Anti-money laundering

UK sanctions regime

Guide

19 Sep 2024

14 minutes read

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This guide to the UK sanctions regime sets out information on the criminal offences under the regime, how to carry out a risk assessment, the sanctions lists and your reporting obligations.

This guide covers:

the UK sanctions regime
criminal offences under the regime
doing a sanctions risk assessment
checking clients against sanctions lists
high-risk jurisdiction lists
the 'control' test
acting for a client on the sanctions list
OFSI
OTSI
sanctions on Russia
resources

SRA letter to unregulated firms on financial sanctions

The Solicitors Regulation Authority (SRA) wrote to 1,000 firms not regulated by the Money Laundering Regulations 2017 (MLRs) about compliance with the UK’s financial sanctions regime.

Amy Bell, chair of our Money Laundering Task Force, sets out how we're supporting firms on financial sanctions.

The UK sanctions regime

The UK sanctions regime can apply to persons and entities where the UK government has:

imposed sanctions unilaterally
implemented sanctions imposed by the United Nations (UN)

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.

The sanctions regime imposes serious and extensive restrictions on dealing with people who are listed. Under the legislation, they’re referred to as “designated persons”.

The law restricts you from:

receiving payment from or making funds available to persons on the sanctions list
dealing with their economic resources
making even legitimate payments to those persons

In February 2024, the UK government published its first sanctions strategy: deter, disrupt and demonstrate.

The strategy sets out how sanctions are used as a foreign and security policy tool.

Criminal offences under the sanctions regime

The Terrorist Asset Freezing etc. Act 2010 created a series of criminal offences. It prohibits:

dealing with the funds of designated persons
making funds, financial services or economic resources available, directly or indirectly, for the benefit of designated persons

Additionally, you must not knowingly and intentionally participate in activities that would directly or indirectly circumvent these financial restrictions or enable or facilitate the commission of any of the above offences.

A consolidated list of designated persons is available on GOV.UK.

You can act for someone who’s on the sanctions list, but you must have a licence from the Office of Financial Sanctions Implementation (OFSI) in advance of engaging in any dealing with funds or economic resources, including being paid your fees or any funds on account.

Where a specific licence is needed, OFSI strongly encourages firms to apply for a licence in advance of providing substantive legal services, to have certainty as to the fees that will be recoverable.

If a general licence applies to your work, you should make sure you comply with any conditions under that licence.

Doing a sanctions risk assessment

When you carry out your firm’s anti-money laundering (AML) risk assessment, you should consider how likely it is that your clients may be on the sanctions lists.

It’s difficult to categorise the clients that may need to be checked simply by their nationality or country of residence.

UK nationals and UK residents can be on the sanctions lists, so you may still be at risk even if you only act for local clients.

The regimes list can help you assess risk but bear in mind there may be some retainers where it’s not immediately apparent that a person or entity may have some connection to a relevant regime.

You cannot limit your risk assessment to the work regulated under the Money Laundering Regulations 2017.

Examples of unregulated work that the sanctions regime may affect include:

payment of personal injuries settlements
property settlements following a divorce

You’d also need a licence from OFSI to use legal aid payments for the benefit of a person on the list.

Checking clients against sanctions lists

You may apply a risk-based approach to setting up a system that checks your clients against the sanctions lists.

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
clients or transactions involving politically exposed persons (PEPs) from jurisdictions subject to sanctions
clients or transactions involving complex corporate structures in jurisdictions with high terrorist financing risks
clients who seem unable to receive funds or send funds from a bank account in their name, for no good reason

If your firm has a low general risk of working for clients on the sanctions list, but individual clients have higher risks, you can check directly against HM Treasury’s consolidated list by pressing Ctrl+F to do an in-page search.

If a client comes up as a possible sanctions match, you should review all the client identity information you hold against the sanctions list, to make sure you do not have a false positive identification.

The UK sanctions list includes information on:

name
date of birth
nationality
passport or identity card numbers
last known address

If your firm has a higher risk of dealing with clients on the sanctions list, you may want to use an e-verifier. These services incorporate the sanctions list into the databases they use to check identity information.

If you have a high risk of dealing with clients on the sanctions list, you should also have processes in place to help you find out whether key beneficial owners, or the intended recipient of funds from a transaction you’re undertaking, are subject to the restrictions.

Sanctions and high-risk jurisdiction lists

You can check individual clients against the sanctions lists.

