Following the invasion of Ukraine by Russia and the resulting sanctions and other restrictions imposed by the UK Government, we are providing answers to some of the most frequently asked questions to provide members of the Scottish legal profession, clarification on what is required of them.

 

Financial sanctions are restrictions put in place by the UN or UK to achieve a specific foreign policy or national security objective.

The Sanctions and Anti-Money Laundering Act 2018 provides the main legal basis for the UK to impose, update and lift sanctions.
Some sanctions measures apply through other legislation, such as the Immigration Act 1971, the Export Control Order 2008 and the Terrorist Asset-Freezing etc. Act 2010.
This legislation allows the government to impose:

  • targeted asset freezes:
  • restrictions on particular financial markets and services (e.g., investment bans, restrictions on access to capital markets, directions to cease banking relationships and activities etc.)
  • directions to cease all business: these will specify the type of business and can apply to a specific person, group, sector or country.

The sanctions regime imposes serious and extensive restrictions on dealing with people or entities who are listed as “designated persons”.
Failure to adhere to sanctions requirements is a serious offence which may result in a criminal prosecution or a significant monetary penalty.

UK financial sanctions apply to all persons within the territory and territorial sea of the UK and to all UK persons, wherever they are in the world. This means that:
• All individuals and legal entities who are within or undertake activities within the UK’s territory must comply with UK financial sanctions that are in force.
• All UK nationals and legal entities established under UK law, including their branches, must also comply with UK financial sanctions that are in force, irrespective of where their activities take place.

Please be aware that there your firm may also be subject to other sanctions regimes including US sanctions.

Sanctions restrictions means you cannot:

  • receive payment from or make funds available to persons on the sanctions list
  • deal with their economic resources
  • make even legitimate payments to those persons

Furthermore, there is a wider restriction; practices must not “knowingly and intentionally participate in activities that would directly or indirectly circumvent financial restrictions or enable or facilitate the commission of any sanctions offence”

Restrictions apply to a wide range of legal work, both in- and out of scope of the Money Laundering Regulations.

We are aware that many of our members may not be affected by current sanctions restrictions due to the nature of their business and clients held.

To be clear, Russian and Belarusian sanctions restrictions continue to affect a designated minority of individuals and entities – details of which can be found on the UK Government website.

If you are satisfied that your client is not on the list, you can continue with the relationship, although you should monitor this position on an ongoing basis.

Scottish solicitors who may hold relationships with potentially sanctioned, high-risk or politically exposed Russian/Belarusian clients must continue to conduct robust risk assessment, along with substantive update and review of due diligence material held.

This will enable effective screening against the latest sanctions lists (and any possible future additions to those lists).

The situation is extremely dynamic, reflecting the evolving international response – therefore it is critical that ongoing monitoring and screening of higher-risk clients is undertaken.

For further information and guidance regarding risk assessment and client due diligence please refer to the UK Legal Sector Affinity Group AML guidance

As the sanctions regime is absolute, practices must have robust procedures in place to identify clients who may be “designated persons” under sanctions restrictions. These measures should be proportionate to the size and nature of your practice.
Decisions made in respect of the nature, depth and level of screening tools and systems deployed should include consideration of the size and nature of the practice unit.
Small firms, with limited exposure and lower risk profiles may deploy open source, free or off the shelf sanctions, Politically Exposed Persons (PEPs)and adverse media screening tools and solutions. Those practices with higher exposure or risk profiles should consider more complex, comprehensive or bespoke solutions.

Factors that may increase the risk of a person being on the sanctions list, and so increase the reason for checking the list, include:

  • clients or transactions with links to jurisdictions subject to sanctions, even if the clients are based locally
  • transactions or matters involving higher-risk clients or politically exposed persons (PEPs) from jurisdictions subject to sanctions
  • higher-risk or complex transactions (particularly those that could be used to obscure ownership) where there is a link to sanctioned or higher-risk jurisdictions

Further information regarding screening considerations, and links to sanctions watchlists can be found under FAQ “Further Sources of Support & Guidance”

Firms are required to apply for an Office of Financial Sanctions Implementation (OFSI) license should they wish to continue doing business with sanctions targets or in order to receive fees in respect of work undertaken. You must suspend the transaction while you wait for advice/a license from OFSI to proceed
Firms are required to contact OFSI even if they decide not to act for a person they know, or have reasonable cause to suspect, is a designated person.
Firms are also required to report breaches of sanctions legislation to OFSI if they know, or have reasonable cause to suspect, that someone:

  • has committed an offence under the financial sanctions and asset freezing regimes or
  • is a designated person listed in OFSI’s consolidated list of financial sanctions targets

Firms are required to contact OFSI even if they decide not to act for a person they know, or have reasonable cause to suspect, is a designated person
It should also be noted that OFSI operate a general license scheme which govern certain situations – details of which can be found here

Firms are also required to report breaches of sanctions legislation to OFSI if they know, or have reasonable cause to suspect, that someone:

  • has committed an offence under the financial sanctions and asset freezing regimes or
  • is a designated person listed in OFSI’s consolidated list of financial sanctions targets

Information on how to do this can be found on the UK Government website.

Legal professional privilege - you do not have to report information protected by legal professional privilege although you must be able to show and document clearly why you believe LPP applies. Privileged status may be challenged by Office of Financial Sanctions Implementation (OFSI).

Suspicious Activity Reports (SARs) are a crucial part of UK law enforcement and are a legal obligation for those working in the regulated sector. Any suspicious activity must be reported to the NCA via the SARs process.

Over and above OFSI reporting requirements, you should consider whether you have a suspicion of money laundering or terrorist financing which requires a report to the National Crime Agency (NCA) and can find further information and guidance on our website.

Should a Practice submit a SAR in relation to Russian sanctions violations, they should use the SAR Glossary Code "XXSNEXX", which relates to suspicious activity consistent with money laundering and linked to entities sanctioned by the UK, US, EU and other overseas jurisdictions as a result of the Russian invasion of Ukraine.

Sanctions Guidance

Email: ofsi@hmtreasury.gsi.gov.uk
Telephone: 020 7270 5454.

Sanctions Lists
Broader Anti-Money Laundering Guidance:

Suspicious Activity Reporting Guidance

Since the introduction of severely restrictive sanctions against Russian interests, law enforcement have noted instances where current and potential future sanctioned individuals or entities have appointed or moved ownership of assets to non-sanctioned parties in order to circumvent sanctions restrictions.

These appointments could be to business associates, friends or family members for example, thus the sanctioned party can maintain indirect control of assets through voting rights, influence or relationships. Please refer to OFSI Guidance for assistance with ownership and control thresholds. Generally, an entity is owned or controlled directly or indirectly by a person in any of the following circumstances: the person holds (directly or indirectly) more than 50% of the shares or voting rights in an entity; the person has the right (directly or indirectly) to appoint or remove a majority of the board of directors of the entity; or it is reasonable to expect that the person would be able to ensure the affairs of the entity are conducted in accordance with the person’s wishes.

Law enforcement have also noted instances where assets are being moved through or to jurisdictions where Russia-related sanctions regimes are not in place, or are less restrictive, in order to circumvent Western sanctions prohibitions. Such jurisdictions may include Turkey, United Arab Emirates (including Dubai), Cyprus and former Soviet Bloc states.

If you suspect any of the above activity, you should consider submitting a Suspicious Activity Report in line with your reporting obligations and also consider reporting or liaising with OFSI. More information on reporting a breach to OFSI can be found here.

OFSI Webinar on UK sanctions related to Russia

The Office of Financial Sanctions Implementation is inviting you to attend a webinar hosted by UK government officials to help you understand recent changes to UK sanctions relating to Russia.

Law Society of Scotland statement on Ukraine

The Law Society of Scotland condemns the use of force by Russia against Ukraine. International Law is clear that such actions are both legally and morally reprehensible. The invasion of Ukraine is an egregious breach of the rule of law and we support lawful action that will help bring this terrible conflict to an end as swiftly as possible.

The Law Society of Scotland emphasises the active role the legal profession must play in sanctions against Russia

The Scottish legal sector must be alert to the implications of the current crisis and has a shared responsibility to comply with UK Government sanctions and present a united front against Russia’s violations of international law.

Resolution on Ukraine and international rule of law

The Society's Council passed a resolution on Ukraine and international rule of law when it met today. Friday, 4 March 2022, which condemned the ongoing illegal invasion of Ukraine by Russian forces.