Fast-tracked in response to Russia’s invasion of Ukraine, on 15 March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 (“ECA”) was enacted with substantial implications to the UK’s sanctions and economic crime regime. Designed to improve corporate transparency and combat illicit wealth, the ECA introduces a new public Register of Overseas Entities; expands the remit of Unexplained Wealth Orders and increases the scope of sanctions enforcement and prosecution. 

Part 3: Sanctions reforms

Most significantly, the ECA implements a ‘strict liability’ basis in relation to the imposition of civil monetary penalties. This represents a shift in the UK’s approach to the civil enforcement of sanctions breaches.

Chapter 1 – Monetary penalties 

The Office of Financial Sanctions Implementation (“OFSI”) now has power under s.146 of the Policing and Crime Act 2017 (“PCA”) to impose monetary penalties for financial sanctions breaches by removing the obligation for a person “to have known, suspected or believed” whether they have breached financial sanctions legislation. This effectively enables OFSI to impose penalties which are the greater of 50 per cent of the estimated value of funds or economic resources or £1 million. Where penalties are not imposed, s.149 PCA, allows OFSI to publicly name those who have breached financial sanctions, targeting reputational risks as a further deterrent.

Guidance

UK Finance undertook a review of the ECA to prepare for the implementation of ‘strict liability’ on 15 June 2022. Questions were raised regarding personal liability, anonymity, and protection of company officers, as well as the mitigating and aggravating factors that may be taken into consideration during OFSI’s assessment on how to respond to a potential breach. The regulatory and compliance expectations on how monetary penalties will be calculated also needed to be clearly defined. Guidance is required on what steps or controls amount to “reasonable precautions” and whether the ‘strict liability’ basis will only be enforced in respect of breaches on or after the date of implementation. The ‘strict liability’ regime will not function well with ambiguity in prohibitions and listings which may cause issues around over-compliance.

These developments no doubt will be an uptick in enforcement activities requiring banks to review their compliance framework and make imminent amendments to avoid inadvertent breaches. In the absence of guidance, the full impact is yet to be seen while certain provisions are yet to come in force.

The government has indicated Treasury guidance on penalties is to be finalised before the ‘strict liability’ provision is brought into force on 15 June 2022. 

Next steps

This is a long line of additional financial and compliance burdens, with the ECA not the end of government reforms. The introduction of a second Economic Crime Bill as a “substantial piece of legislation” is due to be set out in 2022. The government will also be introducing reforms outlined in the Corporate Transparency and Register Reform White Paper.  

*This blog is provided for information purposes and should not be construed as legal advice.