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Jonathon Bray Webinar 29 March 2023: Sanctions Compliance for law firms

  1. Jonathon Bray Limited Sanctions Compliance One year on …… With Jonathon Bray, Rachael Eyre and Carly Llewellyn
  2. • The sanctions regimes and how they apply to law firms • Who you should conduct due diligence on and how • Exemptions and general licences • Updated SRA/Law Society guidance, and • Professional duties • Practical tips • Q&A Jonathon Bray Limited
  3. The Basics •Main legislation: Sanctions and Anti-Money Laundering Act 2018 •Trade, immigration, transport sanctions •Financial sanctions •‘Designated person’ = individuals or entities targeted with sanctions •Criminal offences include: • receiving/making payments • dealing with economic resources • knowingly/intentionally circumventing sanctions • Includes legitimate payments •Reporting to OFSI • Obtaining licence • Report a DP (even if you decide not to act) - subject to LPP •Licences • Individual licences (reasonable fees for legal advice is specifically a ground for a licence) • General licences (currently in place for legal fees and expenses) Jonathon Bray Limited
  4. Implications for Lawyers •How legal work can get caught • Not just ‘transactional’ work: any payments to/from DPs • Not necessarily overseas: UK nationals can be sanctioned • No low value threshold • Not just financial sanctions e.g. immigration sanctions •Must do sanctions checks •Should do a risk assessment • On the basis of the RA, put in place policy/procedure and do training •International firms (US, Canada, Japan and other jurisdictions) •Don’t forget trade sanctions •Sanctions not to be confused with AML… • …no risk based approach or scope for professional judgement • Not just criminal property Jonathon Bray Limited
  5. Sanctions currently in place Jonathon Bray Limited Not just Russia and Belarus Usually specific people, organisations or entities
  6. Update on Russia Sanctions Latest OFSI guidance (March 2023) - December 2022 amendments include: • Prohibition on providing trust services to DPs or anyone connected to Russia • Several professional service industries restricted (including audit, IT consulting and architects) • Widening financial services and categories of goods under trade sanctions Jonathon Bray Limited
  7. Exceptions and general licences in place • Exceptions relate mainly to niche areas of financial services and some trade sanctions - not legal services • Relevant general licences • March 2023 (INT/2023/2589788) - permission to wind down trust services provided to sanctions targets (90 day window) • October 2022 (INT/2022/2252300) - allows payments to be made for legal professional fees and expenses associated with the provision of legal services. • Must be reported to HM Treasury within 7 days • Due to expire 27 April 2023 • May 2022 (INT/2022/1839676) - UK nationals can purchase travel tickets from sanctioned Russian companies (inc. Aeroflot) • Study terms of general licences before using them Jonathon Bray Limited
  8. AML Vs Sanctions Jonathon Bray Limited Sanctions AML All firms / work types In scope Including payment of fees Client assets not fees (adequate consideration) Not legally prescriptive Legislation and LSAG prescriptive Strict liability Risk based plus mandatory steps Report to OFSI if know or suspect (a) breach; (b) designated person; (c) frozen assets – all course of business SAR if know or suspect proceeds of crime Cannot outsource liability Regulation 39 ‘Control’ (a) 50%; (b) right top appoint or remove majority of the board; (c) person able to ensure affairs conducted within their wishes. Really wide. Beneficial owner 25%, person with ‘significant control’
  9. Due Diligence • Who to screen • When to do screening • How often should screening be repeated? • AML checks will not be enough (checking the wrong thing) • E-verification tools probably do list checks (but how often are they updated? Are they checking the right lists?) • Not all PEPs are designated persons Jonathon Bray Limited
  10. SRA Guidance November 2022 - Complying with the UK sanctions regime Main points to note: • SRA committed to checking firms’ compliance • All firms caught - not just those regulated for AML • Knowledge of sanctions regime is important to avoid unwittingly committing an offence • Useful table showing the difference between AML and sanctions • Expectations of controls • Risk factors and red flags • SRA Warning Notice on SLAPPs Jonathon Bray Limited
  11. SRA Guidance Jonathon Bray Limited Risk factors – assess Due diligence Strict liability Report to SRA if reporting to OFSI Red Flags for attempted circumvention Two common questions with AML: • 'Am I sure all parties are who they say they are?' • 'Does the client/matter make sense?'
  12. SRA Guidance – Risk Factors Jonathon Bray Limited Jurisdictions Types of entity / entity relations In addition to other risk (Ultra High Net Worth) Transactions for expensive luxury goods Transactions for funding education Transport / freight work Immigration and transactional work Reputation management Charities with high risk jurisdiction Payment directly from / to counter or third party Entity controlled / majority owned by a designated person in the past Jurisdictions with no obvious relevance to the client / matter
  13. The Law Society Guidance Updated November 2022 - UK sanctions regime Main points to note: • Take a risk based approach and use the FWRA process • Indicators of sanctions evasion risk inc.: • Divestment of Russian owners • Use of trust structures • Transfer of ownership to family members • Payments from venture capital • Change in address from Russia shortly before invasion Jonathon Bray Limited
  14. Professional Duties SRA Principles: • Uphold the rule of law and proper administration of justice • Integrity • Independence • Trust in the profession and legal services Code of Conduct for Individuals: • 3.3 - maintain competence and professional knowledge • 7.1 - keep up to date with the law and regulation Code of Conduct for Firms: • 2.1 - effective compliance systems and controls • 2.2 - keep compliance records • 2.5 - manage risks to the business Accounts Rules: • 3.3 - must not provide banking facilities through the client account Jonathon Bray Limited
  15. Practical tips • Check the sanctions list • Assess you risk factors • Utilise your FWRA • Use your AML regime • Check your electronic verification system Jonathon Bray Limited
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  18. Jonathon Bray Limited Sanctions Compliance One year on …… With Jonathon Bray, Rachael Eyre and Carly Llewellyn