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War in Ukraine: know your reporting obligations

By Xose Lumor, Manager, Advocacy and Professional Ethics, Association of International Certified Professional Accountants, representing AICPA & CIMA

Sanctions are restrictive measures that can be put in place to fulfil a range of purposes that are deemed to be in the legitimate interest of a sovereign state and they are nothing new. The UK already has existing sanctions against states, and individuals connected to states, such as Iran and Syria. It had also previously issued sanctions against Russia following the annexation of Crimea in 2014.

UK sanctions against Russia

In response to the Russian military invasion of Ukraine, many governments around the world have issued sanctions of increasing scope and breadth against individuals and entities connected to Russia. These range from trade sanctions such as arms embargoes and other trade restrictions and financial sanctions including asset freezes, to aircraft and shipping sanctions including de-registering or controlling the movement of aircraft and ships.

The UK government has sanctioned more than 1,000 people and over 100 businesses since February 2022. Leading Russian banks have had their assets frozen as a means of curbing Russia’s ability to directly or indirectly finance the invasion of Ukraine via UK markets. Similarly, sanctions on individuals tied to Russia will put pressure on the Russian government by limiting the ability of individuals to act as a conduit for Russian interests.

On Wednesday 4 May 2022, the UK Foreign Secretary Liz Truss announced that Russian businesses have now been banned from using UK accountants and other professional services, saying: “Doing business with Putin’s regime is morally bankrupt and helps fund a war machine that is causing untold suffering across Ukraine. Cutting Russia’s access to British services will put more pressure on the Kremlin and ultimately help ensure Putin fails in Ukraine”.

It is not yet clear how long these sanctions will be in place, and with frequent updates to the list, it is likely that more companies and individuals will continue to be added to those already sanctioned. The UK sanctions list can be found here

How do the sanctions impact professional accountants in the UK?

The sanctions impact all professional accountants in the UK, meaning that they should not be entering into, or facilitating, transactions with, or for, sanctioned individuals or entities. If relevant firms know of or suspect that a breach of financial sanctions has occurred they have a legal obligation to report it to the Office of Financial Sanctions Implementation (OFSI).

But what are relevant firms? They are individuals or organisations subject to specific reporting obligations as set out in UK regulations made under the Sanctions Act including:

  • a person who has permission under Part 4A of the Financial Services and Markets Act 2000 (FSMA 2000) (permission to carry on regulated activity)
  • an undertaking that by way of business operates a currency exchange office, transmits money (or any representations of monetary value) by any means, or cashes cheques which are made payable to customers
  • a firm or sole practitioner that is a statutory auditor or local auditor
  • a firm or sole practitioner that provides by way of business accountancy services, legal or notarial services, advice about tax affairs or certain trust or company services
  • a firm or sole practitioner that carries out, or whose employees carry out, estate agency work
  • the holder of a casino operating licence
  • a person engaged in the business of making, supplying, selling or exchanging articles made from gold, silver, platinum, palladium or precious stones or pearls.

If you are a CIMA Member in Practice (MiP), you are considered to be a relevant firm as you “provide by way of business accountancy services, legal or notarial services, advice about tax affairs or certain trust or company services”, and are required to report any breach of the sanctions to OFSI.

Depending on the nature of the breach, you may also be required to raise a suspicious activity report under the UK anti-money laundering (AML) regulations in addition to reporting to OFSI. You can find guidance on reporting suspicious activities here.

Failure to comply with either the sanctions or AML regulations, or seeking to circumvent their provisions, is a potential criminal offence, which could lead to a range of criminal charges and sentences, including custodial sentences.

If you are a MiP, and have concerns about acting for a client who may be subject to sanctions, please contact us.