Earlier this month, two individuals were sentenced for breaches of Russian linked financial sanctions for the first time ever in the UK. Both Russian nationals, they were found guilty of eight counts of breaching financial sanctions and two counts of money laundering, and sentenced to 40 months’ imprisonment and 15 months’ imprisonment suspended for 15 months respectively.
The European Union sanctions predate the invasion of Ukraine. One of the convicted was a former Governor of Sevastopol, in Russian occupied Crimea. When the UK left the EU, he remained a designated person within the sanctions regime for this country; hehas been so from November 2017 to the present day. However, in the time between opening an account with an unsuspecting bank and having it frozen when his status was recognised, money was spent in London shops, in a luxury car dealership, and for paying school fees.
Milan based researcher Transcrime says European companies, including those in the UK, are at risk of unwittingly becoming part of sanctions breaches. Small and medium sized enterprises (SMEs), in particular, are exposed because lack the necessary tools and security infrastructure to recognise potential trouble. Larger companies have been better able to set up automated adaptation systems following the speedy introduction of a sanctions framework.
From next month, insolvency practitioners, alongside banks, accountants (which many of us are, too), lawyers, estate agents and even crypto agents, will have to report to the Office of Financial Sanctions Implementation (OFSI) any reasonable cause to suspect that: a person is a ‘designated person’ under the UK’s Russia (Sanctions) (EU Exit) Regulations 2019 – i.e. a UK asset freezing target; that a person has breached the UK’s sanctions regimes, perhaps transacting with a designated person; and to provide the information supporting such knowledge. If a designated person reported is a client, IPs will also be required to report any frozen assets of that individual that they hold.
Reporting may not be necessary if an IP acquires such information while engaged in other business, possibly acting as a receiver, or when undertaking an independent business review. Nonetheless, the onus will be on the IP to seek advice on whether OFSI must be informed.
Sanctions related insolvencies are, arguably, the most complex – and frustrating – of all, since they can severely restrict a Court-appointed practitioner pursuing a timely and constructive process.This is in no small part because sanctions applied to companies for political reasons are rarely, if ever, applied on a case-by-case basis. They are a general economic weapon targeted against certain countries; as such, they impact citizens of those nations who are involved in legitimate businesses in other territories, and will inevitably face asset freezes and operating restrictions from a sanctioning government.
This indiscriminate approach can prove at best harmful, at worst terminal, for perfectly healthy and viable businesses connected (even tangentially) to citizens of sanctioned countries. Look no further than Buchler Phillips’ appointment in 2022 as Administrator to CargoLogicAir.
Recent dynamics in international relations suggest that sanctions are set to remain a key form of government retaliation in times of conflict. Buchler Phillips offers co-advisors, corporates and individuals invaluable experience of navigating the maze of official restrictions to achieve an optimal outcome.
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