There are also lists of regimes to which financial sanctions have been applied that may provide some assistance in assessing the risk.

Selected sanctions lists

UK – HM Treasury’s consolidated list

UK financial sanctions targets by regime

EU sanctions list

EU regimes sanctions list

UN sanctions list

US sanctions lists

High-risk jurisdictions lists

UK high-risk third countries for AML purposes

Financial Action Task Force (FATF) high-risk and other monitored jurisdictions

Transparency International corruption perceptions index

The 'control' test: NBT v Mints

We published a joint note with the Bar Council on the sanctions 'control' test in light of the Court of Appeal judgment in NBT v Mints [2023] EWCA Civ 1132.

The note was prepared before the High Court's judgment in Litasco SA v Der Mond Oil and Gas Africa SA [2023] EWHC 2866 (Comm) and the publication of the UK government guidance on ownership and control: public officials and control.

These provide some additional guidance relevant to the assessment of control issues, although the substantial uncertainty highlighted in the join note still remains.

With the Bar Council, we are actively engaging with OFSI and other stakeholders and have offered our assistance in developing a framework that provides greater certainty and clarity.

Download our sanctions 'control' test note (PDF 168 KB)

Acting for a client on the sanctions list

If you decide you still want to act, you’ll need to have for a licence from OFSI in advance of engaging in any dealing with funds or economic resources.

You must:

consider whether the work you have been asked to do is permissible from a sanctions perspective
in respect of your fees, consider whether a general licence applies and, if not, contact OFSI to get a licence to deal with the funds
consider whether you have a suspicion of money laundering or terrorist financing which requires a suspicious activity report to the National Crime Agency (NCA)

The last point is important because the sanctions regime applies in addition to reporting obligations under anti-money laundering and counter-terrorist financing legislation, including the 2011 regulations.

For example, you’ll need to consider whether to apply enhanced due diligence measures when dealing with a person or entity from a high-risk third country.

There may be circumstances where a report to the NCA is not required. For example, a person on the sanctions list may be suspected of terrorist involvement but may not have received a benefit from, or been involved in, raising funds for those activities.

The transaction they may be asking you to undertake could have no involvement with their alleged terrorist activities: for example, a divorce or personal injury claim.

Even where you’re satisfied you do not need to make a report to the NCA, you must not deal with the resources of the designated person without OFSI’s approval.

You can discuss the person’s sanctioned status with them without being concerned about tipping off, as the sanctions list is public information.

Apply for a licence from OFSI

Disclosure of documents to a third party

In Aercap Ireland Ltd v AIG and others [2024] EWHC 144 (Comm), the High Court considered whether disclosure of reinsurance documents from a reinsurance broker (a third party) would break UK sanctions because some of the insurers were Russian entities.

Butcher J held it would not breach the Russia sanctions regulations (regulations 28 to 29A).

Compliance with a court order to disclose the documents would not constitute the provision of financial services, reinsurance services or any other service, but would be obedience to an order of the court.

Even without an order disclosure, this would not be a sanctions breach.

Office of Financial Sanctions Implementation (OFSI)

OFSI has the power to grant licences exempting certain transactions from the financial restrictions. It considers requests on a case-by-case basis, to make sure there’s no risk of funds being diverted to terrorism.

It has also issued general licences that govern certain situations, such as the use of legal aid payments.

You must contact OFSI even if you decide not to act for a person you know, or have reasonable cause to suspect, is a designated person.

These changes were introduced by the European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017.

The requirements apply to all practices, not just those regulated for AML purposes.

Under the requirements, an independent legal professional is defined as “a firm or sole practitioner who by way of business provides legal or notarial services to other persons, when providing such services”.

You’re required to make a report to OFSI if, because of information that has come to you in the course of your practice, you 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

If you fail to notify OFSI, you’re committing a criminal offence. However, the obligation only applies in respect of information received by relevant businesses on or after 8 August 2017.

What you must report

You must provide:

the information or other matter on which your knowledge or suspicion is based
any information you hold about the relevant person by which they can be identified
(where relevant) the nature and amount of funds or economic resources you hold for the relevant person

Find out more about how to make a report to OFSI

Legal professional privilege

You do not have to report privileged information.

However, you’ll need to state clearly whether privilege applies and what information it applies to. Blanket statements of privilege could be challenged.

Office of Trade Sanctions Implementation (OTSI)

In December 2023, the UK government announced the creation of OTSI to:

investigate potential breaches of UK trade sanctions
issue civil penalties
refer cases for criminal enforcement

In September 2024, the Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 were laid.

