used to obtain funds, goods or services. The European Commission has confirmed that this may cover the provision of services in some circumstances (8-page / 373KB PDF).

Financial sanctions

Financial sanctions are administered by OFSI. They include:

  • asset freezes;
  • restrictions on accessing financial markets, loans and credit;
  • restrictions on the provision of financial, insurance, brokering and other financial services; and
  • directions to cease all business – these will specify the type of business and can apply to a specific person, group, sector or country.
Trade sanctions

Trade sanctions are administered by ECJU. They include:

  • restrictions on exporting, supplying, delivering or making available listed goods and technology;
  • restrictions on providing financial, insurance and technical services related to listed goods and technology;
  • restrictions on brokering (including arranging and negotiating) the provision of restricted goods and services; and
  • relative to Russia, professional and business service prohibitions (which restrict a wide range of business, management and professional services in relation to activities in Russia or with Russian counterparties).
Immigration sanctions

Immigration sanctions are used to bar entry to the UK. They are administered by the Home Office.

Transport sanctions

Transport sanctions impose restrictions on the ownership, registration movement and use of ships and aircraft in and from certain countries. They are administered by the Department for Transport.

Sanctions tend to be imposed on a geographic or thematic basis.

Geographic sanctions

Restrictions may be imposed against designated persons and various business activities, mainly in the form of an arms embargo but sometimes more broadly impacting on trade, with the targeted geography or persons, businesses and sectors connected with the geography.

As of 22 March 2023, there are UK geographic sanctions applying to: Afghanistan; Armenia and Azerbaijan (arms embargo); Belarus; Bosnia and Herzegovina; Burundi; Central African Republic; China and Hong Kong (arms embargo); Democratic People’s Republic of Korea; Democratic Republic of the Congo; Guinea; Republic of Guinea-Bissau; Haiti; Iran; Iraq; Lebanon; Libya; Mali; Myanmar; Nicaragua; Russia (which includes prohibitions relating to the non-government controlled regions in Ukraine, including Crimea); Somalia; South Sudan; Sudan; Syria; Venezuela; Yemen; and Zimbabwe.

As there are asset freezes against individuals and entities from these geographies, due diligence and sanctions list checks should be carried out if acting for individuals or entities from these geographies or for entities owned or controlled by individuals or other entities from these geographies.

Sanctions against Russia under the Russia Sanctions (EU Exit) Regulations 2019 (as amended) (‘Russian sanctions’) also contain professional and business service prohibitions, the status of which should be checked before providing services for a Russian resident, individual located in Russia or Russian linked entity.

Thematic sanctions

Asset freezes and immigration sanctions are imposed against designated persons who have been designated for conduct under particular thematic regimes: chemical weapons; counter terrorism; cyber-crime; corruption; human rights; ISIL (Da’esh) and Al-Qaida; and unauthorised drilling activities.

As these sanctions are imposed to discourage a particular activity rather than on geographical basis, wider due diligence on counterparties and sanctions screening may be warranted.

Which sanctions apply to me/our business?

Section 21 of the Sanctions and Anti-Money Laundering Act provides that UK sanctions apply to:

  • conduct in the UK or in the territorial sea by any person;
  • conduct elsewhere by a ‘United Kingdom Person’, which means a national of the UK, or a body incorporated or constituted under the law of any part of the UK.

In addition, sanctions imposed by the EU, the US and other countries are likely to apply to:

  • conduct within those territories;
  • conduct elsewhere by nationals of those territories.

US sanctions may also apply to transactions in US dollars and, for some regimes, such as those applicable to Cuba, Iran, North Korea, Russia and Syria, there is a risk of a broader extra-territorial application such that banks may decline to process payments from anyone subject to US sanctions, particularly concerning Cuba, Iran, Russia, North Korea or Syria.

The UK and EU also have in place blocking laws which prevent their nationals and businesses from declining business purely due to certain US sanctions against Cuba and Iran. Specific legal advice may be necessary to reconcile the legal positions.

Why do people/businesses need to know about UK sanctions?

Generally speaking, UK individuals and businesses must not receive or issue money from or to a designated person, or undertake paid work for a designated person, unless they have been granted a licence to do so by OFSI or are doing so under the terms of a general licence.  Individuals and businesses may also be subject to restrictions on the delivery of products, technology, technical, professional and business services where sanctions apply.

It is a serious criminal offence to breach sanctions where there was reasonable cause to suspect a breach. There is also strict civil liability for breaching financial sanctions. The penalties (29-page / 719KB PDF) for breaching sanctions can be significant.

Asset freezes

Where a person or entity is subject to an asset freeze, it is generally prohibited to:

  • deal with frozen funds or economic resources belonging to or owned, held or controlled by a designated person;
  • make funds or economic resources available, directly or indirectly, to, or for the benefit of, a designated person;
  • engage in actions that, directly or indirectly, circumvent or enable/facilitate a breach of the above prohibitions.

Making funds or economic resources available indirectly to a designated person includes making them available to an entity which is owned or controlled directly or indirectly by the designated person.

Funds or economic resources are made available for the benefit of a designated person if that person thereby obtains, or is able to obtain, a significant financial benefit.

