OFSI Annual Review 2022/23 - our 5 key takeaways

On 14 December 2023, the UK's Office of Financial Sanctions Implementation (OFSI) published its annual review covering the 2022-23 financial year. Against the backdrop of unprecedented sanctions in response to Russia's invasion of Ukraine, the review highlights OFSI's ongoing efforts to strengthen the UK's financial sanctions regime and boost international collaboration, as well as its ambition to move towards a more proactive enforcement model.

Below we set out our five key takeaways from the review:

1. Strengthening the UK's financial sanctions regime 

New prohibitions targeting Russia

Russia continues to be the primary focus of UK financial sanctions. During 2022-23, multiple new financial sanctions were introduced with the aim of restricting Russia's access to the UK's financial services and markets. In many cases, these prohibitions relied on effective collaboration with international partners. The measures focused on limiting Russia's ability to:

• access trust services;
• deal with securities and financial instruments;
• receive new loans/credit; and
• receive UK investment.

Additional designations and increased frozen assets 

In 2022-23, as expected, OFSI continued to add to its list of sanctioned persons, with 800 names added to the consolidated list across all sanctions regimes. As of 31 March 2023, 3,883 designated persons were subject to an asset freeze across 35 regimes. Of these, 653 were newly designated persons under the Russia sanctions regime. 

Assets of £21.6 billion were reported to OFSI as having been frozen as at 30 September 2022, which represents an increase of £9.2 billion on the previous year. Most of this, namely £12.8 billion, is attributed to assets frozen under the Libyan sanctions regime; the Russian regime accounts for £7.98 billion. 

OFSI's In-Year Reporting shows that assets of £22.7 billion were frozen in relation to the Russia regime for the period from February 2022 to October 2023.

Greater resource

OFSI reported it had achieved its target of 100 full-time staff by the end of 2022, by increasing its: 

• enforcement team by 175%;
• licensing team by 160%; and
• engagement team by 120%.

OFSI reported that it had also invested in new technologies as part of redesigning its intelligence function.

2. Improving and sustaining international and domestic collaboration

International

OFSI has continued to emphasise the importance of effective international cooperation when implementing sanctions. Two examples from 2022/23 included collaborating with: 

• the Price Cap Coalition of the G7, the EU and Australia, sharing information, typologies and best practice on implementing the Russian oil price cap; and
• the Crown Dependencies and British Overseas Territories on how best to implement and apply the trust services prohibition.

The OFSI-OFAC partnership also received particular attention. OFSI announced a new initiative beginning with a series of "in-depth exchanges" in October and December 2022, followed by regular meetings aimed at harmonising the UK and US sanctions regimes. 

As part of the new G7 Enforcement Coordination Mechanism (ECM), OFSI has shared information and intelligence with its partners on third country facilitation of the circumvention of sanctions.

Domestic

OFSI has said that it is "working more closely than ever" with partner organisations in the UK, including the Financial Conduct Authority and the National Crime Agency. In particular, OFSI and the NCA have worked together to provide guidance on the common features of financial crime.

OFSI has also continued to engage with senior leaders and stakeholders from across the financial industry to implement the oil price cap and the prohibition on trust services. During 2022-23, OFSI launched the Legal Sector Engagement Forum (LSEF) and the Russian Financial Sanctions Senior Implementation Group (SIG).  It undertook 117 outreach activities, comprising 69 events and 48 standing engagements.

3. Enforcement and investigation

Investigations

OFSI has significantly ramped up its enforcement and investigative capabilities in the past year. 

• As of April 2023, OFSI's Enforcement Unit had 172 cases under live investigation.
• During 2022-23, OFSI recorded 473 suspected breaches of financial sanctions (excluding oil price cap and counter-terrorism breaches), compared with 147 in the previous year.

Enforcement trends 

Since June 2022, OFSI has been able to impose civil monetary penalties on a strict civil liability basis.

OFSI's enforcement activities over the 2022-23 financial year include: 

• 7 warning letters in response to confirmed breaches that OFSI considered did not warrant public enforcement action;
• 2 monetary penalties with a combined value of £45,000;
• 51 cases closed with no further action (44 of which related to the Russia sanctions regime); and
• a number of cases referred to criminal and regulatory agencies for further review.

The two monetary penalties were issued against companies for breaches of the Syria and Ukraine regimes. These penalties were issued in May and September 2022 (respectively), so may seem like old news to many. Neither company operated in the financial sector: Tracerco Limited (in relation to Syria) is in the oil and gas sector, and Hong Kong International Wine and Spirits Competition Ltd (in relation to Ukraine) is in the consumer goods sector. Referring to these cases, OFSI emphasised that financial sanctions apply to all sectors: 

"it is not sufficient for any company to rely on the banking sector to conduct due diligence on their behalf. This is especially important if a company has global customers and/or operates internationally".

4. Licensing

2022-23 was a landmark year for OFSI's Licensing Unit: it took decisions on 503 cases – a big increase on the previous year's 170 cases.

During 2022-23, almost twice as many licences were granted compared with the previous year. Also, the number of applications submitted and subsequently withdrawn increased significantly – OFSI points out that this reflects its increasing use of its general licensing powers. It issued 28 general licences in 2022-23, including 21 under the Russia sanctions regime, compared with 16 in 2021-22.

5. Looking ahead

Overall outlook: The medium-term outlook is one of continued intensive financial sanctions, with a particular focus on the ongoing conflict in Ukraine.

Proactive compliance and enforcement: OFSI is continuing to work towards a more proactive compliance and enforcement model underpinned by greater intelligence and information-sharing.

Russia-related enforcement action: OFSI is undertaking a large number of complex investigations into Russia-related breaches. It expects that these investigations will lead to public enforcement action, which will be reported in subsequent annual reviews. OFSI states that it will also continue to work with its key partners to enforce the oil price cap.

Increased reporting/disclosure powers:

• OFSI has said that it intends to work closely with the Home Office and other government departments to introduce legislation placing "mandatory reporting obligations on designated persons" under the Russia and Belarus sanctions regimes. Such obligations will be designed to increase transparency and prevent designated persons from hiding their assets in the UK. (This legislation has since been passed – see our UK Russian Sanctions Tracker for details.)
• Further plans include introducing an obligation to disclose foreign reserves of the Central Bank of Russia, National Wealth Fund of Russia and the Ministry of Finance of Russia.

Priority sectors: OFSI states that it will increase its engagement with a number of priority sectors, including financial services, fintech/crypto, legal, accountancy, property, high-value dealers and NGOs. Elsewhere, OFSI describes these sectors as "high risk and underreporting", so they are likely to face greater scrutiny during 2023-24.

Continued expansion: OFSI aims to further expand its workforce to 135 in the next year.

The full OFSI report can be accessed here.

To keep track of all the latest Russian sanctions developments, access our Russia Sanctions Tracker here.

Additional author:Eleanor Zhao, Junior Associate