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UK sanctions regimes, including the Russia and Belarus sanctions regimes, have recently been amended by The Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations 2022 to extend sanctions reporting obligations to cryptoasset exchange providers and custodian wallet providers. These providers are now included in the definition of “relevant firms” in the Regulations, meaning that both must now comply with enhanced sanctions reporting obligations.
The reporting obligations are set out in the relevant statutory instruments giving effect to each sanctions regime. In the Russia regime, these are set out at Regulation 70, and in the Belarus regime at Regulation 38.
“Relevant firms” must report to the Office of Financial Sanctions Implementation (“OFSI“) as soon as practicable if they know or have reasonable cause to suspect (based on information or other matters which came to them in the course of their business) that any person is a designated person or that any person has committed an offence under the financial sanctions elements of the relevant regulations. Financial institutions have additional reporting requirements when they credit frozen accounts or transfer funds from frozen accounts in certain designated circumstances.
Breaches can be a criminal offence and incur monetary penalties. Further details are in OFSI’s enforcement guidance updated on 15 June 2022 and FAQ page. OFSI has also recently published a blog setting out its expectations around “relevant firm” reporting.
To supplement the obligation on “relevant firms” to report sanctions information or suspicions immediately (or as soon as practicable), OFSI undertakes a yearly review of its own records to ensure that any changes to assets holding are properly reflected in them. As part of this review, OFSI requests all persons (whether they are “relevant firms” or not) that hold or control funds or economic resources belonging to, owned, held, or controlled by a designated person, to provide it with a report detailing those assets. OFSI’s Financial Sanctions Notice of 2 September 2022 sets out the timetable for the 2022 review, requesting all firms holding frozen assets to submit a report of the frozen assets they held as at close of business on Friday 30 September 2022, by 11 November 2022.
Reports should be made using the OFSI template. It is good practice for a firm to appoint one nominated person to make the report, to avoid duplication. If a firm has previously submitted a report but the assets are no longer held, a nil return should be submitted (unless the previous report was a nil return). Any additional information requested by OFSI on the assets or the designated persons must also be supplied.
The annual reporting requirement exists even if the frozen assets have previously been reported to OFSI pursuant to a “relevant firm’s” reporting obligation. At a recent public webinar1, Giles Thompson, Director of OFSI emphasised the importance of the reporting obligation and confirmed that it was necessary for firms to report their knowledge that someone was a designated person, even though OFSI would (or should) already be aware of that designation. Mr Thompson also indicated that OFSI was considering whether it would be possible to give more guidance on what and when information should be reported, something that would be welcomed by “relevant” and non-relevant firms alike.