Clifford Chance

On 26 November 2024, the Treasury Select Committee ("TSC") heard oral evidence from the Office of Financial Sanctions Implementation ("OFSI") including regarding its current enforcement strategy in relation to financial sanctions.

OFSI's Recent Expansion

This oral evidence session provided an overview of OFSI's role in enforcing the UK's financial sanctions regime, with a particular focus on its actions following the Russian invasion of Ukraine in February 2022. Giles Thomson (Director of Economic Crime and Sanctions at HM Treasury) along with Beth Davies and Chris Watts (both Deputy Directors at OFSI), discussed OFSI's recent growth and the challenges it faced in enforcement.

Since February 2022, OFSI has expanded significantly, tripling its headcount to around 150 individuals. It has also since established an internal intelligence unit, which supports OFSI's work and ensures it is "piecing together the intelligence picture, threats and vulnerabilities". This growth reflects the increased complexity and workload OFSI faces in its implementation of the UK's financial sanctions regime. Currently, OFSI's caseload consists of approximately 400 open cases and Mr Thomson advised that we should expect to see further enforcement cases of both a "wider range and higher value" in the coming months.

Enforcement Challenges

OFSI has faced some criticism in the past for the pace and outcomes of its enforcement actions. Mr Thomson reported that the average investigation lasts around 27 months and acknowledged that only a "single-figure percentage" of cases under investigation result in a public disclosure or a civil monetary penalty, with relatively low fines (total of £45,000 in 2022-23) issued to date. OFSI issued 17 private warning letters last year and reported that the figure will be similar this year, but in the "vast majority of cases", OFSI takes no further action.

Mr Thomson emphasised that OFSI focuses most of its resources on the higher-priority cases that are most likely to lead to a warning letter, a public disclosure or a civil monetary penalty. Ms Davies said that some of those may be low value cases but ones which had important messaging for industry.

Mr Thomson also discussed OFSI's appetite to explore innovative approaches to enforcement in order to potentially trim the length of its investigations. He referred to the FCA's fine on Starling Bank, an outcome which the FCA achieved in 14 months, as a case OFSI is looking to learn from. Mr Thomson also stated that OFSI is looking closely at settlement approaches that involve more negotiation with the accused to try and short-circuit the process, perhaps similar to an upfront settlement model often used by other UK authorities and in some other jurisdictions.

A past criticism made of OFSI, which Mr Thomson recognised, was that "[OFSI] goes after those who voluntarily disclose information to us, rather than the real bad actors". In response to this, he cited the recent case of Integral Concierge Services Ltd as one in which OFSI was “proactive” and identified the sanctions breaches through its own information sources. Mr Thomson said he felt the monetary penalty issued in that case sent an important signal to the industry that OFSI is capable of targeting those who do not voluntarily report.

OFSI also signalled that cases of wilful intent to circumvent, evade or breach sanctions would typically cross the threshold for criminal investigation and enforcement and that those cases would be referred to the National Crime Agency.

Key Takeaways

Overall, this TSC session provided some interesting insights into OFSI's operational approach and strategic priorities as it navigates the post-February 2022 sanctions enforcement landscape. In particular, it confirmed OFSI's strong desire to increase enforcement and to explore new enforcement approaches to improve both the length of its enforcement investigations, and their final outcomes.