HM Treasury’s Office of Financial Sanctions Implementation can now impose penalties for serious financial sanction-breaking.

OFSI can impose penalties of up to £1 million or 50% of the breach in question, whichever is higher.

This new power stems from the Policing and Crime Act. The penalty powers apply to offences committed after 1 April 2017. In 2016, various people told OFSI that they suspected someone of breaking sanctions on more than 100 occasions; 95 of their reports turned out to be correct, with a total of £75 million having gone through.

Monetary penalties are a new way of responding to such offences, although the Government's policy of 'naming and shaming' recalcitrant firms has not been without its effect. The UK observes 27 sanction regimes. It is a criminal offence to break sanctions and the most serious cases could shortly incur prison sentences of up to seven years. This is in line with the Government's policy of increasing sentences throughout the criminal justice system.

OFSI, created on 31 March last year, is the 'competent authority' for financial sanctions in the UK. It will normally publish summaries of cases in which it awarded penalties, the better to encourage compliance and to support 'best practice.' It has publishes guidelines in accordance with its obligation in s149(1) Policing and Crime Act to "issue guidance as to the circumstances in which it may consider it appropriate to impose a monetary penalty under section 146 or 148, and how it will determine the amount of the penalty."

Section 146(1) of the Act allows the Treasury to impose a monetary penalty on a person if it is satisfied, on the balance of probabilities, that: (a) the person has breached a prohibition, or failed to comply with an obligation, and (b) the person knew, or had reasonable cause to suspect, that the person was in breach of the prohibition or (as the case may be) had failed to comply with the obligation.

The ‘balance of probabilities’ is the civil standard of proof and means it is more likely than not that something has happened. A breach does not have to occur on British soil for OFSI to use its authority; there need only be a connection to the UK or a 'UK nexus.'

The Treasury does offer financial firms some comfort here: "We will not artificially bring something within UK authority that does not clearly and naturally come under it. Some breaches of financial sanctions do involve complicated structures or relationships, where a genuine UK nexus exists but is not immediately apparent. In every case, we will consider the facts to see whether the potential breach comes within our authority."

Broadly speaking, the more aggravating factors the Treasury sees, the more likely it is to impose a fine. The more serious the breach, and the worse the conduct of the individuals involved, the higher the penalty.

OFSI will take several factors into account when assessing the seriousness of a case. These include:

• the direct provision of funds or economic resources to someone on a list;
• the intentional circumvention of sanctions;
• the amount of money involved;
• harm caused to the sanction's objectives;
• knowledge of sanctions and compliance systems;
• the way in which each party in a case has behaved;
• failure to apply for a licence;
• professional facilitation of an irregularity;
• repeat offences.

The word 'serious' only appears in the Treasury's notes relating to the first three and the last two; readers can make of this what they will.

Banks, asset managers, family offices and others must report breaches of financial sanctions to OFSI.