On 8 August 2017 new regulations will come into effect in the UK imposing enhanced sanctions reporting obligations on professional service providers.
There are some variations across the regimes, but in general the current regulations implementing targeted asset freezes against individuals and entities designated under UK sanctions regimes provide that a relevant financial institution must inform HM Treasury "as soon as practicable" if it knows or has reasonable cause to suspect that a person is a designated person or has committed an offence in relation to the asset freezing measures, and the information on which the knowledge or suspicion is based came to it in the course of carrying on its business.
The European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017 (2017 Regulations) extend these reporting obligations to "relevant businesses or professions" operating in the UK, including:
- External accountants
- Independent legal professionals
- Tax advisers
- Trust or company service providers
- Dealers in precious metals and stones
- Estate agents
The Explanatory Memorandum notes that the change in policy has been implemented in order to meet best practices set by the Financial Action Task Force.
As part of the notification process, the business or professional will be required to tell HM Treasury the information or other matter on which its knowledge or suspicion is based, any information it holds about the person by which the person can be identified, as well as, where the person is a customer, the nature and amount of funds or economic resources held by it for the customer at the time when it first had the knowledge or suspicion.
Failure to comply with these reporting requirements will be a criminal offence liable on summary conviction to imprisonment for up to six or twelve months (depending whether the conviction occurs in England and Wales, Scotland or Northern Ireland), or a fine not exceeding £5,000, or both.
The Office for Financial Sanctions Implementation has not yet published guidance on these new requirements, so it is not yet clear exactly how they will interact with regulatory and professional duties, including duties of confidentiality, and legal professional privilege. Many UK sanctions regulations already contain an express exemption to the reporting and information obligations, such that a law firm or counsel is not required to disclose any information which is protected by legal professional privilege. The application of the requirements to other "relevant businesses and professions" will need to be assessed on a case by case basis. Businesses will need to ensure that all relevant workstreams and units are aware of the extent of the obligations, and that appropriate policies and escalation/reporting procedures are put in place.
Our specialist trade compliance team stands ready to assist businesses which wish to know more about these new reporting requirements, or to advise professional providers wanting guidance on how these requirements might work in practice and what action they will need to take to ensure compliance.
In addition to these new reporting requirements, the Government's response to the public consultation on the UK's future legal framework for imposing and implementing sanctions is expected soon, and then in due course the draft text of an International Sanctions Bill. As things stand, it is not expected that there will be major divergences, at least in the short term, between existing EU sanctions regimes and the UK's independent sanctions policy. However, in a House of Commons debate on 19 July 2017 the UK Government made a welcome commitment to "improve current practice where we can", such as by issuing more guidance to UK businesses affected by sanctions and to use its flexibility to issue more general licences, for example for humanitarian purposes, in order to cut bureaucracy. For timely updates and insight into these developments, please contact the author.