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OFSI issues 'blockbuster' fine for financial sanctions breaches

Out-Law News | 09 Apr 2020 | 9:12 am | 2 min. read

The UK's Office of Financial Sanctions Implementation (OFSI) has issued Standard Chartered Bank with its largest fine to date for breaches of EU financial sanctions.

The "blockbuster" £20.4 million civil penalty included a 30% reduction, to £11m, due to the bank's voluntary disclosure and cooperation with the enforcement body. Regardless, the sum "vastly eclipses" any previous civil penalty imposed by OFSI, the largest of which to date had been the £146,341 imposed on Telia Carrier UK Ltd in October 2019, said Stacy Keen of Pinsent Masons, the law firm behind Out-Law.

"This penalty demonstrates that the OFSI civil penalty regime can have teeth," she said. "The fine is closer in value to those that have been issued by the Office of Foreign Assets Control in the US, where fines in the hundreds of thousands and often in the millions are not unusual," she said.

Keen Stacy

Stacy Keen

Senior Associate

This penalty demonstrates that the OFSI civil penalty regime can have teeth.

In its summary of the case (3-page / 99KB PDF), OFSI said that Standard Chartered Bank had made 102 loans to Denizbank A.Ş., a Turkish bank then almost wholly owned by Sberbank of Russia, between 8 April 2015 and 26 January 2018. Sberbank and certain of its subsidiaries were, and continue to be, the subject of EU-level financial sanctions connected to Russian action in Ukraine.

OFSI found that 70 of these loans were in breach of the sanctions regime because they did not qualify for an exemption permitting loans or credit that have the specific and documented objective of financing the import or export of non-prohibited goods between the EU and any third country. This exemption is designed to ensure that legitimate EU trade is not harmed. OFSI found that Standard Chartered Bank was aware of the sanctions regime and the need to take compliance steps, and that dispensations it had put in place to allow loans to be made to Denizbank when exemptions applied were not properly implemented.

The penalty relates to only 21 of the 70 loans which took place after OFSI gained the power to impose a civil penalty in respect of breaches of the sanctions regime on 1 April 2017. These 21 loans had an estimated combined value of £97.4m, and were considered by OFSI to be a "most serious" breach of the sanctions regime. The "most serious" finding was upheld after Standard Chartered appealed, seeking ministerial review of OFSI's decision, although the minister reduced the value of the penalty. He found that OFSI should have given more weight to Standard Chartered's actions in mitigation when it calculated the penalty.

OFSI can impose a maximum penalty of the greater of £1m or the value of the breach for breaches of the sanctions rules, with penalty discounts of between 30% and 50% available for voluntary disclosures. Given the seriousness of the breaches in this case, the discount was limited to 30% despite Standard Chartered disclosing the breaches to OFSI early, and carrying out its own internal investigation as well as cooperating with OFSI's investigation.

"OFSI values voluntary disclosure," it said in its summary of the case. "Cooperation is a sign of good faith and makes enforcing the law simpler, easier, quicker and more effective."