127 UK companies admit to breaching sanctions against Russia since invasion
By Law News
127 UK companies have voluntarily disclosed to breaching sanctions against Russia since its invasion of Ukraine in February 2022, says international law firm Pinsent Masons.
The UK government added hundreds of Russia-affiliated individuals and entities to its sanctions list following the 2022 invasion of Ukraine. There are now 1,637 individuals and 239 on the UK’s Russia regime sanctions list.
Pinsent Masons says that companies that have breached sanctions need to consider disclosing identified breaches to OFSI or HMRC – depending on the restrictions that have been breached if they want receive leniency.
The action that be taken following the identification of a breach include: no action, issue of a warning letter, civil penalty or criminal prosecution. Action can be taken against bodies and individuals, with prison sentences capable of being imposed for individuals that breach sanctions. The highest monetary penalty to date was a £20.5m fine levied against a UK bank.
Stacy Keen, Partner at Pinsent Masons says it is particularly hard for companies to be fully aware of potential breaches of financial sanctions due to issues over control of companies by UK asset freeze targets and disguised ownership/control.
The Russian invasion of Ukraine has created a big test for UK businesses’ ability to comply with the UK’s sanctions regime. Russia was more closely integrated into the global economy than other countries subject to comprehensive sanctions regimes such as Iran, Syria and North Korea. Russian businesses and linked individuals had strong connections to the UK economy, when compared to businesses and individuals linked to those other countries.
It may not be immediately apparent who the ultimate beneficial owners are of companies that trade with UK businesses making it harder to identify whether a transaction would breach the rules. Many businesses outside of Russia also have Russian shareholders, sometimes with the shares held through a shell company or trusts.
This may not be discovered until much later, which explains why so many businesses have to ‘self-report’ to the Office of Financial Sanctions Implementation (“OFSI”). However, risk based diligence is expected to identify ultimate beneficial owners and controllers.
Voluntarily disclosing a breach of sanctions can greatly reduce the penalties levied against a company. Financial penalties for breaches can include unlimited fines and periods of imprisonment.
Stacy Keen, Partner at Pinsent Masons says: “The challenge of dealing with Russian sanctions dwarves the complexity of Iranian or Syrian sanctions for UK businesses, it’s so much more complex.”
“Businesses should consider ‘coming clean’ if they think they may have been doing business with sanctioned entities.”
“Given how well-hidden the ultimate ownership of some Russian-linked businesses can be, it is surprisingly easy for a business to accidentally trade with a sanctioned individual if their due diligence is lacking. Failing to conduct risk based due diligence and sanctions screening is no defence or excuse”
“Businesses need to ensure they are undertaking rigorous checks before dealing with any organisation that presents a potential ‘sanctions risk’. Monitoring changes in ownership and control structure should also be undertaken”.