Last updated 13 July 2022
OFSI & NCA Red Alert re Financial Sanctions Evasion Techniques - Issued 12 July 2022
OFSI (Office of Financial Sanction Implementation) and the National Crime Agency (NCA) have issued a 'Red Alert' on financial sanctions evasion typologies by Russian elites and their enablers.
The purpose of the alert is to provide information from law enforcement and the legal and financial services sectors on some of the common techniques designated persons and their UK enablers are suspected to be using to evade financial sanctions, with the aim of promoting awareness and bringing about preventative action.
HM Treasury have recommended the use of this Alert to complement existing knowledge and support on-going improvements to your business processes and AML procedures.
The report also details a summary of professional body supervisor activities including the ATT and CIOT (pages 7-9) which is a further resource for information and guidance regarding financial sanctions.
Accounting services to Russia – government announcement
On 4 May Foreign Secretary Liz Truss announced a ban on services exports, including management consulting, accounting and public relations, to Russia. Details of the announcement are available here and at present we await further details about the implications for tax advisers and our AML supervised firms. Once we hear more we will update the guidance here. If members have any queries they should contact the standards [at] att.org.uk (Professional Standards team).
As of July 2022 we are awaiting further information regarding the details on the ban on service exports including details of the related draft Statutory Instrument.
CCAB joint statement to the profession
The CCAB have issued a joint statement to the profession following recent and on-going developments in Ukraine. Full details are available here.
Frequently asked questions (FAQ) – impact of new sanctions & ensuring compliance
** The ATT request that any AML Supervised members with Russian clients, or with UK clients with connections to Russia (such as Russian parent companies or suppliers), or any other related connections (such as Russian staff) notify the ATT by emailing standards [at] att.org.uk. **
How do sanctions relate to AML risk and client due diligence?
Firms are required to adopt a risk based approach and you should already have policies and procedures in place to assess risk and part of that process involves checking the sanctions lists where appropriate.
We would recommend reviewing your client lists and client due diligence (CDD) to assess if you have any risk exposure in relation to Russian sanctions particularly where it is some time since the original CDD was undertaken. This will help you to determine if you need to check some, or all of your, clients for the recent and continuing sanction updates, and consider if any client risk assessments require adjusting. You may also need to review your practice wide risk assessment to reflect any overall changes in the AML risk profile of your practice.
Where you have concerns you should approach clients for further client due diligence or other information and should also consider reviewing electronic ID checks (see below) and doing open-source checks (for example via google searches). You may need to do further checks on individual clients to ensure they are not sanctioned and details on how to do this are included in the next section.
How can I check if my clients are sanctioned?
General guidance on Russian Sanctions is available on Gov.UK here. The most up to date source to check individuals or entities with UK sanctions is the Office of Financial Sanctions Implementation (OFSI) List. You can undertake direct searches of the consolidated list here free of charge.
The Russian Sanctions are being updated on a regular basis so members will need to remain alert to the risks and to monitor the position. To remain up to date on any changes to the sanctions list we would recommend subscribing to OFSI email updates here.
If you use electronic ID verification packages these will generally check the sanctions lists automatically and may update you. However, you will need to know what kind of service provision you have with your provider, assess how regularly do they undertake checks (daily/monthly/annually) and what their information sources are (e.g. is it the OFSI list) to determine reliability.
I have a sanctioned client – what next?
If you identify that one of your clients is on the sanctions list you must report this to your Money Laundering Reporting Officer (MLRO) where one is in place, or if you are a sole practitioner, you must consider what actions are required as set out below.
You will most likely need to cease acting* for that client, otherwise you may be subject to criminal prosecution or a monetary penalty (this is true for all clients who are subject to sanctions, not just for those affected by these recent updates). You may also need to freeze any client funds you are holding in your client account.
You will also need to assess whether a report to OFSI is required and there are legal obligations to make a report (as soon as practicable) if you know or reasonably suspect that:
- a breach or financial sanctions has occurred
- you have a client who is a designated person
- you hold frozen assets
and the knowledge or suspicion came to you while conducting your business.
