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Financial sanctions

Financial sanctions are restrictions put in place by the UN or UK to achieve a specific foreign policy or national security objective. They can limit the provision of certain financial services and restrict access to financial markets, funds and economic resources.

The transition period ended on 31st December 2020. The UK is no longer implementing EU sanctions. All sanctions regimes will now be implemented through UK regulations.

The United Kingdom’s Foreign, Commonwealth & Development Office (FCDO) and Office of Financial Sanctions Implementation (OFSI) have announced there will be changes to the structure and format of the UK Sanctions List and OFSI’s Consolidated List in February 2022.

As a member in practice, you should familiarise yourself with the updated guidance to understand the change coming to the UK Sanctions List to prepare accordingly.

In the UK you are legally required to report to the Office of Financial Sanctions Implementation (OFSI) if, as a relevant institution, business or profession, you know or suspect that a breach of financial sanctions has occurred.

External accountants are considered relevant professions under financial sanctions legislation. See OFSI guidance for more information on your reporting obligations and how to report to OFSI.

Update for members in practice in the United Kingdom: UK sanctions measures in relation to Russia

What are financial sanctions?

Financial sanctions are restrictions put in place by the UN or UK to achieve a specific foreign policy or national security objective. They can limit the provision of certain financial services and restrict access to financial markets, funds and economic resources.  

Please note, financial sanction checks should not be confused with standard anti-money laundering (AML) checks as AML checks do not screen the client against the OFSI list. 

Who is subject to financial sanctions?

OFSI has published a consolidated list of asset freeze targets to reflect the UK designations made under the Sanctions and Money Laundering Act 2018. The list contains a range of information to aid identification of designated persons such as aliases, date of birth and last known address.

Financial sanctions which relate to a specific country or terrorist group are known as ‘regimes’. You can find the specific regulations and designated persons for each regime imposed in the UK from financial sanctions targets by regime

As the situation in Ukraine progresses, we would like to remind members working in practice of their obligations. Should you have any connections to Russia, sanctioned individuals, or entities, please contact CIMA immediately to advise us of the fact as CIMA is obliged to understand the risk exposure of its supervised population. Please also inform CIMA if you have applied for a license from OFSI. 

What are my obligations around financial sanctions?

Whilst you may consider the risk of being engaged by individuals (or their associates) who are subject to sanctions to be small, it is especially important to be aware of this risk and to take steps to comply with the legal requirements should that be the case. As large firms distance themselves from sanctioned individuals smaller firms should be vigilant to the risk of being approached. 

Members can identify individuals or entities that are subject to financial sanctions by searching the OFSI Consolidated List. The full list is available on Gov.UK or direct searches can be made here. The Consolidated list is a list of asset freeze targets subject to financial sanctions and is known as ‘designated persons’.

For more information on how to comply with sanctions requirements please read the OFSI guidance, UK Financial Sanctions: General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018 is available here.

Members in the Republic of Ireland must search against the consolidated list of persons, groups, and entities subject to EU financial sanctions at https://webgate.ec.europa.eu/fsd/fsf

See also: United Nations Security Council Consolidated List | United Nations Security Council and EU Sanctions (Restrictive Measures) - Department of Foreign Affairs (dfa.ie)

What due diligence must I undertake?

Members will already be aware of their obligations to have robust AML/CTF processes and procedures in place. However, due to the risk of individuals and organisations trying to avoid sanctions the risk of money laundering has increased. CIMA expects members to review their policies and procedures governing AML/CTF, paying particular attention to the following:

Assessing risk – clients, services, and locations

Client lists should be screened against the OFSI consolidated list (or EU list if in the RoI) in line with the nature, size, and risk exposure of the business. Members should also consider using open-source checks (such as internet searches) as part of wider background checks. Ensure the sources are reliable and maintain records of all checks. Electronic sanctions checks are available and are recommended for larger clients lists.

Checks should not stop with verifying clients against the sanctions list. Members should also conduct checks to understand any connections their clients may have to Russia and if so, to what extent is there exposure to risk. Connections could include suppliers, branches, and subsidiaries in or around Russia. A simple discussion with, or communication to clients on being aware of these risks can help. Your clients should be open to such discussions as your vigilance and guidance will be of benefit to them as well.

Enhanced Due Diligence should be conducted on higher risk clients such as Politically Exposed Persons (PEPs), high net worth individuals, and those in higher risk countries. HM Treasury has recently updated its list of jurisdictions with unsatisfactory money laundering and terrorist financing controls.  New individuals and entities are added to the sanctions list on a regular basis. For this reason, Members in Practice should conduct, Due Diligence (CDD) and Enhanced Due Diligence (EDD) on an ongoing basis as you may not be able to rely on your clients to inform you of any change in circumstances. You should keep records of all checks.

Asset freezes and financial restrictions can apply to entities that are owned and controlled, directly or indirectly, by a designated person. The OFSI guidance covers the circumstances where direct or indirect ownership of an entity can be determined.

