A New Sleuth in Britain: The UK Quietly Empowers a Sanctions Enforcement Office

On April 3, 2017, the UK Treasury’s Office of Financial Sanctions Implementation (OFSI) announced new penalties for economic sanctions violations of £1 Million or 50% of the value of the transaction, whichever is higher. As a result, this new detective has a powerful new enforcement tool, and it may be taking notes from the aggressive U.S. sanctions enforcers.

Never trust to general impressions, my boy, but concentrate yourself upon details
– Sherlock Holmes, A Case of Identity

Taking our cue from the legendary Baker Street sleuth, we examine the details of the new OFSI.

Mandate. Pursuant to the Policing and Crime Act 2017 (the 2017 Act), the OFSI will enforce financial sanctions imposed by the United Nations and European Union. As the developments of Brexit unfold, the UK may adopt its own sanctions regime that would likely be enforced by the OFSI independently of UN sanctions.

Jurisdiction. The OFSI will investigate any sanctions violation for which it finds there is a UK nexus – such as a violation by the overseas office of a UK entity, a payment transiting the UK banking system, a financial instrument purchased in the UK and held overseas, or a transaction directed from the UK. The Office will not be limited to investigation and enforcement of violations that occur within UK borders. Additionally, the OFSI has stated that, if it identifies violations of financial sanctions in another jurisdiction, it may use its information-sharing powers to pass details to relevant authorities outside the UK.

What one man can invent another can discover
 – Sherlock Holmes, The Adventure of the Dancing Men

Following Mr. Holmes’s aphorism, we take a look at what might constitute a sanctions violation, and how the OFSI might respond.

Violations. The OFSI may impose a penalty where it finds two things:

  1. A person fails to comply with an obligation under sanctions legislation; and
  2. That person knew or had reasonable cause to suspect that an act or omission would result in a violation under UK sanctions.

Penalties. In all cases, the OFSI may implement up to a £1,000,000 penalty. In a case where the breach or failure relates to particular funds and it is possible to estimate the value of the funds or economic resources, the OFSI may impose a penalty of 50% of the estimated value of the funds or resources, if that amount is greater than £1M.

Individual Liability. The 2017 Act provides for penalties on both a company and its officers, directors, and management. That means that the OSFI will consider the imposition and level of penalty on an officer of a company separately from the penalty on the company itself.

Mitigation. The OFSI will may also induce cooperation from sanctions violators by offering mitigation credit for voluntary self-disclosures. The OFSI will accept disclosures from persons who identify their own sanctions violations. The Office will offer up to 50% penalty mitigation for serious offenses and 30% mitigation for very serious offenses in exchange for an appropriate disclosure and cooperation.

“It is a capital mistake to theorise before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.”
– Sherlock Holmes, A Scandal in Bohemia

It is true that the new OFSI does not have a history for us to examine to deduce how it might pursue sanctions violations. However, the UK government has signaled that the office might take its cues from its U.S. cousin, the Office of Foreign Assets Control. Assuming that you have been actively following this blog (and of course we believe that is a fair assumption), you will have seen reports the massive enforcement penalties leveled against U.S. and non-U.S. companies for violations of U.S. sanctions. The largest penalty, imposed on BNP Paribas in the summer of 2014, ran to nearly $9 Billion (and that does not include what they paid in legal fees!)

If the OFSI adopts the approach that OFAC has taken in recent years, the office will focus its fire on financial transactions. London is a hub for international finance. The number of transactions that arise out of UK financial instruments or that transit the UK banking system will provide the OFSI a fast-flowing stream in which to fish for violators.

“As a rule, the more bizarre a thing is, the less mysterious it proves to be.”
 – Sherlock Holmes, The Red Headed League

In March of 2019, it is possible that the UK will no longer be enforcing EU sanctions regulations. In that case, the country must adopt its own set of trade restrictions based on its own foreign policy. That shift would significantly increase the autonomy of the OFSI, but it is not yet clear how what direction a post-Brexit sanctions regime would take. The UK may choose to draw closer to the United States by aligning its sanctions regime more with U.S. regulations. On the other hand, as nervous financial institutions look at moves to mainland Europe, the UK may see an advantage in relaxing its sanctions regulations to invite a wider range of transactions to come through London.

 When you have eliminated the impossible, whatever remains, however improbable, must be the truth.
– Sherlock Holmes, The Sign of the Four

As with any development in international trade controls, we will continue to follow the progress of the OFSI. We will report back here with any relevant developments as well as our analysis of the direction we believe the Office will take.

