What are financial sanctions?
In the UK, financial sanctions are restrictions put on designated persons, financial services and investments. These can be anything from freezing a person’s financial assets to specific investment ban targets.
There is a comprehensive list of these financial sanctions which you can access via the government’s website. In this post we will cover who compiles this financial sanctions list and who the sanctions apply to.
Who compiles the financial sanctions list?
UK financial sanctions are imposed through a combination of statutory instruments and primary legislation:
- Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018);
- Counter-Terrorism Act 2008;
- Anti-Terrorism, Crime and Security Act 2001.
Financial sanctions are measures designed to have an adverse financial effect on persons (individuals or corporate entities) that are designated or connected with a prescribed country, in a number of different ways. These can include freezing their funds or economic resources, and/or preventing the following:
- Funds or economic resources from being made available to designated persons (or for their benefit) or received from them (directly or indirectly);
- Financial services from being provided to or procured from them (or for their benefit) (directly or indirectly);
- Financial services from being provided, where the services relate to financial products (generally, or of a prescribed description) issued by them (directly or indirectly), and/or;
- Persons from owning, controlling or having a prescribed interest in them.
OFSI publishes two lists of persons (including entities) subject to financial sanctions. The ‘Consolidated List of Asset Freeze Targets’ is a list of all asset freeze targets listed under UK autonomous financial sanctions legislation and UN sanctions. Persons listed are known as “designated persons”. OFSI publishes a separate list of entities subject to specific capital market restrictions. These entities are not contained on the Consolidated List.
If a person (including an entity) is designated as a financial sanctions target, then their name will appear in the UK Consolidated List. If an entity is owned or controlled directly or indirectly, by a designated person, then those entities may not be listed in their own right, and they may not appear on the UK Consolidated List, however, those entities are also subject to financial sanctions. Where an individual is listed as a designated person, then the list may include a range of information relating to that person, including:
- full name
- aliases
- date of birth
- place of birth
- nationality
- passport details
- national ID details
- addresses
- position or status (for example government official).
Do financial sanctions apply to all businesses?
UK financial sanctions apply to all persons within the territory and territorial sea of the UK and to all UK persons, wherever they are in the world. This means that all individuals and legal entities who are within or undertake activities within the UK’s territory must comply with UK financial sanctions, as well as all UK nationals and legal entities established under UK law, including their branches, irrespective of where their activities take place.
It is not permitted for a person to participate in any activity knowing that the object or effect of that activity is (directly or indirectly) to circumvent any prohibition, or enable or facilitate the contravention of any prohibition.
An entity is owned or controlled directly or indirectly by another person if the person holds (directly or indirectly) more than 50% of the shares or voting rights in an entity, or if the person has the right to appoint or remove a majority of the board of directors of the entity (directly or indirectly), or if the person is able to ensure the affairs of the entity are carried out in accordance with that person’s wishes. If any of the above tests are met, and the person who owns or controls the entity is a designated person, then financial sanctions will also apply to that entity in its entirety (meaning that its assets should also be frozen), even where that entity is not expressly listed.
Where a designated person holds a minority interest in an entity, then this does not necessarily mean that financial sanctions apply to that entity, as the ownership and control criteria may not have been met. However, it may be that designated persons with minority interests are able to ensure that the entity acts in accordance with their wishes, thereby exercising control over the entity, in which case the control rule will be met.
Financial sanctions also include measures that impose prohibitions or requirements for the purposes of preventing persons from entering into, or continuing to be a party to, arrangements (broadly defined) for commercial purposes (generally, or of a prescribed description) with them. Financial sanctions which relate to a specific country or terrorist group are known as ‘regimes’.
OFSI may issue licences for acts which would otherwise breach prohibitions imposed by financial sanctions. A licence is written permission from OFSI allowing a specified act to take place. In order for OFSI to consider the granting of a licence, certain grounds must be met.
Breaches of financial sanctions in the UK are a criminal offence and carry a maximum of 7 years’ imprisonment.
Have a question about financial sanctions?
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