The legislation grants OTSI civil enforcement powers to enforce trade sanctions.

OTSI's remit covers:

the provision or procurement of sanctioned services
moving, making available or acquiring sanctioned goods outside the UK
transferring, making available or acquiring sanctioned technology outside the UK
providing ancillary services to the movement, making available or acquisition of sanctioned goods outside the UK
providing ancillary services to the transfer, making available or acquisition of sanctioned technology outside the UK

OTSI’s enforcement powers come into force on 10 October 2024.

Read the statutory guidance on the civil enforcement guidance

UK trade sanctions are administered by the Export Control Joint Unit (ECJU) under the Department for Business and Trade.

Sanctions on Russia

This sanctions regime is aimed at encouraging Russia to cease actions destabilising, undermining, or threatening the territorial integrity, sovereignty or independence of Ukraine.

The services and goods export bans are targeted at vulnerable sectors of the Russian economy.

The sanctions prohibit (among other things):

direct and indirect provision of auditing, advertising, architectural, engineering, and IT consultancy and design services
transactional legal advisory services
provision of trust services
dealing with securities or money market instruments and loans and credit arrangements

The Russia (Sanctions) (EU Exit) Regulations 2019 came fully into force on 31 December 2020. The regulations are intended to ensure that sanctions relating to Russia continue to operate effectively.

The regulations have been amended multiple times.

Make sure you are considering the most up-to-date version: the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023.

The amendments came into force on 26 September 2024.

The explanatory notes state:

"They amend the prohibition of certain legal advisory services to clarify the knowledge a person must have before the prohibition applies.

They extend the exceptions to the prohibition to ensure that advice on compliance with the law and related advice is not caught by the prohibition, and amend the definition of legal advisory services."

Persons designated under this regime are included on the UK sanctions list.

Check the UK sanctions list

A Law Society spokesperson said: "Law firms withdrew from the Russian market at pace following the invasion.

"Any UK government proposals should be delivered in lockstep with international partners such as the US and EU.

"It is important that firms are able to continue to give advice to those looking to divest from the Russian market."

OFSI general licence for payment of legal fees: Russia and Belarus

Legal fees owed by individuals and entities designated under the Russia and Belarus sanctions regimes are permitted under general licence INT/2024/4671884 (provided they meet the terms of the licence).

The Office of Financial Sanctions Implementation (OFSI) general licence runs from 29 April 2024 and will expire at 11.59pm on 28 October 2024.

It replaces the previous general licence (INT/2022/2252300), which expired on 28 April 2024.

General licence INT/2024/4671884 is made up of:

Part A: fees and expenses incurred pre-designation
Part B: fees and expenses incurred post-designation

Key changes to the general licence include:

resetting the professional legal fees and expenses cap, so fees and expenses incurred under the expired general licence will not count towards these
greater clarity that:
- it may be used to start paying or receiving fees and/or expenses in cases where the total fees and/or expenses will exceed the relevant caps. A specific licence will still be needed for any fees or expenses which exceed the capped amounts
- the two legal fees caps (pre- and post-designation) can be combined, subject to the terms of the licence being met
legal fees and expenses for cases involving defamation or malicious falsehood are not covered. A specific licence must be obtained if these services are to be offered to a designated person and there will be a presumption against this being granted

Reporting and record-keeping requirements have not changed.

Designated person reporting requirements

OFSI has published information on the reporting requirements for designated persons under the Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2023, outlining that:

relevant firms must inform OFSI of any funds or economic resources they hold for:
- the Central Bank of Russia
- the Russian Ministry of Finance, or
- the Russian National. Wealth Fund
designated persons are required to proactively provide details of their UK assets to OFSI (or their worldwide assets if they are UK persons) subject to a bespoke penalty threshold

The reporting obligations came into force on 26 December 2023.

It is an offence for a designated person to, without reasonable excuse, fail or refuse to comply with this obligation.

It is also an offence to, knowingly or recklessly, give information that is false in a material particular.

Designated persons who are a “United Kingdom” person within the meaning of section 21(2) and (3) of the Sanctions and Anti-Money Laundering Act 2018 are required to disclose:

any funds or economic resources they own, hold or control, and
the nature, value and location of those funds or economic resources

regardless of where in the world they are located.

Designated persons who are not a “United Kingdom” person are required to report under regulation 70A(2) the nature, value and location of the UK funds and economic resources.

