UK financial sanctions reporting threshold lowered and scope expanded

In the UK, financial sanctions are administered by the Office of Financial Sanctions Implementation (OFSI) and include: asset freezes; restrictions on accessing financial markets, loans and credit; restrictions on the provision of financial, insurance, brokering and other financial services; and directions to cease all business – these restrictions can apply to a specific person, group, sector or country.

Until now, ’relevant firms and involved persons’ have been obliged to report, amongst other matters, a known or suspected offence under UK financial sanctions laws, if the knowledge or suspicion arose while carrying on business. This applied the criminal test to the reporting obligation, meaning it was triggered when the firm or involved person had a view that the alleged offender knew or had reasonable cause to suspect that they were acting contrary to the UK’s financial sanctions laws.

The new reporting threshold removes the criminal test, meaning all knowledge or suspicions of non-compliances will need to be notified to OFSI.

Sanctions expert Rebecca Devaney of Pinsent Masons said businesses that already have a robust system in place for complying with the existing reporting requirements may not need to affect major changes to their procedures.

“In practice, this may not necessitate procedural change for relevant firms and involved persons that would most likely have assessed their reporting obligation triggered where the fact pattern before them indicated a contravention of financial sanctions regardless of whether the ‘bad actor’ had the required knowledge or suspicion for the criminal test to be met,” Devaney said.

The lowered reporting threshold is provided for in the Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations 2024. Those regulations also provide for an extension of those considered a ‘relevant firm’. From 14 May 2025, high value dealers, art market participants, insolvency practitioners and letting agencies will all be in-scope of the reporting obligations. OFSI has published new guidance in relation to letting agents and insolvency practitioners, and updated the high value dealer and art market participant guidance, to provide further information on the upcoming reporting obligations for these sectors.

Other changes made with the regulations will, like the lowered reporting threshold, take effect on 5 December. They include new civil monetary penalty powers for breaches of the restrictions in the Russian sanctions regime relating to acquiring land in Russia or the non-government controlled Ukrainian territories. 

Sanctions expert Stacy Keen of Pinsent Masons said: “It is now easier for those acquiring such land to be held financially liable for such activity – the standard of proof from 5 December 2024 is the ‘balance of probabilities’, not the criminal standard of beyond a reasonable doubt, and there is no need for knowledge or suspicion to be demonstrated when a civil monetary penalty is imposed. This follows a trend in the enforcement of sanctions more generally, with the new Office of Trade Sanctions Implementation (OTSI) having recently been given the power to impose civil monetary penalties in relation to the trade sanctions falling within its remit.”

A new statutory requirement for all UK persons that hold funds or economic resources owned, held, or controlled by a designated person has also been introduced. Those persons will need to provide an annual report to OFSI with the details of these assets – a failure to comply with this requirement, without reasonable excuse, is a criminal offence.

There are further legislative changes to the licensing and exceptions provisions in sanctions legislation. This includes an amendment to the pre-existing judicial decisions financial sanctions licensing purpose, the creation of a new insolvency licensing purpose.

A range of other matters have been clarified in the new regulations. For example, in Treasury licences and asset freeze prohibitions, references to a designated person will now explicitly include entities owned or controlled by such persons. In the Russian sanctions regulations, it has also been clarified that restrictions on the provision of trust services includes acting as a nominee shareholder.

A new exception has also been built into the Russian sanctions regulations for payments by designated persons to certain government bodies across the UK – this is also reflected in the processing payments exception. However, the exception does not cover all payments so, banks for example, will need to assess the purpose of the underlying payments and whether it falls within the scope of the processing payment exception, Keen said, highlighting as an example that the payment of fees to Companies House to incorporate a company or restore a company to the register is an excluded payment.