A moving target

Targeted financial sanctions are wide-ranging, and changes can be fast-paced as political events unfold. Currently, all eyes are on the United States and the tumultuous first 100 days of a second Trump presidency. 

Since the invasion of Crimea in 2014, the focus of US and UK sanctions regimes has been on Russia and, latterly, Belarus. As Trump makes overtures to Putin (including hinting at plans to give Russia sanctions relief), will targeted financial sanctions endure against Russian leaders, banks and oil companies?

We may see a divergence between US sanctions and those emanating from the UK, Canada and the European Union. Note that the United Nations (UN) has never been a source of sanctions against Russia, since it retains a permanent seat on the UN’s Security Council and a veto. 

Regime change in Syria also brings the potential for another unwinding of sanctions, depending on the composition and outlook of its new government. 

Other parts of the world present threats as well. Will China pursue an expansionist agenda in Taiwan, as Trump eyes Greenland and the Panama Canal? How will the global West react to China and will financial sanctions play a part? Whatever the new targets of financial sanctions, the UK mechanism for implementing them remains the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), introduced following Brexit.

In an era of volatile geopolitics, it’s important to remember that Iranian, North Korean and other sanctions regimes still exist, as well as various anti-terrorism sanctions. The US, UK and EU lists might well diverge further with a radical new government in Washington for the next four years. 

UK sanctions

In the UK, the foreign secretary David Lammy’s key promise in January 2025 was that “the UK would be the first country in the world to bring forward legislation to develop a new sanctions regime targeted at organised immigration criminal gangs”. The minister told the BBC that measures would involve freezing the bank accounts and assets of those who help to get people into the UK illegally, as well as travel bans. His pledge to introduce legislation does not necessarily mean primary legislation – regulations could be laid under SAMLA. 

What happens if you act for an entity where you suspect designated persons may be pulling the strings? Is that entity caught by sanctions? The vexed question of “ownership and control” of entities by designated persons was analysed fully in the case of Mints & Ors v PJSC National Bank Trust & Anor [2023] EWCA Civ 1132 providing clarity on the meaning of “control”. Although Litasco and Heller adopted a more realistic approach, the very existence of two contradictory lines of reasoning sowed doubt and anxiety in the minds of those working assiduously to stay within the rules. Further news is awaited from the Supreme Court in Mints. The identification of which entities are subject to the UK sanctions regimes – in particular targeted asset freezes – is of fundamental importance to practitioners who should be wary of dealing with sanctioned clients and counterparties. 

In a significant change, the Office for Trade Sanctions Implementation, a new agency, is now responsible for civil enforcement of trade sanctions, whereas HM Revenue & Customs retains responsibility for criminal enforcement. The Export Control Joint Unit will continue to manage licences for goods and ancillary services, as well as administer export controls and licensing for military and dual-use items. Potentially this creates more confusion as to which agencies are responsible for what parts of the sanctions landscape. 

Exposure to sanctions

Practitioners can be presented with stark decisions to make when confronted with sanctions. If your client is a ‘designated person’ (DP), meaning their name or entity appears on the UK sanctions list, you must stop dealing with and freeze their assets and make a report to the Office of Financial Sanctions Implementation (OFSI). You cannot refund or reverse any transactions. As ever, there are exceptions to this rule that should be resolved with reference to OFSI guidance or specialist advice. An overview is given later in this article. 

Practitioners should maintain a distinction between criminal and regulatory obligations. As an example, there are defences available to purely criminal allegations, but they will not help you avoid a monetary penalty from OFSI. Further, while it is no defence to a crime to demonstrate you have taken a risk-based approach generally, this may be enough to meet regulatory requirements and provide mitigation of an OFSI fine. 

Practitioners may need to consider recent case law as to what constitutes “reasonable cause to suspect” that there has been a sanctions breach, leading to a risk of criminal or civil penalties. In Vneshprombank LLC v Bedzhamov [2024] EWHC 1048 (Ch), the summary of the “reasonable cause to suspect” concept is very useful. This effectively guides businesses to take a common-sense approach and stop acting where a reasonable person would (not “could”) conclude the counterpart was a sanctioned person. The new analysis is also an improvement on OFSI guidelines which state this is “an objective test that asks whether there were factual circumstances from which an honest and reasonable person should have inferred knowledge or formed the suspicion” (UK financial sanctions general guidance, updated 16 May 2024 at para 3.1.2.).

Note too that current sanctions law is not restricted to designation and public law challenges. There can be, for instance, landlord and tenant implications where one party is a DP. A linked topic is seizure of goods by HM Customs / Border Force, such as for alleged breach of trade sanctions in regards to exports to Russia. 

Potential criminal offences include ‘circumvention’, as well as fines for breach of sanctions and possible civil penalties. Frozen funds and client accounts should be scrutinised to avoid pitfalls. Obligations on reporting asset freezes are another concern for firms to mitigate. 

Complying with sanctions

Firms should consider whether they have sufficient training and resources to understand:

• the key steps to take in a sanctions emergency if you realise a client or counterparty is a DP
• the distinctions between types of sanctions and how to navigate criminal law, civil monetary penalties and the regulatory requirements
• when and how to make reports to OFSI 
• how to effectively apply for licenses from OFSI 
• maintaining clarity on the difference between OFSI and SARs reporting obligations, and
• how to give your clients practical advice for commonly occurring sanctions problems (such as where a landlord is a DP and is asking how rent can be used to maintain the property without breaching sanctions). 

Sanctions emergencies

By way of general guidance, if the person you are dealing with is a DP, you must:

• stop acting for or dealing with them
• freeze their funds and assets, and
• lreport the fact of the asset freeze to OFSI by email.

The practical implications are that you must:

• stop all activities with the DP until it has been confirmed they can be resumed
• not refund or reverse any money or transfers
• make any internal reports required under your sanctions compliance systems and controls, such as to your nominated officer / money laundering reporting officer / compliance officer for legal practice
• consider precisely which activities are prohibited under the relevant sanctions regime and refer to the most recent version of the legislation imposing the sanction
• freeze all funds held in relation to that DP where sanctions are imposed that include an asset freeze 
• not deal with any funds or make them available to or for the benefit of the DP, or undertake any prohibited activities, unless there is a relevant exemption that can be relied upon or a licence to continue dealing with the DP has been granted by OFSI, and
• not engage in actions that, directly or indirectly, circumvent the financial sanctions prohibitions and make any external reports required.

External reporting obligations arise with respect to DPs, so checks should be made to confirm whether the obligation arises in an individual case. Most UK sanctions regimes, such as Russia and Belarus, impose a requirement on relevant firms to inform OFSI, as soon as practicable.

You should also alert and train staff to remember that there are different forms to report a sanctions breach, distinct from when you file a suspicious activity report (SAR).

Finally, you can tell your client you are freezing and reporting. There is a key distinction here: you must never tell your client if you file a SAR when you suspect money laundering, as ‘tipping off’ in this regard is a criminal offence. By contrast, there is no such prohibition on discussing the sanctioned status of anyone, or its consequences, as DP status is a matter of public record.

Sanctions are a complex area in constant flux and you should refer to OFSI guidance and specialist advice as necessary.