UK issues legal sector sanctions threat assessment, highlights Russian evasion risks
The United Kingdom’s Office of Financial Sanctions Implementation (‘OFSI’) has published a threat assessment for the legal services sector, highlighting the key risks and compliance challenges facing the industry, with particular focus on Russian sanctions evasion schemes and red flags that could indicate foul play.
The assessment, released 2 April, reveals that since February 2022, the legal services sector has submitted the second highest number of suspected breach reports to OFSI by sector, accounting for 16% of all reports, compared with 65% submitted by the financial services sector.
‘It is almost certain that most non-compliance by UK legal services providers has occurred due to breaches of OFSI licence conditions,’ including transactions exceeding licence value limits, payments made after licence expiry, and failures to meet reporting requirements, according to the report.
With reference to designated persons (‘DPs’), it notes: ‘It is almost certain that complex corporate structures, including trusts, linked to Russian DPs and their family members have obfuscated the ownership and control of assets which could be frozen under UK financial sanctions.’
OFSI highlights particular concerns about Trust and Company Service Providers (‘TCSPs’), noting that ‘it is highly likely that UK trust and company services providers have not self-disclosed all suspected breaches to OFSI.’ TCSPs accounted for only 2% of suspected breach reports from the legal sector despite their critical role in managing complex structures.
The assessment identifies several red flags for legal services providers, including ‘extensive links between a non-designated individual and a Russian DP and/or their family members without a clear business purpose’ and ‘non-designated individuals serving as shareholders at entities linked, directly or indirectly, to a Russian DP without a clear business purpose.’
Since February 2022, 23% of suspected breach reports involving UK legal services providers have included an intermediary jurisdiction nexus, with the British Virgin Islands, Cyprus, Guernsey and Switzerland appearing most frequently in these reports: ‘OFSI has also observed links between suspected breaches involving UK legal services providers and the Isle of Man; Jersey; Cayman Islands; Austria; and the United Arab Emirates (UAE),’ the report adds.
OFSI has called on legal services providers to conduct ‘lookback exercises’ where appropriate to identify potential breaches and ensure compliance with the UK’s sanctions regime.
