Sanctions: Payments made by a major UK law firm to Russian banks in contravention of sanctions treated seriously by UK Regulators regardless of self-reporting

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Law firms and others will have taken notice of one of the largest UK law firms, Herbert Smith Freehills (HSF), having a substantial fine of almost £500 000 levied on it by the UK Office of Financial Sanctions Implementation (OFSI) pursuant to the UK Russian sanctions regime.

This is the first enforcement action taken against a law firm by OFSI, and the legal world is on notice that OFSI takes these matters very seriously (if there was ever any doubt), and will impose large fines even in a case where there was no intention to contravene the UK sanctions regime, and even in a case where the offender had self reported to OFSI (it is to be noted that self-reporting is not a panacea preventing regulatory liability). In closing down its Russian offices after the advent of the Ukraine war, HSF had made a number of payments to Russian banks which are all designated persons under the UK sanctions regime.

Guernsey implements the UK Russian sanctions regime via local legislation, which effectively implements the same Russia Regulations in Guernsey as are enforced in the UK by OFSI. In general, Guernsey has rightly seen its role as supportive of the UK Russian sanctions, with the Guernsey Policy and Resources Committee (“P&R Committee”, the Guernsey equivalent of OFSI) taking a strict and scrupulous approach to sanctions monitoring and licence requests. Given this statement of OFSI policy by conduct, it is likely that the Guernsey authorities will adopt a commensurate approach to any local law firms or other entities.

It is accordingly imperative to make certain that no payment is made in or from within the Bailiwick of Guernsey to any Russian bank which is on the list of OFSI designated persons, or to any other designated person. Comprehensive sanctions screenings are required in order for anyone making a payment to be sure that this is not going to a designated person. While it remains to be seen whether the Guernsey P&R Committee will adopt the strict liability approach seen in the recent HSF enforcement matter from OFSI, it is essential for checks to be done scrupulously and thoroughly on any basis. Payments made into the Russian system may be handled at some point by a designated Russian bank, even if the final recipient is not a designated person. Moreover, payments to entities owned, held or controlled by designated persons will also contravene the Guernsey sanctions regime and may give rise to hefty fines. It will serve any Guernsey entity (whether a trustee, law firm or administrator) to take careful advice before making any payment which could be a contravention, and to consider making a licence request in advance of any potentially problematic transaction or payment. As the HSF story shows, one cannot assume that self reporting after the fact will mitigate the regulatory penalty imposed.

This fine coming shortly after the UK imposed a new raft of Russian sanctions (see https://abt.gg/new-round-of-uk-anti-russian-sanctions-to-be-implemented-in-guernsey-changes-for-trustees-and-directors/) shows the UK continues to enforce its anti-Russia sanctions policy strongly, and there is no reason to conclude that Guernsey will take anything but a complementary and therefore similarly strict approach.

Abt has extensive experience dealing with all aspects of the Guernsey sanctions regime, including advising upon the impact of the Guernsey Sanctions Regulations on trustees and directors of companies in various respects, advice on sanctions compliance, and applying for appropriate sanctions licences from the Policy & Resources Committee. Should you require any advice on any aspect relating to sanctions in Guernsey, please contact Advocates Clare Tee, Jeremy Le Tissier or Senior Associate Nick Taitz.