Still Following the Money: FinCEN, Money Laundering, and the Bank Secrecy Act

Late last week, Congressional intelligence committees reportedly received some information from the U.S. Financial Crimes Enforcement Network (FinCEN) related to investigations into Russia’s attack on the 2016 U.S. Presidential election and the allegation of collusion with members of the Trump campaign. This followed earlier reports of the Senate Intelligence Committee requesting data from FinCEN, including “information about shell companies, money laundering and the use of property transfers.” Also in the past week, Robert Mueller, Special Counsel, was appointed by the U.S. Department of Justice to conduct an independent investigation regarding Russia’s cyberattack. Taken together, that makes three sets of investigators who may be reviewing and analyzing documents from FinCEN in order to better understand financial connections among the President’s campaign, his business organizations, and Russia. Continue Reading

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Who would have thought that a little-known, 1930s-era law would suddenly become a household name? Not me. Not even as an attorney who counsels clients on compliance with the law and maintains a healthy (read: nerdy) interest in it.

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Preparing For Heightened Antidumping and Countervailing Duties (AD/CVD) Enforcement Under the Trump Administration

As the Trump administration comes into its third month, we have clues, but must speculate on how that administration will modify Iran sanctions, NAFTA, foreign investment, and tariffs on China. In contrast, recently issued executive orders shed clear light on the Trump administration’s approach to antidumping and countervailing duties (AD/CVD). (See our August 2016 blog for a general background on AD/CVD.)

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Predicting the Unpredictable: Will President Trump Tear Up the Iran Nuclear Deal?

As a candidate for President, Donald J. Trump was widely reported to despise the Iran nuclear agreement, which is known as the Joint Comprehensive Plan of Action. As President, he responded to reports of Iranian missile tests by putting Iran “on notice.” While observers have speculated whether that portends a naval escalation in the Persian Gulf or the Gulf of Aden, or perhaps some form of probation, the most likely next steps in our view will not include tearing up the nuclear agreement.

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Predicting the Unpredictable: Foreign Investment Under the Trump Administration

CFIUS has the power to unwind your M&A deal. That power will likely expand. That is the headline.

The Committee on Foreign Investment in the United States (CFIUS) reviews acquisitions by foreign parties of “critical industries” and “critical infrastructure” in the United States. The inter-agency committee’s actions warrant plenty of explanation, and you can find much of it here.

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Predicting the Unpredictable: Will Tariffs Under President Trump Cause a Trade War With China?

President Trump has stated that he would impose tariffs on imports from China ranging from ten to forty-five percent. Can he do it? And will it cause a trade war?

The Effects of Increased Tariffs

In the 18th Century, tariffs were considered a method of generating revenue and protecting domestic industry. The first U.S. customs duties were imposed in 1789, and were considered vital to the economic survival of the young nation. That mercantilist approach has since been overwhelmingly rejected by mainstream economists. Even by the time of the American Revolution, specialization and comparative advantage were being touted (including by Adam Smith, whose Wealth of Nations was published in 1776) as the true route to national prosperity.

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Predicting the Unpredictable: Practical Steps for International Business Under the Trump Administration

We must distinguish between the unlikely and the impossible.

– P.G. Wodehouse

President Trump’s successive executive orders restricting immigration caught many people off guard, and many businesses had to scramble to react. But we propose that predicting the future is not as challenging under the new Administration as it may sometimes seem. For example, if you wished to know whether there would be an immigration ban (whether you favor or oppose immigration restrictions), you could do worse than to take the President at his word about what he is going to do: Candidate Trump promised immigration restrictions targeting, variously, Muslim people, Muslim majority countries, and countries listed as state sponsors of terrorism. Which countries would Mr. Trump target? Several of those listed could have been predicted in advance based on campaign promises. More broadly, a suspension of immigration from Syria and Libya was an explicit campaign promise, so certainly that much was predictable.

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Bre(xit)aking News

The Supreme Court of the United Kingdom by a majority of 8 to 3 has today confirmed that triggering the exit procedure from the European Union requires an Act of Parliament.

As such the Supreme Court disagreed with the current UK Government which had argued that Government ministers could rely on their prerogative powers to trigger Article 50 of the Treaty on the European Union without prior authorisation by Parliament. Scottish Parliament, Welsh and Northern Ireland assemblies had argued that they too should be consulted. The judges did not agree with that view.

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Top 12 EU Legal Developments to Watch in 2017

Sheppard Mullin’s EU team has created a list of major legal shifts that await General Counsel and Compliance Officers in the areas of competition, EU regulatory and trade in 2017. These challenges may have an impact on your corporate and commercial strategies.

Our predictions include:

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