The Office of Financial Sanctions Implementation (“OFSI”) yesterday announced the imposition of a fine of £50,000 on TransferGo Limited (“TransferGo”) for contravention of Regulation 4 of The Ukraine (European Union Financial Sanctions) (No. 2) Regulations 2014 (the “UK Regulations”). TransferGo is a fintech company that enables customers to send payments to individuals in other countries. It is regulated by the Financial Conduct Authority (“FCA”) and HM Revenue & Customs. Head of Financial Crime Investigations David Savage reviews the decision to impose the fine.
The penalty relates to 16 transactions totalling £7,764.77 in which TransferGo issued instructions to make payments to accounts held at the Russian National Commercial Bank (“RNCB”), a bank operating mainly in Crimea. It was originally a subsidiary of Russian Bank VTB and was acquired by the Crimean government weeks after Russia annexed the peninsula in 2014.
The payments were made between 20 March 2018 and 18 December 2019. In making these payments, TransferGo made funds available to a person designated under Council Regulation (EU) No 269/2014 (the “EU Regulation”). (RNCB was so designated on 30 July 2014.)
In March 2014, following the illegal annexation of Crimea by Russia, the European Union imposed far-reaching sanctions against the Crimea region, including restrictive measures against those responsible for actions that undermined or threatened the territorial integrity, sovereignty and independence of Ukraine. The restrictive measures set out in the EU Regulation imposed asset freezes on those identified as being involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.
After 11pm on 31 December 2020, following the UK’s withdrawal from the European Union, RNCB remained subject to financial sanctions restrictions under The Russia (Sanctions) (EU Exit) Regulations 2019 (the “Exit Regulations”).
In its report of the penalty imposed on TransferGo, OFSI said transferring funds to accounts held by non-designated persons with designated banks is a breach of the prohibition on making funds available to a designated person in the UK Regulations if the person knew or had reasonable cause to suspect it was doing so. This is reflected in Regulation 12 of the Exit Regulations. OFSI recently published updated guidance on financial and investment restrictions under the Exit Regulations.
Upon identification of or reasonable cause to suspect a potential breach of sanctions, Schedule 1 of the UK Regulations requires that a “relevant institution” (essentially a regulated financial institution) make a report to the Treasury (ie, OFSI).
On 18 April 2018, OFSI received a suspected breach report detailing eight payments made by two different individuals to two different accounts at RNCB. Further payments were subsequently made. TransferGo did not inform OFSI of the breaches, as it was required to do as a “relevant institution” under the UK Regulations.
OFSI found that TransferGo issued instructions to send payments to accounts of individuals resident in Crimea using a Russian Bank Identification Code, which identified RNCB as the receiving financial institution. The regulator further found that TransferGo had “made an error in its assessment of whether the payments to RNCB were subject to financial sanctions restrictions”.
TransferGo asserted that the relevant clients and beneficiaries were not themselves subject to financial sanctions restrictions, which meant that the payments to their RNCB accounts did not breach the EU Regulation. OFSI disagreed and found that TransferGo had demonstrated a poor understanding of financial sanctions throughout its engagement with OFSI.
Despite being a relevant institution, as defined in the UK Regulations, TransferGo failed to inform OFSI of the breaches as soon as practicably possible.
The penalty and ministerial review
In its guidance, OFSI states that “breaches of financial sanctions are a serious criminal offence”. Specific guidance on the monetary penalties for breaches of financial sanctions was updated in April 2021. That guidance considers a number of factors in determining an appropriate level of penalty for a breach of sanctions. Of particular note is the reduction to the baseline penalty (which is a sum OFSI considers pertinent to the impact and value of the breach) for companies that self-disclose. Had TransferGo voluntarily disclosed the transactions, it could have received a discount of 50% of the baseline penalty amount.
Conversely, the fact that TransferGo cooperated fully with OFSI’s investigation and promptly provided all information requested of it secured it a discount on the maximum penalty OFSI could have levied.
OFSI ordered payment of a penalty of £50,000 for TransferGo’s breach. Of note is the fact that any person who has a penalty imposed on them by OFSI has the right to a review under s147 of the Policing and Crime Act 2017 (“PACA”). Under these provisions, the minister may:
- uphold the decision to impose the penalty and its amount,
- uphold the decision to impose the penalty but substitute a different amount, or
- cancel the decision to impose the penalty.
TransferGo exercised its right to a ministerial review, which was carried out by the Economic Secretary to the Treasury. Having reviewed the case, the minister was satisfied that:
- the decision OFSI took met the legal tests for imposing a penalty
- OFSI’s assessment of the facts of the case was reasonable
- OFSI followed its own processes correctly and consistently
- the penalty amount was within the range of reasonable and proportionate options open to OFSI
TransferGo further requested anonymity should the penalty be upheld. The minister considered that such anonymity would be contrary to the objectives of OFSI’s sanctions enforcement regime and was not in the public interest.
After a hiatus of 16 months, this penalty hopefully represents a new era for OFSI. While the pandemic may not be quite yet behind us, the fact that OFSI has been continuing to investigate breaches of sanctions by companies with a UK nexus will put paid to any notion that the UK will, post-Brexit, be a safe harbour for sanctions busting. This is important, particularly as the UK was vocal about the necessity of sanctions regimes while a member of the EU.
The matter is also of note as OFSI was particularly critical of TransferGo’s failure to understand the extent and complexity of the EU sanctions regime. Sanctions are complex and nuanced and require dedicated resources to ensure understanding and compliance. This is particularly so for businesses in the regulated sector. Ignorance is no excuse for non-compliance with the law.
Finally, the fact this penalty received ministerial scrutiny and subsequent approval is of interest. The right to an appeal furthers the rule of law. The fact that this is the first time a sanctions penalty has been so appealed and approved by a minister is a good stress test of how the UK sanctions penalty regime will perform post-Brexit.
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