UK government plans to revamp holiday pay calculation for part-year workers
Out-Law Guide | 06 Apr 2023 | 9:33 am | 10 min. read
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.
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 are administered by OFSI. They include:
Trade sanctions are administered by ECJU. They include:
Immigration sanctions are used to bar entry to the UK. They are administered by the Home Office.
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.
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.
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.
Section 21 of the Sanctions and Anti-Money Laundering Act provides that UK sanctions apply to:
In addition, sanctions imposed by the EU, the US and other countries are likely to apply to:
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.
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.
Where a person or entity is subject to an asset freeze, it is generally prohibited to:
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:
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:
This could, for example, include:
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.
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.
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.
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.
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.
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.
UK government plans to revamp holiday pay calculation for part-year workers