Overview of the UK sanctions regime
Sanctions are restrictive measures that can be put in place to fulfil a range of purposes. In the UK, these include complying with UN and other international obligations, supporting foreign policy and national security objectives, as well as maintaining international peace and security, and preventing terrorism.
The prohibitions and requirements in these Regulations apply to conduct by all UK persons, including all barristers and BSB entities.
Sanctions measures cover:
- financial sanctions, including asset freezes
- immigration sanctions, known as travel bans
- aircraft and shipping sanctions
- trade sanctions
Depending on your area of practice, you may need to be aware of the different types of sanctions, which are implemented and enforced through different Government departments. You can read more about all of these sanctions on the Government’s website.
The information on this page mainly concerns financial sanctions, which could be relevant to a range of practice areas. These are implemented and enforced by HM Treasury through its Office of Financial Sanctions Implementation (OFSI). Breach of financial sanctions is a strict liability offence, so all barristers should ensure that they know and understand their exposure and their obligations.
Financial sanctions rose in prominence following the invasion of Ukraine in 2022. An unprecedented tranche of sanctions was imposed by the UK on Russia on 22 February 2022, with further additions throughout the year. OFSI maintains a consolidated list of sanctions in force in the UK. You can access this list, register for updates and obtain further information on financial restrictions. Please note that the US Office of Foreign Assets Control sanctions lists and regimes are not included in this list, but may apply to your practice.
You should ensure that you monitor the list for updates as it is subject to frequent change. You can sign up for OFSI alerts. The full details of the measures and some explanatory videos are available on the Government website.
Key information in relation to financial sanctions can be found as follows:
- OFSI consolidated list of sanctions
- Financial sanctions listed by regime
- Sign up for OFSI alerts
- OFSI guidance
- OFSI information webinars
- Apply for a licence for legal fees
- General licences
- Make a report to OFSI if you suspect a sanction has been breached
New Legal Services General Licence
On 29 October 2023, OFSI issued a new Legal Services General Licence INT/2023/3744968 which took effect from 00:01 on 29 October 2023 and will expire at 23:59 on 28 April 2024. This new Licence replaces INT/2023/2954852 which expired on 28 October 2023.
You can find out more about the new Licence and changes it has made on their website.
Ban on legal advisory services
On 30 September 2022, following Russia’s annexation of the Ukrainian regions of Donetsk, Luhansk, Kherson and Zaporizhzhia, the Government announced new sanctions, under which Russia will lose access to major western services that Russia depends on, including transactional legal advisory services for certain commercial activity, as well as IT consultancy, architectural services and engineering services.
A new Statutory Instrument came into effect on 30 June 2023; the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023 prevents lawyers, including barristers, from providing legal advisory services, directly or indirectly, in relation to certain financial or trade activity. Barristers must not provide legal advisory services to any person who is not a UK person in relation to, or in connection with, specified activity which would be prohibited under the UK sanctions regime if the activity was done by a UK person or was taking place in the UK.
“Legal advisory services”
- means the provision of legal advice to a client in non-contentious matters, involving any of the following:
- the application or interpretation of law;
- acting on behalf of a client, or providing advice on or in connection with, a commercial transaction, negotiation or any other dealing with a third party;
- the preparation, execution or verification of a legal document;
- do not include any representation, advice, preparation of documents or verification of documents undertaken as part of legal representation services provided in, or in anticipation of
- any proceedings before administrative agencies, courts or other duly constituted official tribunals, or
- arbitral or mediation proceedings.
The Government has confirmed that “The restrictions on legal services do not include legal representation for Russian nationals using UK legal expertise, ensuring that allowing everyone to access legal support remains a core aspect of the rule of law across the UK.”
We have published a thematic review of sanctions compliance focused on 31 chambers that are members of the Commercial Bar Association. Generally, we found that barristers were aware of the risks of unwittingly engaging with a designated person without a licence and that they were taking a cautious approach to compliance. We also found examples of good practice which we would encourage all barristers and their chambers or entity staff to consider regardless of their area of practice.
The report finds that most chambers had at least some procedures in place to promote a consistent approach and to ensure compliance with the sanctions regime but there was room for improvement in some cases in documenting and implementing those controls. The BSB wants to ensure that chambers’ management committees have mechanisms and guidance in place to assure themselves that risk is appropriately and consistently assessed, and compliance controls are consistently applied. The report does underline some uncertainty about the respective responsibilities of individual barristers and of chambers in managing the risk of sanctions breaches. This underlines the importance of the work the BSB is doing to clarify expectations of chambers in this and other respects.
The BSB welcomes the intention of the Bar Council to issue guidance to help ensure consistency in ensuring compliance with the sanctions regime across the profession.
