UK Updating Sanctions Enforcement to Raise Max Fines, Offer Settlements

The announcement from the country’s Office of Financial Sanctions Implementation came after OFSI sought public feedback for 12 weeks about whether the proposals would help it improve its enforcement and aid companies looking to comply with the agency’s rules (see 2507220056 and 2510090035). Giles Thompson, head of OFSI, said the office has determined that the changes “will support compliance, give firms greater certainty and ensure our approach to enforcing financial sanctions is fair, effective and robust.”

OFSI said the changes will take effect in February except for the increase in max penalties, which needs to first be introduced as legislation in the U.K. Parliament. That change is expected to double the max penalty OFSI can impose for a violation, which will be 2 million pounds (about $2.6 million) or 100% of the estimated value of the breach -- whichever is greater. The max penalty amount is currently the greater of 1 million pounds (about $1.3 million) or half the value of the violation.

This will “strengthen the deterrent effect of penalties and ensure OFSI can respond more effectively and proportionately to the most serious cases we deal with,” the agency said.

In its response to public comments, OFSI said it received mixed feedback about whether it should increase its max penalties. “Many noted it would be unfair,” it said, especially because OFSI rarely reaches the current max penalty of 1 million pounds, and a “doubling could be seen as excessive, especially for smaller firms.” Others argued that higher penalties could “diminish” the benefit of OFSI’s other proposals, including discounts for voluntary disclosures and cooperation with the agency.

The agency also said some commenters supported the idea because it would “enhance deterrence.”

In its response, OFSI said the penalty increase will boost the “deterrent effect of penalties without limiting OFSI’s flexibility to take appropriate and proportionate action.” It stressed that it has discretion to decide penalty amounts.

"OFSI will continue to use its discretion to ensure fines are deployed in a reasonable and proportionate manner on a case-by-case basis, with the highest penalties reserved for the most serious of offences,” it said.

Another change will revise how penalty discounts are applied for companies and others that submit voluntary disclosures or cooperate with OFSI’s investigation. The U.K. currently offers discounts as high as 50% for serious cases and up to 30% for the most serious cases, but OFSI said it now plans to establish a maximum penalty discount at 30%.

Commenters told OFSI this would likely shrink incentives for the private sector to submit disclosures to the agency. But OFSI said it was worried about the “potential negative impact” that a 50% penalty discount would have on penalties, saying it could hurt the “effectiveness of UK’s sanctions regimes.”

It also noted that companies can stack various discounts. For example, a company may be eligible for a 30% voluntary disclosure discount along with a 20% discount for companies that choose to settle a case and another 20% discount for companies that provide OFSI with an “early” and "comprehensive" account of the possible violations.

“In combination, these could reduce a penalty by a maximum of 70%,” it said. “OFSI considered it important to ensure that the Voluntary Disclosure and Cooperation discount remains proportionate when viewed alongside these other incentives.”

In another change, OFSI said it will offer settlements in certain cases, which “could significantly reduce the time it takes OFSI to deliver enforcement action” and decrease the “resource burden for both OFSI and industry.” The agency said organizations and people that agree to a settlement may receive a 20% penalty discount. It said it even considered whether a higher discount might further incentivize settlements, but decided that a settlement discount "any higher than 20% could undermine the deterrent effect of civil monetary penalties, and that these collective discounts will be reasonable in comparison to other enforcement bodies."

It added that it will limit settlement talks to 30 days to “accelerate resolution compared to the existing contested route which will also remain in place.” And although OFSI originally said cases that involve sanctions circumvention wouldn’t be eligible for a settlement, the agency said it will review those instances on a case-by-case basis. “Further detail of the circumstances where OFSI may offer settlement will be set out in OFSI’s forthcoming public guidance,” the agency said.

It also said the settlements will be made public, and the parties won’t be anonymous. Identifying those parties “is in the public interest due to the impact this has in deterring breaches of financial sanctions,” OFSI said. “As such OFSI does not consider that anonymisation would be an appropriate incentive.”

OFSI also plans to take other steps to revise and improve its sanctions enforcement, including providing more guidance on how it "assesses cases,” which will include a new “case assessment matrix”; introducing an “Early Account Scheme” that will allow companies and others under investigation to provide the agency with a “comprehensive account as early as possible, leading to expedited investigation outcome times"; and a streamlined enforcement process for more minor violations, such as those involving licenses and reporting breaches.

The agency also said it aims to hold more “dialogue” with subjects of an enforcement action in the more serious cases, which will give them an “opportunity to provide relevant and useful information to OFSI in the most effective way possible.” That may include meetings to discuss “technical details of a case or wider information which might assist OFSI in its investigation,” it said.

OFSI said it plans to hold a webinar about the changes “once businesses have had time to digest both OFSI’s consultation and the forthcoming guidance.”