You should follow the guidance on the following page in relation to reports:
Reports should be made using the compliance reporting form on that page which must be emailed to ofsi [at] hmtreasury.gov.uk.
Please note that OFSI sanctions reporting obligations are different to the suspicious activity reporting requirements to the National Crime Agency (NCA). Where you have concerns that a sanctioned individual is involved in money laundering or terrorist financing a separate report to the NCA could also be required, as set out in the FAQ ‘When do I need to make a Suspicious Activity Report (SAR)?’ below.
*You can apply to OFSI for a licence to continue activity with sanctioned clients as set out in the guidance:
“Where a transaction involves a person or organisation who is subject to financial sanctions (whether directly or indirectly), you must obtain a licence to allow the activity to take place without breaching financial sanctions. You should not assume that a licence will be granted or engage in any activities prohibited by financial sanctions unless you have a valid licence. OFSI can only issue licences on specific legal grounds.”
See also details of current OFSI General Licences issued.
When do I need to make a Suspicious Activity Report (SAR)?
As indicated above the reporting of sanctions related matters to OFSI is separate from Suspicious Activity Reporting.
You do not need to report sanctions issues to the National Crime agency (NCA) but if you have knowledge or suspicion (or reasonable grounds for knowledge or suspicion) of money laundering or terrorist financing you need to make a SAR to the NCA as well as making a report to OFSI.
The NCA have provided the following guidance which is of assistance:
- SAR glossary codes for reporters Money laundering and sanctions note March 2022; and
- Suspicious Activity Report (SAR) Glossary Codes and Reporting Routes (March update)
For further general guidance in relation to SARS refer to:
Am I still able to act for Russian clients where they are not sanctioned?
The ATT require members to meet any obligations under the sanctions regime but we do not have a policy on whether they should disengage from acting for all Russian clients. Each practice will need to make their own decisions on whether it is appropriate to continue acting, taking into account not only AML considerations but reputational risks.
Members disengaging from client work should refer to Professional Rules and Practice Guidelines (PRPG) chapter 10 for further guidance. In particular, they need to consider their contractual obligations and the need to give reasonable notice of the intention to cease to act. The engagement letters guidance includes suggested wording for disengagement letters at the end of the document.
Is there anything else I need to be aware of?
Use of Cryptocurrency
Concerns have also been raised about the use of cryptocurrencies to evade sanctions in Russia so firms should be aware of increased risks of Money Laundering in this area and ensure client risk assessments and due diligence reflects the associated risks. If you have suspicion of money laundering remember to report this to your MLRO (or make a suspicious activity report to the NCA as required.
Cyber Security Risks
The National Cyber Security Centre is calling upon organisations in the UK to bolster their online defences in the face of increased risks at this time – see here for further details.
Further guidance on cyber security is also available on the ATT website here.
Office for Professional Body Supervision Guidance
In light of the Government’s response to the situation in Russia and Ukraine, we have received the below communication from OPBAS. Where relevant, AML supervised firms should consider this as part of their general risk assessment process and established systems and controls to counter anti-money laundering and terrorist financing:
“I am writing to draw your attention to the tranche of sanctions imposed by the UK on Russia, following the Prime Minister’s announcement to the House of Commons on 22 February 2022. The full details of the measures are available on the Foreign, Commonwealth & Development Office website.
Professional firms and relevant practitioners will be legally required to adhere to these sanctions to safeguard the UK and the reputation of their industries. Where there is a failure to adhere to the sanctions, the Office of Financial Sanctions Implementation (OFSI) has the power to levy civil monetary penalties for breaches of financial sanctions. OFSI works with law enforcement for the most egregious cases where criminal prosecution may be considered. Details of their enforcement approach is available on OFSI’s website.
OPBAS would like to draw the Professional Body Supervisors’ (PBS) attention to a statement published by the Financial Conduct Authority (FCA) in response to the sanctions. The statement reminds the FCA’s supervised populations of its expectations around sanctions.
OPBAS encourages PBSs similarly to share relevant information with their own supervised populations to help remind them and ensure compliance with these new sanctions.
For further details on financial sanctions you should contact OFSI or, for trade and export sanctions, you should contact the Department for International Trade’s Economic Control Joint Unit."