HM Treasury's Office of Financial Sanctions Implementation (OFSI) this week announced a fine against Telia Carrier UK Limited for multiple violations of UK sanctions against Syria.
According to the penalty report, Telia facilitated international telephone calls to SyriaTel, an entity subject to a UK assets freeze. This resulted, according to OFSI, in the company "repeatedly making funds and economic resources indirectly available to the designated entity over an extended period of time".
OFSI gained the power to enforce UK sanctions and levy financial penalties on a civil basis in the Policing and Crime Act 2017 (PACA). Sanctions violations that occurred prior to that time may be prosecuted criminally, but are outside of the scope of PACA. Due in some part to the relative novelty of OFSI's civil enforcement powers, we have seen only their limited use. The direction of travel for OFSI's enforcement activity is, therefore, still unclear, but the Telia case provides some useful clues.
- The value of OFSI's penalties is increasing, but calculations are still a mystery
OFSI's first two published enforcement actions – against Raphaels Bank and Travelex, as part of the same set of facts – made news because they were first out of the gate and because of the unexpectedly low figures involved. The quantum of funds at issue - £200 – resulted in fines of £5,000 and £10,000 for Raphaels Bank and Travelex, respectively.
With the Telia action, OFSI demonstrates that financial penalties will be more substantial where warranted. OFSI originally fined Telia £300,000, which was later reduced through the ministerial appeal process (see below). That level of fine hardly matches the largest of OFAC penalties, but it is getting closer: excluding blockbuster fines against three financial institutions, a £300,000 fine would rank ninth among OFAC's fifteen civil penalties thus far in 2019.
Interestingly, Telia's ultimate penalty of £146,341 was based on the value of resources provided being £234,000. In this case, therefore, the maximum penalty was £1 million (potentially per breach, depending on the fact pattern) and, as Telia did not voluntarily disclose the violation, no voluntary disclosure discount. The reduction, therefore, must have been owing to what OFSI found to be a "reasonable and proportionate"1 penalty, but nonetheless based to some extent on the value of the transaction, given that in the ministerial appeal the value of resources was determined to be lower, and so the penalty was also reduced.
Earlier this year, Raphaels Bank was fined £5,000 for a £200 transaction (again, maximum penalty of £1 million) after a 50% reduction for voluntary disclosure. Travelex was fined £10,000 for the same transaction, with no voluntary disclosure discount. The lesson thus far appears to be that OFSI's discretion as to what is "reasonable and proportionate" is at least as important as the value of the funds or resources at issue.
- OFSI is not only interested in financial services
The Telia enforcement action communicates that OFSI's sights are set on both financial institutions and other corporate concerns. Many had expected to see OFSI's first civil enforcement of any size to be against a bank – specifically the as-yet-unreported £10 million fine OFSI is rumoured to have applied to Standard Chartered this summer2 – but the Telia case offers that OFSI's investigations (it has suggested is has more than 100 ongoing3) may potentially cover a broad range of sectors.
Enforcement actions against banks have been a force multiplier in US sanctions enforcement, but OFAC Director Andrea Gacki stressed earlier this month that despite being OFAC's "principal customers", its "jurisdiction is not limited to banks"4 . We note that OFAC has brought enforcement actions against corporates in a range of sectors, in response to a variety of types of compliance failures. OFAC's recent "Framework for OFAC Compliance Commitments" guidance document (see our commentary here) appears in many respects aimed at reinforcing the point that OFAC's reach extends beyond financial institutions.
It is also worth noting OFSI's focus on "economic resources" in this case, rather than on funds transfers. As promised in its "Monetary Penalties for Breaches of Financial Sanctions" guidance, OFSI included in the Telia case notice a "note on compliance" to enable other actors to better adhere to sanctions obligations. In it, OFSI notes that "'economic resources' can cover a wide variety of tangible and intangible resources and can be provided directly and/or indirectly". The extent to which services provided to a designated entity could be considered to be "economic resources" has been the topic of some debate at the EU level. In a 2013 draft of the EU "Best Practices" guidance document, "roaming services to a designated telecommunication company" was specifically mentioned as an example of an "economic resource". In the final version of the guidance, the Council opted to exclude specific examples5, but the definition of "making economic resources available" is broad enough to cover the provision of telephony service indirectly to a sanctioned person, as the OFSI affirms.
- Is the ministerial review process a secondary fact-finding opportunity?
PACA provides a right of ministerial review, which must be taken before appealing to the courts. In OFSI's own guidance, it envisions that the review will take place on the basis of the facts OFSI had at the time:
The ministerial review will not normally be a way of introducing new material, and no further material is required from the person. It reviews the decisions OFSI have taken based on the material we have used to assess the case, after the person has had an opportunity to introduce any material they wish to at the representations stage.6
Despite this, in the Telia case, "Telia Carrier UK Limited provided further clarification of the nature of the transactions which was not available to OFSI when the original penalty was imposed. If it had been, this clarification may have changed OFSI's view of the case…".
It is not clear to the outside observer what happened in this situation, but apparently Telia did not provide (and/or OFSI did not request) information that was material to the disposition of the case during the representations stage. OFSI then imposed a penalty, which was reduced during the ministerial review requested by Telia, on the basis of new information.
- OFSI continues to develop as an enforcement agency, and corporates and financial institutions aware of sanctions breaches will increasingly consider the benefits of voluntary disclosures, as they do with OFAC today.
- Sanctions compliance for non-financial institutions is of growing importance, as OFAC and OFSI have demonstrated their appetite for bringing enforcement actions for violations in a range of sectors, even if as a result of lack of awareness or compliance shortcomings.
- Investigations and disclosures to OFSI should be made with diligence and with appropriate cooperation, in an effort to secure a rapid and satisfactory outcome. Whilst Telia's fine was reduced during the ministerial appeal, it apparently could have enjoyed the same outcome sooner had OFSI had sufficient information during its initial review of the case.
1 "Monetary Penalties for Breaches of Financial Sanctions" at s.4.8, OFSI, May 2018.
2 "Standard Chartered, led by Bill Winters, braced for £10m fine", The Times, 18 August 2019.
3 Cf. "OFSI Annual Review 2018 to 2019" and "OFSI Annual Review 2017-2018", OFSI.
4 "OFAC director: 'Our jurisdiction is not limited to banks'”, Global Investigations Review, 18 October 2019.
5 The most recent version of the document is "Restrictive measures (Sanctions) – Update of the EU Best Practices for the effective implementation of restrictive measures", Doc. 8519/18, Council of the European Union, 4 May 2018.
6 "Monetary Penalties for Breaches of Financial Sanctions" at s.6.5, OFSI, May 2018.