UK Sanctions Fine Highlights Russia Compliance Risks, Law Firm Says
The U.K.'s $400,000 fine in July of a British management services firm for violating Russia sanctions (see 2507310042) shows that merely having a sanctions compliance program may not be enough to mitigate a fine, Steptoe said in a client alert.
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Although the company, Markom Management Limited (MML), had some sanctions policies in place, the U.K. found them "inadequate" because they didn't cover the sanctions risks posed by the "cross-border working practices" between Markom and Markom Management Cyprus, one of its affiliates, the law firm said.
The issue stemmed from a payment made by one of Markom Management Cyprus' Cypriot clients -- who was a former client of MML -- and a person who was sanctioned by the U.K. The payment wasn't blocked by U.K. law because MML wasn't involved in the transaction.
But MML was brought into the deal after it was informed that the transaction included an overpayment of 33,000,000 Russian rubles, or about $411,000, Steptoe said. MML was asked to help because some of its employees remained in contact with their former Cypriot client because of their "ability to communicate in Russian."
MML helped with the overpayment by ordering Russia-based Gazprombank to transfer the overpaid amount from their former Cypriot client's account to the account of the sanctioned person. "When the transfer was executed, the overpayment repayment made funds directly available to the designated person in breach of the Ukraine Regulations," Steptoe said. "In its desire to make the payment quickly, MML did not appreciate the sanctions risk associated with the transaction."
The law firm said the case highlights that sanctions procedures "need to be fit for purpose," including to protect against scenarios like this.
"Having sanctions policies and procedures in place will not necessarily be considered a mitigative factor by OFSI when assessing a breach if they do not appropriately address the sanctions risks that a business faces," Steptoe said. "In MML’s case, its sanctions compliance controls did not address the risks posed by its informal, transnational working practices."