Law Firms & The Battle Against Sanctions

What are UK Sanctions?

UK Sanctions are restrictive measures intended to:

• Comply with the UN and other international obligations 
• Support foreign policy and national security objectives
• Maintain international peace and security 
• Prevent terrorism 

These sanctions are upheld via the UK sanctions regime. The Sanctions and Anti-Money Laundering Act 2018 provides the main legal basis for the UK to impose, update and lift sanctions. Some sanction measures apply through other legislation, such as the Immigration Act 1971, the Export Control Order 2008 and the Terrorist Asset-Freezing Act 2010.

GOV.UK provides an extensive list of the people, entities and ships (designated persons) who are under the UK sanctions. These sanctions/laws restrict any UK person/entity from:

• receiving payment from or making funds available to persons on the sanctions list
• dealing with their economic resources
• making even legitimate payments to those persons

This regime widened following Russia’s invasion of Ukraine in 2022. The UK, US and EU (alongside countries like Australia, Canada and Japan) have imposed more than 16,500 sanctions on Russia. The UK has sanctioned over 1,500 people and entities.

The intentions of these specific sanctions are to:

• bring a large and lasting cost on Putin and those close to him for the illegal invasion of Ukraine
• cripple Russia’s war machine to help ensure Putin loses the war in Ukraine
• maximise influence on Putin to convince him to end his brutal war
• show the world that the Russian government’s actions have severe consequences

Most famously, Roman Abramovich, the former owner of Chelsea FC, is an oligarch who has been sanctioned. The EU Council claimed that Abramovich had benefited from the Russian government. The former Chelsea FC owner denied having any decision-making influence over the Russian government, but his appeals were not successful.

You can act for someone who’s on the sanctions list, but you must have a licence from the Office of Financial Sanctions Implementation (OFSI) in advance of engaging in any dealing with funds or economic resources, including being paid your fees or any funds on account.

How are UK Sanctions Affecting Law Firms?

Thousands of UK individuals and entities are reportedly failing to put appropriate/high-quality measures in place that ensure they are adhering to the UK sanctions regime. Law firms, in particular, face a heavy risk of falling short and have been on the receiving end of many fines.

The Solicitors Regulation Authority (SRA) monitors and regulates solicitors in England and Wales. The SRA can prosecute solicitors and firms at the independent Solicitors Disciplinary Tribunals (SDT). The SRA/SDT can also:

• issue fines to firms/solicitors
• suspend/strike off solicitors
• close down firms where there is a serious risk to their clients and the public
• set limits on work solicitors can do
• return money to people who lost it due to a dishonest solicitor via a discretionary fund

More than 1,000 firms have been sent advice from the SRA about complying with the UK’s financial sanctions regime. This comes amidst data gathered by the SRA identifying that a large number of firms have poor controls in place to make sure they are following regulations.

The SRA warns that those seeking to circumvent sanctions may target solicitors who are inexperienced in dealing with them. Layers of corporate ownership and intermediaries may also be used to obscure links to a designated person.

Firms at heightened risk are likely to be those:

• involved with multi-jurisdictional transactions
• arranging complex corporate structures where someone is the ultimate beneficial owner
• dealing with high-net-worth individuals 
• providing trusts and company services 
• legal work in shipping and aviation

Based on recent analysis, the SRA has increased the frequency and harshness of sanctions for money laundering breaches in the past six months. Since October 3, the SRA has issued/agreed 19 fines with firms for failing to comply with money laundering regulations.

Ten of these have been for at least £10,000, with the largest financial penalty being issued to national firm Ashfords for £100,000 in November (this was the only firm in the top 100 sanctioned for AML breaches over the last year).

The latest firm to be sanctioned for non-compliance with money laundering regulations was Burrows, which was recently fined almost £13,000 for failing to have in place or to maintain relevant documentation to prevent activities relating to money laundering and terrorist financing.

These are the advised ways law firms can make sure they are following regulations:

1. Check clients against sanctions lists: It would be beneficial for law firms to have a risk-based approach and set up a system that regularly checks clients against sanctions lists
2. Conduct a high-quality risk assessment: The SRA expects regulated professionals to create a written high-quality anti-money laundering (AML) risk assessment

In 2023, more than 100 UK companies voluntarily disclosed that they had breached sanctions imposed against Russia. Creating and adhering to regulatory practices in the UK is not being done so successfully in the UK and so it is important that law firms are able to set standards for their clients. 

Conclusion

In conclusion, regulation issues are (unfortunately) a standard for any industry but it is imperative that law firms take greater measures and accountability to abide by the UK sanctions regime.

However, it is not enough to just not work with designated persons. Law firms must build a risk-based approach to their regulatory practices. It is best for law firms to create systems that will help them target possible sanctioned entities and abide by regulations that are not just under the AML regulations.