Russian sanctions - after the laws expect the enforcement
24 February 2023
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Friday 24 February 2023 marks the one year anniversary of Russia's invasion of Ukraine which has led to one of the most significant global sanctions regimes in recent years. Following a year of unprecedented sanctions activity, we have highlighted our key takeaways for firms to consider and look out for in the coming year.
Sanctions authorities across the globe have introduced rapidly evolving measures to target the Russian state, high profile individuals and entities, and large parts of the Russian economy. The majority of the activity over the past year has focused on the implementation of these measures but we expect the focus to shift to enforcement action in 2023.
Enforcement efforts relating to violations of Russian sanctions are likely to be led by the US. Lisa Monaco, the US Deputy Attorney General, made it clear as early as June 2022 that the US Department of Justice (DOJ) would be increasingly focused on enforcement when she described sanctions as "the new FCPA" (see the full speech here). This did not lead to a direct rise in decided US enforcement cases in 2022, as the Office of Foreign Assets Control (OFAC) only took enforcement action in 16 cases, none of which involved Russian sanctions implemented in response to the invasion of Ukraine. This was a decrease from 20 enforcement actions in 2021 (see OFAC's full statistics here). However, as the introduction of new measures has slowed, we expect OFAC to focus this year on investigating and enforcing cases that are perceived to be low-hanging fruit. This may primarily be in the financial services and logistics industries where sanctions risk is particularly acute.
In the UK, the Office of Financial Sanctions Implementation (OFSI) has shown clear intent to tool up and put sanctions enforcement at the top of its agenda. In its 2022 annual review, OFSI announced its intention to scale up to over 100 employees by the end of 2022 in order to move from a "reactive to a proactive compliance and enforcement model" (see our full briefing on OFSI's annual review). OFSI now also benefits from an expanded arsenal of enforcement powers following the passing of the Economic Crime (Transparency and Enforcement) Act 2022. Alongside OFSI, the FCA is increasingly taking enforcement action against firms for systems and controls failings. We expect the FCA to take more enforcement action against firms who are found to have facilitated sanctions breaches.
Sanctions enforcement was also highlighted by the EU in its recent proposal for a 10th package of Russian sanctions. Alongside the new measures, the EU also announced that a Sanctions Coordinators Forum would be convened this week to gather the EU's international partners and Member States to strengthen enforcement efforts. The EU has previously proposed measures to harmonise criminal offences and penalties across the bloc: at present enforcement is a responsibility of individual Member States which has resulted in weak, and fragmented, enforcement. The Commission is also considering whether there may be a role for the European Public Prosecutor's Office which commenced operations in June 2021 and has become increasingly active in investigating financial crime within the EU.
A key feature of sanctions activity in the coming year, particularly in relation to enforcement, will be increased and expanded cooperation between sanctions authorities.
Earlier this month, Deputy AG Monaco delivered a speech in London which reaffirmed the commitment of the US and UK to take a united approach to enforcing the global sanctions regime against Russia. More recently, US Deputy Treasury Secretary Wally Adeyemo announced that a coalition of over 30 countries would be improving information sharing and coordination in relation to sanctions (see the full speech here). This collaboration will underpin a message to corporates and banks that if they do not give effect to the Russian sanctions regimes they will be cut off from access to financial systems and markets.
Cross-European collaboration was enhanced by the establishment of the European Commission's "Freeze and Seize" Task Force in March, and further steps to enhance cooperation between Member States are also likely. Earlier this week, the Dutch Foreign Minister put forward a proposal, supported by a number of other Member States, for the creation of a centralised EU sanctions watchdog in Brussels.
A year on from the start of the unprecedented Russian sanctions regime, regulators in the US, UK and the EU have all signalled that enforcement will be heightened in 2023. The uniform, cross-border message serves as a reminder for firms to review their sanctions compliance frameworks and ensure they are taking all steps to mitigate enforcement risk. With the rate of new sanctions measures slowing, firms have an important opportunity to ensure their current approach to sanctions compliance is fit for purpose.
In particular, firms should have the following points in mind:
To keep track of all the latest Russian sanctions developments, access our Russia Sanctions Tracker here.
Authors: Ruby Hamid, Tom Cummins, Sophie Law, Neil Donovan, Anthony Asindi
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.
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