The initial report must be provided within 10 weeks, whichever is later, of:

the date the legislation comes into force (26 December 2023), or
the date of designation

The report should reflect the nature, value and location of the person’s funds and economic resources at the relevant date.

Any later change in financial circumstances must be reported to OFSI as soon as practicable.

Designated persons must report any funds or economic resource if the value exceeds £10,000.

If multiple funds or economic resources of the same type – for example, bank accounts, art or jewellery – taken together exceed £10,000, this must also be reported.

OFSI can impose strict liability civil monetary penalties for breaches of regulation 70A.

The government intends for this measure to be extended to the Belarus regime in “early 2024”.

Read OFSI’s blog on the reporting requirements and financial sanctions FAQs.

SRA guidance on complying with sanctions

The SRA has published guidance covering:

financial sanctions
anti-money laundering
strategic litigation against public participation (SLAPPs)
continuing to act for clients

The guidance highlights that the SRA is "commencing a process of spot checks on firms to assess compliance with the financial sanctions regime".

It's important that all firms ensure that they immediately review their policies, controls, procedures and sanctions compliance.

Take a look at the SRA's guidance on the Russian conflict and sanctions

The SRA published further guidance on complying with UK sanctions in November 2022.

The guide aims to help solicitors and firms comply with the financial sanctions regime. It includes high-risk areas and a framework that firms can put in place to make sure they're compliant.

You should remember that the sanctions regime applies to all firms – not just those that offer services in scope of the Money Laundering Regulations 2017.

SARs glossary code for sanctioned Russian entities

The UK Financial Intelligence Unit has introduced a suspicious activity reports (SARs) glossary code, XXSNEXX, to use where you suspect activity is:

consistent with money laundering, and
linked to entities sanctioned by the UK, EU, US and other overseas jurisdictions as a result of the Russian invasion of Ukraine

The Economic Crime (Transparency and Enforcement) Act has removed the knowledge test from breach offences.

A breach offence will be committed regardless of whether a person had a reasonable basis of suspicion that they were dealing with a frozen asset. This is a shift to the US Office of Foreign Assets Control model of enforcement.

You must report frozen assets and suspected breaches to the Office of Financial Sanctions Implementation using the compliance reporting form.

Non-voluntary breach disclosures will result in larger monetary penalties.

Indicators of sanctions evasion risk

Russian clients communicating changes to the beneficial ownership of their private investment companies (PICs) to non-Russian or dual national family members
Requests to transfer assets between Russian national/dual-national family members
Use of trust arrangements, with circumstances of transfers calling into question whether the original owner retains indirect control or otherwise could retain a benefit from the assets transferred
Assets transferred have usually been shares in companies, both UK and overseas, including both minority and controlling stakes in these businesses
Payments from venture capital and private equity vehicles, many located in offshore jurisdictions or the far east
Clients seeking to move all their assets to other financial institutions and closing their accounts in London
Clients domiciled in Russia asking whether they can make transfers to their London account
Attempts to purchase sanctioned Russian securities, which have drastically fallen in price
Increased volume of transaction monitoring alerts resulting from Russian and Ukrainian clients making and receiving larger transfers than is typical
Payments received by UK businesses, often in innovative areas, also with some elements of ownership by Russia nationals
Payments via a fintech with Russian investor nexus
Research on private equity/venture capital vehicles and some people with significant control/officers of UK businesses showing individuals connected to Russian industry previously subject to sectoral sanctions and on occasion politically exposed persons (PEPs)
Russian high net worth individuals who are already on international sanctions lists (but not UK list) and/or who anticipate that they may become a sanctions target, transferring assets to family members and/or close associates such as employees
Change in address and names for Russian entities one day prior to invasion
Change of ultimate beneficial owners from Russian to other nationalities
Circumvention attempts through open account trade-based money laundering (TBML) typology – for example, increase in third-party open account payments
Purchase, sale, storage or transfer of ownership of artwork or cultural property – see the NCA warning (PDF)

In May 2024, the Royal United Services Institute (RUSI) published analysis of the common services that professional enablers provide to sanctioned individuals. This included:

obscuring ownership through shell companies and through client proxies
channelling funds into desirable assets including real estate, artwork and precious minerals
diluting ownership stakes to avoid thresholds

RUSI identified 12 recommendations to help sanctions achieve their desired results.

Read RUSI's recommendations