OFSI Annual Review 2020-2021

OFSI Annual Review 2020-2021

The Office of Financial Sanctions (OFSI) has published its 2020/2021 annual review, covering the period April 2020 to March 2021. OFSI leads on the implementation of UN and UK financial sanctions and terrorist asset freezing, providing guidance and taking enforcement action, which includes imposing monetary penalties.

This annual publication gives an overview of OFSI’s operational work, providing key statistics from the different areas of financial sanctions. This is the first annual report published since the Brexit transition period ended on 31 December 2020, marking the end of UK participation in EU sanctions, and the beginning of the new UK autonomous sanctions framework under the Sanctions and Money Laundering Act 2018 (‘the Sanctions Act’).

This is also the first annual review published since Giles Thomson’s appointment as OFSI Director in November 2020. He was previously responsible for anti-money laundering, counter-terrorism financing, and sanctions policy at HM Treasury, and was head of the UK Delegation to the Financial Action Task Force (FATF). His appointment reflects the growing importance of OFSI’s role in meeting government objectives related to economic crime.

A Brave New World of Autonomous Sanctions

Prior to Brexit, the UK sanctions regimes derived mainly from the EU, through EU regulations that had direct effect over member states. Overnight, we saw the introduction of 34 new sanctions regimes, with the EU sanctions replaced by UK sanctions regulations under the Sanctions Act.

In addition to this monumental shift in UK sanctions policy, we have seen the introduction of the new Global Human Rights regime in July 2020. OFSI describes this as a ‘stretching year’, as it worked to balance its responsibility for both the existing and developing frameworks.

Designations under the New Regimes

This was the UK’s busiest year for changes to sanctions designations, with 278 new additional designations made. There were only 44 new additional designations in the 2019/2020 Annual Review period.

159 additional designated persons were added under EU and UN regimes, while 119 designations were made under the new UK autonomous sanctions framework, which includes 74 listings made under the Global Human Rights regime.

As of 25 March 2021, the Consolidated List contained a total of 2,213 designated persons (1,638 individuals and 575 entities), across 33 regimes.

Meanwhile, HM Treasury designated 10 individuals under The Terrorist Asset Freezing etc. Act 2010 (TAFA) before 31 December 2020. One individual was designated under the new Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019.  These Regulations replaced Part 1 of TAFA, the legislation that previously enforced the UK’s obligations under UN Security Council Resolution 1373.

Frozen Assets

Each year, OFSI carries out a review of frozen assets held by UK institutions. As of September 2020, the approximate total of frozen funds and economic resources reported as being held subject to UK financial sanctions legislation was £12.2 billion.

Libya remains the sanctions regime that by far dominates the estimated figures, with £11.5 billion frozen under these regulations. The main shift in the figures is found under the Ukrainian regime, with £21 million of frozen funds identified in the 2019/2020 annual review, more than doubling to £44.5 million for this year.

Changes to Licensing

We have seen changes in the licensing regime, mainly due to the post-Brexit framework, with the introduction of various new licensing grounds.

The licensing ground for the maintenance of frozen funds and economic resources now requires ‘reasonableness’.  The licensing ground for the payment of legal fees and expenses was amended, confirming that disbursements must be reasonable. There is a new licensing ground for extraordinary situations, and also changes to the basic needs ground so that it refers explicitly to entities as well as individuals.

OFSI has new powers to issue general licences under all regimes. This year, for example, general licences have been issued to allow payment to designated ports and authorities in the Kerch strait, a shipping route that has been controlled by Russia since the annexation of Crimea in 2014.

Engagement with Stakeholders

In the context of COVID-19 pandemic working arrangements, OFSI has increased its engagement with international partners and with the private sector.

It has engaged with representatives from 99 jurisdictions and several international organisations, doubling the number of multilateral events it has participated in over the past 12 months. OFSI attributes this increase to virtual working.

OFSI has focused its efforts on engagement with the private sector, prioritising its work to ensure UK businesses understand the new autonomous sanctions framework through webinars and blogs, as well as industry-specific guidance, meetings, and roundtables.

The OFSI blog is seen as a key tool in industry engagement. It publishes blogposts covering all key areas of OFSI business.

Enforcement Action Taken

In the financial year 2020/21, OFSI considered 132 potential financial sanctions breaches. Suspected breaches reported under the Iran regime continue to make up a significant proportion of the reports published, a significant proportion of which predate the 2016 Joint Comprehensive Plan of Action (JCPoA).

OFSI has observed a change in the range of sectors reporting suspected breaches, which included the legal, charity, insurance, media, professional services, real estate, telecommunications, and travel sectors, as well as banks. OFSI has attributed this shift beyond banking to its increased engagement activity.

Looking Ahead to the next 12 months

In the coming year, OFSI’s intention is to continue its efforts in using technology to extend its reach by way of webinars and blogposts. It plans to carry out targeted outreach and engagement across a variety of sectors. OFSI are also expecting a report from the Independent Reviewer of Terrorism Legislation, Jonathan Hall QC, on the operation of asset-freeze provisions under the counter-terrorism regulations.

Going forward, with new-found autonomy under the Sanctions Act, UK ministers have the power to introduce new sanctions at breakneck speed. Although not covered in the review period, in April 2021, we have seen the introduction of the new Global Anti-Corruption Sanctions Regulations 2021, with 27 individuals currently listed under that regime.  It will be interesting to see how OFSI adapts to this new world, and whether we will see an increase in enforcement activity. Given its new role, front and centre in the government’s economic crime agenda, this would appear to be a reasonable expectation.

John Binns is a partner at BCL specialising in all aspects of business crime, with a particular interest in confiscation, civil recovery and money laundering under the Proceeds of Crime Act 2002 (“POCA”). His business crime experience includes representing suspects, defendants and witnesses in cases invoking allegations of bribery and corruption, fraud (including carbon credits, carousel/MTIC, land-banking, Ponzi and pyramid scheme frauds), insider trading, market abuse, price-fixing, sanctions-busting, and tax evasion. He has coordinated and undertaken corporate investigations and defended in cases brought by BEIS, the FCA, HMRC, NCA, OFT, SFO and others.

Suzanne Gallagher is a solicitor specialising in corporate crime. Since qualifying in 2017, she has gained experience in a variety of regulatory and criminal investigations including health and safety, environmental protection, fire safety, fraud and money laundering. Prior to joining private practice, Suzanne worked in facilitating regulatory harmonisation in the European Union and in promoting international legal standards at the United Nations. She also worked in the pharmaceuticals industry in Tokyo.

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