Ensure you remain aware of any new designations of individuals and entities and check your client list accordingly. You can subscribe to OFSI e-alert here.

Processes and procedures

CIMA expects members to reassess the risk to their practice and ensure that policies and procedures are updated to reflect new and emerging risks. Particular attention should be paid to the practice risk assessment, client risk assessment, and ongoing staff training.

Members are advised to refer to the Anti-Money Laundering Guidance for the Accountancy Sector which sets out their obligations around compliance and how to address higher risk factors (here).

Members will find the CCAB joint statement to the profession following recent and ongoing developments in Ukraine of use. The document covers ethical and AML considerations, sanctions, and PEPs (here). Separate guidance relating to the sanctions imposed by the Republic of Ireland and the EU has also been published (here).

If your practice operates in through multiple business units you must ensure that the correct checks are being conducted throughout. You should ensure that any members of staff conducting checks understand that these checks are ongoing and not just an annual exercise.

Reporting sanctions breaches and/or suspicions of money laundering

Under the Sanctions and Anti-Money Laundering Act (2018) ‘Relevant firms’ are subject to specific reporting requirements. CIMA members in practice are considered ‘relevant firms’.  Members in practice must therefore inform OFSI as soon as possible if they know or reasonably suspect a person is a designated person or has committed an offence under the financial sanctions regulations. Any funds or economic resources of the designated person must be frozen and members must no longer deal with them. Consideration should also be given to whether a licence from OFSI is required.

OFSI guidance states:

Where a transaction involves a person or organisation who is subject to financial sanctions (whether directly or indirectly), you must obtain a licence to allow the activity to take place without breaching financial sanctions. You should not assume that a licence will be granted or engage in any activities prohibited by financial sanctions unless you have a valid licence.

Please see – reporting information to OFSI, what to do.

Members in the Republic of Ireland must report to the Central Bank of Ireland if you know or suspect there has been a breach of financial sanctions (email: sanctions@centralbank.ie)If you have any suspicions of money laundering taking place you must report it to the UK Financial Intelligence Unit (UKFIU) within the National Crime Agency (NCA) by submitting a Suspicious Activity Report (SAR). Members in the Republic of Ireland must report to the Financial Intelligence Unit via Go AML.

It is essential that SARs include as much detail as possible. The UKFIU provides guidance on submitting a quality SAR and when requesting a defence from the NCA to a money laundering or terrorist financing offence.  You can also look at New supplemental CIMA guidance on SARs  

Every SAR should include a glossary code. The NCA has recently introduced a new code (XXSNEXX) which relates to suspicious activity consistent with money laundering and linked to entities sanctioned by the UK, US, EU, and other overseas jurisdictions. Further information is available on the NCA website.

Please note that if you have reported to OFSI under the sanctions requirements and you also have a suspicion of money laundering / terrorist financing you must also submit a SAR. 

What are the risks of non-compliance with my obligations?

Breaching the OFSI (and EU financial sanctions requirements) may result in a criminal prosecution or monetary penalty. Where a member has failed to meet their legal, regulatory or ethical obligations CIMA will take disciplinary action against them.

The significant risk of reputational damage to your practice must also be considered.

If you have any concerns that you are unable to comply with your obligations and need support, you must contact CIMA immediately at aml@aicpa-cima.com

How is CIMA checking compliance with sanctions requirements?

All members who are selected for either an onsite AML/CTF visit or an AML/CTF desk based review will have their sanctions procedures and compliance checked. CIMA expects to see evidence of this.

Where CIMA believes there is a risk to your practice of exposure to sanctioned individuals or entities we can request a copy of your client list for review and/or contact you for further information.  

Are there things I should especially be looking out for?

There can be a perception that smaller practices may not be so aware of their obligations under the sanctions regime leaving them open to possible exploitation.  So, it is vitally important that you maintain vigilance to ensure that your practice does not inadvertently fall foul of the regime.

Individuals and entities subject to sanctions may be seeking ways to mitigate their impact.   This could be by ensuring that their assets and funds are held in the name of someone else who is not subject to sanctions, or through the use of legal entities (for example shell companies) with obscured ownership. 

You should be alert to companies that have been dormant for several years suddenly becoming active.

You should also be alert to sudden changes in beneficial ownership and/or changes in directors and officers of companies that have links to Russia or Belarus.

Sanctioned individuals may seek to place assets in jurisdictions that are not applying such robust sanctions as the UK, US, and EU.  So, you should be alert to the movement of assets between the UK and such countries.

You may find that you are contacted by potential new clients, who may be family members or associates of sanctioned individuals.  It may be that they themselves do not appear on the sanctions list, but because of their association with a sanctioned individual, there is a high risk that the assets are those of the sanctioned individual and therefore you cannot act. 

Care should also be taken in circumstances where you have control over client funds – perhaps funds that are held in a client account, or you may have the power of control over the client’s accounts. If these are funds of a sanctioned individual, they must be frozen and appropriate reports made to OFSI.

Further information