OFSI imposes civil financial penalty on FinTech company for violating Russian sanctions

The UK Office of Foreign Sanctions Implementation (“OFSI”) fined Fintech TransferGo £ 50,000 for making payments to accounts at the Russian National Commercial Bank (“RNCB”) – sanctioned since July 2014 for allegedly taking advantage of the annexation of Crimea – in violation of Ukraine’s Regulation 4 (European Union on Financial Sanctions) (No. 2) Regulations 2014. This is the first sanction imposed by the Office of Financial Sanctions Implementation (“OFSI”) since its amendment to the Financial Sanctions Guidelines (April 1, 2021), which significantly revised OFSI’s case assessment factors, including expectations for self-disclosure. The Economic Secretary to the Treasury has confirmed OFSI’s financial penalty of £ 50,000, more than six times the value of the violation.

This alert analyzes some of the main findings and conclusions of OFSI, in particular for regulated financial institutions.

Facts

According to OFSI, between March 2018 and December 20191, TransferGo made a total of 16 payments worth £ 7,764 to accounts held at RNCB. The RNCB was designated for its role in supporting the Russian government by providing important banking services in Crimea after annexation.

TransferGo is regulated by the UK Financial Conduct Authority (“FCA”) to provide payment services. TransferGo erroneously assessed that the payments were authorized because the end beneficiaries had not been sanctioned, even though TransferGo was aware that the payments were made to accounts held by the RNCB. OFSI says the payments were a violation because the accounts ultimately belong to the banks – and so TransferGo had in fact made funds available to the designated person, RNCB.

Importance of voluntary disclosure

According to the latest OFSI guidelines, voluntary disclosure can count for a penalty reduction of 50%. Additionally, although the penalties (and corresponding voluntary disclosure discounts) apply to all UK persons (not just regulated entities), regulated financial institutions like TransferGo are also required to notify OFSI of breaches of the rules. sanctions as soon as possible. TransferGo did not inform the OFSI of its reporting obligation, nor did it make voluntary disclosure – two factors which figure prominently in the OFSI’s sanctioning decision and which may also have weighed on the Minister’s decision to maintain it.

Although TransferGo cooperated with OFSI during the investigation, the penalty notice not only states that no voluntary disclosure was made, but that some of the payments were only disclosed in response to complaints. OFSI information requests. In contrast, OFSI’s latest financial penalty, when a voluntary disclosure was made in addition to full cooperation with OFSI, was significantly reduced during the ministerial review.

Expectations for regulated companies

OFSI noted both that TransferGo was regulated by the FCA as well as the HMRC and that TransferGo was “aware of the penalties”. OFSI also highlighted the fact that as a “relevant institution”, TransferGo has additional reporting obligations and expectations. Despite this, the OFSI declares: “[i]n respect for this and other factors, TransferGo has shown a poor understanding of financial penalties throughout its engagement with OFSI.

Financial institutions should be aware, if they were not already, that OFSI will consider the transfer of funds to accounts in designated banks as a violation of the prohibition on making funds available to a designated person. , even if the beneficiaries are not designated. In addition, OFSI expects businesses and individuals to “ensure that they exercise due diligence on banks and financial institutions involved in transactions, as well as on all other parties to the transaction, in order to to ensure that they do not violate financial sanctions ”.

Conclusion

UK businesses and people operating in the UK should ensure that they review the latest UK sanctions regimes and OFSI guidelines on monetary penalties. Check out some of our previous alerts here and here and subscribe for regular updates here.