Fine shows UK sanctions risk extends beyond financial services

Stacy Keen of Pinsent Masons was commenting after the Office of Financial Sanctions Implementation (OFSI) announced (4-page / 528KB PDF) that it had issued a £30,000 fine against drinks company Hong Kong International Wine and Spirits Competition Ltd (HKIWSC) for a breach of UK sanctions regulations.

HKIWSC was fined in the context of its dealings with an entity that had been designated as a sanctions target by the EU following Russia’s annexation of Crimea in 2014. The identified breaches preceded the implementation of the UK’s autonomous sanctions regime and relates to a breach of the EU sanctions enforced in the UK at the time.

Keen said the case showed that it is not just financial institutions that are subject to the UK’s sanctions regime. She said it also illustrated OFSI’s appetite to take enforcement action even where the underlying transactions are of low value and that OFSI’s decision highlighted how the provision of certain intangibles to a designated entity – in this case publicity – can in and of itself constitute an activity that breaches UK sanctions.

According to OFSI, HKIWSC received funds and wine bottles, worth under £4,000, from the designated entity for entry into competitions it ran. The wine bottles were considered to be frozen economic resources under the sanctions imposed against the designated entity.

OFSI also considered that the publicity HKIWSC  made available to the designated entity following entry to the competitions constituted “an intangible economic resource” that also fell subject to the sanctions regime.

Keen said: “The OFSI considered that publicity would likely be exchanged or used by the designated entity in exchange for funds based on the inference it was for the purpose of increasing its wine sales. This is wide a interpretation of the meaning of ‘economic resources’.”

Keen said that the decision also highlighted the weight that OFSI places on a voluntary disclosure of non-compliance with sanctions. In this case, HKIWSC did not make a voluntary disclosure so it did not benefit from a penalty reduction discount. However, the company made materially complete disclosures and fully cooperated with OFSI throughout its investigation, which involved OFSI using its information powers to obtain information from HKIWSC. 

“Cooperation and complete disclosures will not guarantee a reduction in penalty in the absence of a voluntary disclosure,” Keen said.

Keen said: “This penalty demonstrates that companies need to take a broad approach when assessing their sanctions risk exposure. OFSI is not applying a de minimis threshold and is taking enforcement action in really quite small cases. The provision of intangible economic resources to a designated person which may be exchanged or used in exchange for funds is viewed by OFSI as prohibited. This could cover a wide range of resources, including certain types of intellectual property, and any risk assessments need to consider the risk of the potential provision of any benefits, direct or indirect, to those subject to UK financial sanctions.”