Debate Over OFSI's Disclosure of Sanctions Breach by Payment Firm Sparks Discussion

The recent decision by the U.K.'s Office of Financial Sanctions Implementation (OFSI) to disclose details of a sanctions breach by a payments firm has ignited a debate about the regulator's enforcement approach. Under the Economic Crime (Transparency and Enforcement) Act 2022, OFSI gained a "disclosure enforcement power" to publish information about financial sanctions breaches when it deems noncompliance not serious enough to warrant a civil penalty.

OFSI exercised this power for the first time on August 31, revealing details of a "moderately severe" breach. This breach involved the withdrawal of a mere £250 (approximately $305) from a business account held by Wise Payments, a company owned or controlled by an individual subject to Russian sanctions. Notably, Wise self-reported the incident, which occurred a mere 20 hours after the individual became a "designated person" under sanctions. The payments firm made full disclosures and cooperated extensively with OFSI during its investigation.

Experts in the field have expressed diverse opinions regarding OFSI's decision to disclose a low-value, one-time noncompliance case. Some believe that disclosing such minor breaches may not significantly enhance sanctions enforcement and that OFSI may have displayed questionable judgment by "naming and shaming" a company that proactively reported the issue and cooperated fully.

Tom Hine, a consultant partner at Acuity Law, commented on the case, calling it a "surprisingly anodyne first case" for OFSI. He highlighted that OFSI has the authority to impose hefty monetary penalties for sanctions infringements but opted not to in this instance. Nevertheless, he noted that while the decision not to impose a penalty appears reasonable given Wise's actions, OFSI might be somewhat disappointed that this was the first case it disclosed.

Andrew Northage, a partner specializing in regulatory and compliance at Walker Morris, suggested that OFSI's move demonstrates its commitment to considering all instances of noncompliance equally. He posited that OFSI's choice to disclose a low-value case may serve as a signal to companies that even minor breaches will not go unnoticed.

Andrew Doyle, the executive chair of anti-money laundering compliance software provider NorthRow, argued that the adverse publicity stemming from poor compliance procedures could inflict more immediate damage on a company than a fine. He noted that for a company of Wise's size and stature, reputational damage can be a more effective deterrent against poor compliance conduct.

Nick Henderson-Mayo, director of learning and content at compliance e-learning and software provider VinciWorks, contended that enforcement extends beyond fines. He emphasized that OFSI's role is not solely profit-driven but is to create an environment conducive to sanctions compliance across the U.K. The Wise case, according to Henderson-Mayo, illustrates that OFSI is adopting a fair approach to firms that self-report and commit to making improvements.

Simon Hems, an international dispute resolution and insurance recovery lawyer at McGuireWoods, explained that while fines have their place, they are often specific to individual cases. He suggested that the greater value lies in understanding how sanctions regulations are interpreted and applied. Hems also offered insights into why OFSI's first disclosure notice might appear relatively innocuous, pointing out that regulators tend to be cautious when enforcing rules for the first time and may wish to minimize consequences if they make any errors. Additionally, it sends a message to companies that nothing is too insignificant to escape OFSI's scrutiny.

The debate underscores the intricacies and complexities of enforcing sanctions regulations, with differing opinions on the role of public disclosure in sanctions enforcement.

By fLEXI tEAM