Standards of due diligence expected by OFSI
In March 2023, OFSI updated its guidance on enforcement and monetary penalties for sanctions breaches. In particular, chapter 3 has been updated to reflect what mitigating or aggravating factors OFSI takes into consideration about the degree and quality of research and due diligence conducted on ownership and control when they determine that there has been an incorrect assessment that resulted in a breach. See the section below on Policies and Procedures for further information, but you should read OFSI’s detailed guidance in full to ensure that you have appropriate procedures in place.
OFSI engagement forumOFSI is seeking to enhance its engagement with the legal sector in a new forum that will meet quarterly in hybrid format. This forum will help OFSI build more productive relationships with the legal sector. Input on agenda items is strongly encouraged. Membership is open to all interested parties within the legal sector. Prospective members should contact OFSI at [email protected]. The BSB will join the forum, so if you do not wish to join, but have questions that you would like us to raise, you can contact us on [email protected]
For more details, see the terms of reference.
Ban on Trust services
On 16 December 2022, the government introduced prohibitions on providing trust services to or for the benefit of persons connected with Russia and designated persons.
In particular, a UK person anywhere, or person within the UK, must not provide trust services:
- to or for the benefit of a person connected with Russia unless pursuant to an ongoing arrangement pursuant to which that person provided those services to or for the benefit of the person connected with Russia immediately prior to 16 December 2022;
- to or for the benefit of a person designated for the purposes of regulation 18C (trust services).
The provision of trust services means:
- creating a trust or similar arrangement;
- providing a registered office, business address, correspondence address, or administrative address for a trust or similar arrangement;
- operating or managing a trust or similar arrangement; or
- acting or arranging for another person to act as a trustee of a trust of similar arrangement.
Further details can be found in The Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 (Regulation 18C) and in OFSI’s Russia guidance
On 21 March 2023, the persons that are currently designated under Regulation 11 (asset freeze) of the Regulations are now also designated under Regulation 18C (trust services). This means that it is now prohibited to provide trust services to or for the benefit of these persons, unless permitted by a licence or there is an applicable exception.
To support trust service providers wind down their services in relation to designated persons, OFSI has issued General Licence INT/2023/2589788 that allows 90 calendar days to wind down those services. This is effective from the date of designation for the purposes of Regulation 18C of the person to whom the trust services are being provided. For example, for persons designated on 21 March 2023, the permission to wind down provision of these services will expire on 18 June 2023. Anyone using the General Licence must report to OFSI within 30 calendar days of undertaking any activity under the General Licence. Reporting must include the details of the trust services provided, amongst other things, and evidence should be provided where applicable, and can be completed using this form.
Full details about this can be found on OFSI’s website.
Red alert on evasion techniques
A Red Alert was issued in July 2022 by the National Economic Crime Centre and OFSI to provide information about some common techniques being used to evade financial sanctions.
Those subject to sanctions are using associates, including family members and close contacts to:
- transfer assets, such as shareholdings in holding companies, to trusted associates;
- sell or transfer assets at a loss in order to realise their value before sanctions take effect; and
- divest investments to ensure ownership stakes are below the 50% threshold sanctioned.
Although they may claim to have relinquished the asset, it is highly likely that they will retain their influence.
Such activity may be facilitated by professionals such as lawyers, without whom evasion would be more difficult. Enablers – knowingly or unwittingly - can help distance the sanctioned person from the offence and assist with laundering the proceeds. Barristers should therefore be aware of the risk of becoming unwittingly involved in attempts to evade sanctions.
It has been observed that sanctioned persons seek to transfer assets and funds directly and indirectly to jurisdictions where sanctions are not in place, such as the UAE, Turkey, China, Brazil, India and the former Soviet Union (excluding the Baltic States and Ukraine), using secrecy jurisdictions or citing Russian legal protection from sharing information.
It is likely that alternative payment methods will be used to move funds, including the use of crypto-assets.
The attached alert contains a list of indicators that you should be aware of.
If you identify activity which may be indicative of the typology detailed in this report, you may need to:
- Make a Suspicious Activity Report to the National Crime Agency.
- Report it to OFSI, by emailing [email protected]. You can also seek guidance from OFSI.
- Tell us, by making a report.
Policies and Procedures
Breaching sanctions can result in criminal prosecution or a fine by OFSI. Core Duty 10 says that you must take reasonable steps to manage your practice, or carry out your role within your practice, competently and in such a way as to achieve compliance with your legal and regulatory obligations. You should therefore ensure that you have procedures in place to enable you to comply with sanctions.
OFSI explains in its guidance on penalties for breaches of sanctions about how it responds to breaches: “when we consider what action to take, we take into account the level of actual and expected knowledge of financial sanctions held by an individual or a company, considering the kind of work they do and their exposure to financial sanctions risk. Regulated professionals should meet regulatory and professional standards. We may consider their failure to do so an aggravating factor."
The Economic Crime (Transparency and Enforcement Act) 2022 amends the Treasury’s powers for issuing civil monetary penalties for sanctions breaches by removing the requirement to prove that the person had knowledge or reasonable cause to suspect their activity breached sanctions. The Act also enables OFSI to publicise details of sanctions breaches.
