OFSI issues updated guidance for UK charity sector advocating wider good practice

The guidance (12-page / 616KB PDF) urges charities to consider all aspects of their supply chains to “identify if any partners, contractors or financial institutions appear on the [OFSI] sanctions list, or are owned or controlled by any listed persons”.

Stacy Keen, sanctions expert at Pinsent Masons, said the reference to financial institutions in the new guidance was “particularly pertinent”, after OFSI fined UK fintech company TransferGo £50,000 earlier this year.

The firm was found to have transferred funds to accounts held at the Russian National Commercial Bank, which was, and remains, a sanctions target under the UK sanctions regime.

“OFSI imposed a fine on TransferGo because the transfer was to a sanctions target - even though the end-beneficiary recipient was not,” said Keen.

“It is crucial that charities, NGOs and all those at risk of dealing directly or indirectly with sanctions target remain vigilant and check their supply chains against the relevant sanctions lists” she added.

The guidance says organisations should seek information if they are unsure whether an individual or entity is subject to financial sanctions, as long as “there is no risk to yourself or others” by doing so.

A request to see the corporate structure of an entity - as well as details of its ultimate beneficial owners - or a copy of an individual’s passport to confirm their identity, may allow sanctions risks to be ruled out or confirmed.

“Failure to respond to requests for such information is usually a red flag indicator,” Keen said.

Charities were also given updated advice on using Informal Value Transfer Systems (IVTS) - informal mechanisms for moving funds to a third party in another geographic location, which are sometimes used where there is limited access to banking facilities.

“If ... [using] IVTS to transfer and move funds, the [OFSI] advises that [you] must be able to show that this is a reasonable decision in the circumstances, and the risks have been appropriately managed,” the guidance says.

Keen said: “IVTS, like the Hawala system, are not themselves illegal but they do pose a risk given the lack of transparency.”

“That lack of transparency, particularly on the payors and sources of funds, increases the risk of potentially dealing with a sanctions target or facilitating money laundering. OFSI advises, where an IVTS is the only option to facilitate a payment, that a charity obtains as much information as possible about the IVTS provider and other parties involved prior to making a transaction - and that the payment route is discussed in advance with the charity’s bank,” she added.

The OFSI guidance also calls for charities and NGOs to take on a “comprehensive compliance approach” to “mitigate against financial crime risks such as terrorist financing, corruption or laundering the proceeds of crime”.   

“The links between these areas and sanctions is well recognised,” said Keen.

“Segregated and disconnected controls focused only on the primary type of crime that they mitigate against, may result in risks not being identified and assessed,” she added.