DIY Compliance: OFSI’s Latest Enforcement Action and Taking Responsibility for Your Sanctions Risk | Viewpoints and events

Another author Mihira Patten, Trainee Lawyer

27 September 2022, Financial Sanctions Enforcement Office, UK Treasury (OFSI(for the imposition of a civil fine of £30,000 against Hong Kong International Wine and Spirits Competition Ltd.)The a company), a British company, for breaching Ukraine-related sanctions.1 This is OFSI’s eighth civil financial penalty to date and makes clear that companies should consider intangible benefits — specifically, in this case, publicity — as economic resources subject to asset freeze regulations. OFSI’s comment on the case also reinforces the application of financial sanctions to all sectors and that companies are responsible for their compliance.

the facts

The company organizes an annual wine and spirits competition in Hong Kong (The competition), which has been designed and managed by influential figures in the Asian and international wine industry. Successful competitors display their wines to trade professionals in Asia at the Hong Kong International Wine and Spirits Fair. Among other things, competition winners receive marketing support throughout the year, and their wines are displayed at trade fairs and tastings by industry VIPs.

Unified state enterprise of the Union of Agricultural Production “Republic of Crimea” (masandra), a joint-stock company, is one of the largest wine producers in the Crimea. On 25 July 2014, Massandra was designated as the target of an asset freeze in the European Union.

In accordance with OFSI’s penalty notice2between 2017 and 2020, the company received from Massandra three batches and 78 bottles of wine valued at £3,919.62 in connection with Massandra’s entry in the competition over that period.

On December 7, 2020, a third party submitted a suspected breach report to OFSI detailing the payment the company received from Massandra. Then, OFSI conducted an investigation that identified four violations of the asset freeze restrictions – receipt of money and wine – by the company. OFSI has also identified a breach in connection with the submission of publicity by the Company to Massandra in connection with its entry into the competition.

There was no deduction for voluntary disclosure in this case because the company did not voluntarily disclose potential violations of OFSI. As it is entitled under the Police and Crime Act, the company requested a ministerial review of OFSI’s decision: the Minister supported OFSI’s decision to impose and amount the penalty.

Key knowledge

1. Firms should consider their potential exposure to sanctions risk broadly to include the potential provision of intangible economic resources.

UK sanctions prohibit making economic resources available for the purpose of the asset freeze. According to OFSI’s guidance, “economic resources … generally mean assets of every kind—tangible or intangible, movable or immovable—that are not money, but can be used to obtain money, goods, or services.”3 OFSI determined that the advertising the company provided to Massandra after entering the competitions was an “intangible economic resource” because Massandra was likely to use the advertising to increase its wine sales. OFSI stated in the penalty notice that “in addition to publicity, intangible economic resources can include certain types of intellectual property.” How OFSI determined the financial value of advertising for purposes of calculating the penalty is not clear. masandra case It demonstrates the need for companies to consider their potential exposure to sanctions risk broadly, to include the potential provision of intangible economic resources, not just financial transactions and tangible economic resources.

2. OFSI continues to investigate and punish abuses from a range of sectors.

Financial penalties apply to all sectors, not just regulated sectors. This is OFSI’s fourth civil financial penalty to fall outside the financial services sector and demonstrates the breadth of interest in OFSI enforcement.

The OFSI penalty notice includes Notes on Compliance, guidance that provides lessons from the case to help companies comply with UK sanctions. In this case, the compliance notes state that “it is not sufficient for a company to rely on the banking sector to conduct its due diligence on its behalf. This is especially important if the company has global clients and/or operates internationally.”

Reports of frozen assets and notifications to OFSI of suspected violations submitted by financial institutions are key sources of information leading to enforcement action. Accordingly, companies in all sectors must ensure that they have their own compliance measures in place to identify and manage sanctions risks.

3. Ministerial review is used again (to no avail this time).

In OFSI application proceedings, a person receiving a monetary penalty has the right to request a ministerial review. This is the process by which the OFSI decision is reviewed, usually by the Economic Secretary to the Treasurer (Minister). To the Minister at the conclusion of the ministerial review:

  • support the decision to impose a penalty and its amount;
  • confirmation of the decision to impose the penalty with the substitution of a different amount; or
  • Cancellation of the decision to impose the penalty.

The right to ministerial review has now been exercised in five of OFSI’s eight civil enforcement actions. On two occasions, the ministerial review has reduced the value of the financial penalty imposed. In one of these cases, the ministerial review process was used as a means to provide new information regarding the apparent violation;4 In the other, the minister found among those that the offending party “did not intentionally violate [relevant] The sanctions regime” and reduced the financial penalty by about 33%.5 In the remaining three cases – including that of Masandra – the Minister supported both OFSI’s decision and the amount of the penalty.6



1 Ukraine (EU financial sanctions) (No. 2) 2014 Regulations and Council Regulation (EU) No. 269/2014 (Ukraine embezzlement and human rights)

2 Financial Penalty – Hong Kong International Wine and Spirits Limited Competition, OFSI, 27 Sep 2022, Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1106745/Notice_of_Imposition_of_MP_-_HKIWSC.pdf

3 UK Financial Sanctions Handbook, OFSI, August 2022, available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/110991/General_Guidance_-_UK_Financial_Sanctions__Aug_2022_.pdf

4 Sanctioning Telia for violating UK sanctions: More information on OFSI’s travel directive, 31 October 2019, available at: https://www.mayerbrown.com/en/perspectives-events/publications/2019/10/telia-penalised-for- United Kingdom-sanctions-violations-more-an-insight-direction-of-travel

5 OFSI announces £20.47m penalty in first major sanctions enforcement action, 1st April 2020, available at: £1m-penalty-in-first-action-major-penalties

6 Imposing Financial Fines – Clear Junction Limited, OFSI, February 21, 2022, Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1056043/Clear_Junction_Penalty_Report_21.02.22.pdf and imposition of monetary penalty – TransferGo Limited, OFSI, 5 Aug 2022 Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1008859/050821_-_TransferGo_Penalty_Report.pdf

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