OFSI does not prescribe the level or type of due diligence to be undertaken to ensure compliance with financial sanctions. However, in March 2023, OFSI updated this guidance to set out what mitigating or aggravating factors it will consider in the event of a breach, when assessing the degree and quality of research and due diligence conducted on ownership and control. OFSI will consider whether the level of due diligence conducted was appropriate to the degree of sanctions risk and nature of the transaction. It would expect to see evidence of a decision making process that took account of the sanctions risk and considered what would be an appropriate level of due diligence in light of that risk. OFSI would usually expect these decisions to be made by reference to an internal framework or policy. You should read the guidance for full details of the type of checks that OFSI would expect to see evidence of.
All barristers and BSB entities should assess their own exposure and put in place processes to check sanctions that are in force to manage any identified or anticipated risks of breaching sanctions. The BSB’s Supervision Team, when reviewing the policies and processes that you have in place to ensure compliance, will consider the following:
- What is the risk that, in your practice, you will engage with clients that are subject to sanctions? Have you conducted a risk assessment and how is it kept up to date?
- What processes do you have in place to make yourself aware of current sanctions that are in place and how do you keep up to date with changes?
- What processes are in place to check the consolidated list of sanctions when engaging with a new client?
- Do you take a risk-based approach? For example, are there enhanced due diligence checks for clients (and their beneficial owners) from countries that are covered by the sanctions regime?
- Have you documented your policy and processes for screening clients (and their beneficial owners) and ensured that relevant persons (for example clerks that may carry out some of these processes for you) have received appropriate training?
- When are clients screened? Are any long-standing clients regularly screened where appropriate?
If you use electronic identification and verification tools to conduct sanction checks, please refer to Part 1, chapter 7 of the Anti-Money Laundering Guidance for the legal sector. This contains additional information to help you manage risk if you use third party services or tools to conduct your sanctions checks.
If you think you may be conducting business or anticipate conducting business with individuals or organisations subject to financial sanctions:
- contact OFSI immediately; and
- consider if you should apply for a licence from OFSI
Licences to undertake transactions with, or on behalf of persons or entities subject to sanctions
There are some exemptions for which you can seek a licence from OFSI. These include applying for a licence in order to receive reasonable fees for the provision of legal advice. OFSI will judge whether the fees are reasonable. See OFSI's website for further information on obtaining a licence to undertake transactions with, or on behalf of persons or entities subject to sanctions.
On 28 October 2022, OFSI announced a new General Licence for legal services, INT/2022/2252300 under Regulation 64 of the Russia (Sanctions) (EU Exit) Regulations 2019 and Regulation 32 of the Republic of Belarus (Sanctions) (EU Exit) Regulation 2019. Considering the extraordinary number of new sanctions in relation to the Russia and Belarus regimes, and the correlating increase in the number of legal professionals seeking a licence from the Office of Financial Sanctions Implementation (OFSI) for the payment of legal fees, OFSI has issued a general licence to permit the payment of legal fees under certain conditions.
General Licence INT/2022/2252300 expired on 28 April 2023 and was replaced by General Licence INT/2023/2954852. Changes between the two Licences can be found online. The General Licence means that a barrister or BSB entity who has provided legal advice to a sanctioned person in relation to Russia and Belarus will not have to wait for an OFSI specific licence before they can receive payment from that designated person, provided that the terms of the general licence are met. There remains an obligation to make a report to OFSI.
Anyone wanting to make use of these permissions should carefully consider the terms of the General Licence before doing so. Please refer to OFSI’s website for details.
The terms of the general licence include a cap on total fees paid by a sanctioned person. This means that barristers and their referring solicitors will need to co-ordinate so that the cap is not breached. However, there is a risk that a sanctioned person may instruct other lawyers (eg in relation to an instruction on a different matter) without their knowledge, leading to the cap being breached. OFSI have told us that barristers should conduct reasonable due diligence to ascertain whether the sanctioned person has also instructed other lawyers. As a minimum, this should include asking the sanctioned person if they have instructed any other lawyers. If a barrister becomes aware of other lawyers providing legal services that they were not previously aware of, they should contact OFSI. OFSI recognises that lawyers may have imperfect information about who else is instructed.
If the total fees exceed the cap under the general licence, barristers can apply to OFSI for a licence to cover payment for the additional amount.
The current term of the General Licence is 6 months, which is due to expire on 28 October 2023. You should monitor OFSI’s website for any updates.
General licences have also been issued for the wind down of trust services provided to designated persons (see above) and in relation to arbitration through the London Court of International Arbitration.
A full list of general licences is on the OFSI website.
Independent legal professionals (ie all barristers and BSB entities) are subject to certain reporting obligations. You must inform OFSI promptly if you know or reasonably suspect that a person is a designated person or has committed offences under sanctions regulations, where that information is received in the course of carrying on business.
More information about your obligations and how to make a report can is on the OFSI website.