In addition to the obligations on regulated firms to comply with applicable sanctions regimes, individuals also need to be aware of their own compliance with sanctions restrictions. From a territorial perspective, individuals must comply with the sanctions regimes in their home jurisdiction wherever in the world they are located — for example, EU, UK and U.S. nationals are still required to comply with their respective sanctions regimes regardless of their location.
This can create complexities, particularly (for example) if you have a director of a foreign entity that needs to comply with the UK sanctions regime on an individual basis (either because they are based in the UK or are a UK national based anywhere in the world), but the entity for whom they act is not within the territorial scope of the UK sanctions regime. Regardless of the position of the foreign entity, the individual would be prohibited from being involved in any activities that are in breach of the UK sanctions regime, including:
- Dealing with the funds or economic resources, belonging to or owned, held or controlled by a designated person / a person who is owned or controlled by a designated person;
- Making funds or economic resources available, directly or indirectly, to, or for the benefit of, a designated person / a person who is owned or controlled by a designated person; or
- Engaging in actions that, directly or indirectly, circumvent the financial sanctions prohibitions.
If the individual is personally involved in share-dealing activities, they should also be aware of the sectoral sanctions that apply to certain Russian companies, and which limit the ability of persons (including individuals) to trade in ‘transferable securities’ or ‘money market instruments’ that are prohibited. These types of prohibitions are of course not exhaustive as the UK sanctions against Russia are complex and are set to expand further.
The fact that a director would be required to comply with the UK sanctions regime on an individual basis, would not of itself necessarily bring the foreign entity within scope of the UK sanctions regime at a legal entity level. Therefore subject to the facts of the specific case, OFSI may not have jurisdiction over the entity but could potentially take action against individuals in their personal capacity (i.e. if the individual themselves breached sanctions prohibitions). This scenario raises questions over what exposure a UK-based person or UK national wherever located (be that senior managers, a director or CEO) would have under the UK sanctions regime, for activity of a foreign entity that they are associated with. In this context, there are likely to be different risk profiles depending on the location and activities of the foreign entity, for example:
- where the UK-based person or UK national is employed or acts as director of an entity that is based in a jurisdiction with a broadly equivalent sanctions regime to the UK, which may present a lower risk to the individual; and
- where the UK-based person or UK national is employed or acts as director of an entity that is not based in a jurisdiction with a broadly equivalent sanctions regime to the UK, which may present a higher risk to the individual.
In cases involving the second example, there may be a theoretical ‘gap’ where the entity does not have a global sanctions policy and the foreign entity complies with the relevant local laws, but certain of its activities would be in breach of the UK sanctions regime if that entity had been within the jurisdictional scope. In those circumstances, there may be greater potential exposure for the individual, depending on precisely what role they had in the relevant activity and how much they knew (or did not know) about the activity. It may be possible to manage these risks by implementing policies and procedures under which relevant UK individuals are excluded from any business or transactions of the foreign entity that would be prohibited if undertaken by a UK person, but this would require a detailed review of the potential sanctions risks to understand whether such a policy is appropriate or could be implemented in practice.
In terms of enforcement, UK-based persons or UK nationals should be aware that OFSI can take action against individuals both: (a) in their personal capacity (i.e. where the individual themselves breaches a prohibition or fails to comply with an obligation); and (b) in the case of ‘officers of a body’, for breaches or failures by their relevant body corporate or unincorporated association that took place with the consent or connivance of the officer or which was attributable to any neglect on the part of the officer (although (b) would be in respect of a UK body corporate or entity). It is not yet clear what impact the “strict liability” test imposed under The Economic Crime (Transparency and Enforcement) Act 2022 will have on OFSI enforcement in this area, and this is an area to watch (see our previous Regulation Tomorrow Blog here – https://www.regulationtomorrow.com/eu/the-economic-crime-transparency-and-enforcement-act-2022-the-conundrum-of-strict-liability/).