If you know or have “reasonable cause to suspect” that you are in possession or control of, or are otherwise dealing with, the funds or economic resources of a designated person you must:

  • freeze them;
  • not deal with them or make them available to, or for the benefit, of the designated person, unless there is an exception in the legislation that can be relied upon, or OFSI has issued a relevant and applicable general or specific licence; and
  • in certain circumstances, report them to OFSI.

Ownership and control

For the purposes of the UK sanctions regime, an entity is owned or controlled directly or indirectly by another person in any of the following circumstances:

  • the person holds (directly or indirectly) more than 50% of the shares or voting rights in the entity;
  • the person has the right (directly or indirectly) to appoint or remove a majority of the board of directors of the entity; or
  • it is reasonable to expect that the person would be able to ensure the affairs of the entity are conducted in accordance with the person’s wishes.

    This could, for example, include:

  • appointing, solely by exercising one's voting rights, a majority of the members of the administrative, management or supervisory bodies of an entity, who have held office during the present and previous financial year;
  • controlling alone, pursuant to an agreement with other shareholders in or members of an entity, a majority of shareholders' or members' voting rights in that entity;
  • having the right to exercise a dominant influence over an entity, pursuant to an agreement entered into with that entity, or to a provision in its Memorandum or Articles of Association, where the law governing that entity permits its being subject to such agreement or provision;
  • having the right to exercise a dominant influence referred to in the point above, without being the holder of that right (including by means of a front company);
  • having the ability to direct another entity in accordance with one’s wishes. This can be through any means, directly or indirectly. For example, it is possible that a designated person may have control or use of another person’s bank accounts or economic resources and may be using them to circumvent financial sanctions.

If any of the above criteria are met, and the person who owns or controls the entity is also a designated person, then financial sanctions will also apply to that entity in its entirety.

In a March 2023 update to its enforcement and monetary penalty guidance, OFSI stated that it will consider the degree and quality of research and due diligence on ownership and control undertaken where it determines that a breach has occurred, and an incorrect assessment of ownership and control is relevant to the commission of that breach. OFSI does not prescribe the level or type of due diligence to be undertaken to ensure compliance. However, the guidance includes useful examples of the steps OFSI expects to be taken in assessing ownership and control.

Sanctions screening

It is important that you carry out due diligence checks to identify whether a person (whether ‘natural’ or ‘legal’, ie a corporate entity) is designated. When dealing with legal persons (entities), to understand whether they are impacted by a sanctions regime you will also have to consider any counterparties, beneficial owners or individuals with possible control of the entity.

Persons and entities subject to asset freezes are listed on OFSI’s Consolidated List. The list can be searched using the browser or application 'find' command. OFSI has also produced a sanctions list search tool to help identifying if a person or entity is a designated person. Both searching the consolidated list and carrying out a search using the sanctions tool is recommended.

The US Office of Foreign Assets Control (OFAC) also has a sanctions list search tool. A search using the OFAC search tool is a useful cross-check.

Circumvention of sanctions

It is a criminal offence to intentionally participate in activities knowing that the object or effect of them is, whether directly or indirectly, to circumvent UK sanctions, or to enable or facilitate the contravention of any such prohibition or requirement.

Reporting duties

The UK sanctions regime includes provisions placing reporting obligations on relevant firms and institutions in specific sectors. For example, under the Russian sanctions, “relevant firms” are required to inform OFSI as soon as practicable if they know or reasonably suspect a person is a designated person or has committed offences under financial sanctions regulations, where that information is received in the course of carrying on their business.

Relevant firms include an entity or sole practitioner that provides to other persons by way of business: (i) regulated activities under Part 4A of the Financial Services and Markets Act 2000;  (ii) currency exchange and money transmission services; (iii) statutory or local audit services; (iv) legal or notarial services: (v) advice about tax affairs; (vi) accountancy services; (vii) trust and company services;  (viii) estate agency services; (ix) casino services; (x) making, supplying, selling (including by auction) or exchanging articles made from precious metals and stones; (xi) cryptoasset exchange services; or (xii) custodian wallet services.

The Russian sanctions include a privilege exception which may mean that solicitors and counsel are exempt from the reporting duties.

There are equivalent provisions in the other country and thematic sanctions regimes. Reporting duties can also be provided for in freezing orders issued under Schedule 3 of the 2001 Anti-Terrorism, Crime and Security Act.  

Compliance steps

There are no specific requirements under the UK sanctions regime to have in place policies, procedures and controls (PCPs). However, having in place a risk assessment, PCPs and sanctions training will provide helpful mitigation should a breach occur. It may also be a contractual requirement under banking facility and insurance agreements for the business to have in place a sanctions compliance framework. 

Businesses should:

  • determine their individual risk level and how best to avoid breaching the UK sanctions regime;
  • put in place risk based PCPs and training – these should be regularly reviewed and updated;
  • carry out sanctions due diligence and screening, particularly where a higher risk factor is present;
  • monitor and keep up to date with developments in UK sanctions. For example, businesses could subscribe to sanctions updates issued by OFSI.

The government's main page on sanctions includes contact details for the relevant departments that administer the sanctions regimes, has links to other published guidance and general licences.

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