On 20th March 2025 the Office of Financial Sanctions Implementation (OFSI) imposed a £465,000 penalty on Herbert Smith Freehills CIS LLP (HSF Moscow) for breaching UK financial sanctions against Russia. Between May 25 and 31, 2022, HSF Moscow made six payments totaling approximately £3.93 million to sanctioned entities, including Alfa-Bank JSC, PJSC Sovcombank, and PJSC Sberbank. These breaches occurred during the firm’s expedited closure of its Moscow office following Russia’s invasion of Ukraine.
The violations were primarily attributed to inadequate due diligence, insufficient sanctions screening, and errors stemming from the hasty office closure. HSF London voluntarily disclosed these breaches to OFSI, resulting in a 50% reduction of the initial penalty. Despite requesting a ministerial review, the penalty was upheld, and HSF London agreed to pay the fine on behalf of HSF Moscow.
The violations were primarily attributed to inadequate due diligence, insufficient sanctions screening, and errors stemming from the hasty office closure. HSF London voluntarily disclosed these breaches to OFSI, resulting in a 50% reduction of the initial penalty. Despite requesting a ministerial review, the penalty was upheld, and HSF London agreed to pay the fine on behalf of HSF Moscow.
OFSI highlighted several key lessons for the industry from this case:
- Understand your exposure to sanctions risks: Firms must thoroughly assess their exposure to sanctions risks, especially when operating in high-risk environments. Engaging with OFSI’s guidance and seeking professional advice is essential. Parent companies should ensure their subsidiaries receive appropriate advice and oversight.
- Adhere to internal sanctions policies and procedures: It’s crucial for all staff, regardless of seniority, to comply with established sanctions screening and due diligence processes. Non-compliance can negate the benefits of having such measures in place.
- Carefully consider ownership and control: Beyond identifying directly sanctioned entities, firms should assess ownership and control structures to determine potential indirect sanctions exposure. A thorough evaluation is viewed more favourably than an incorrect but well-intentioned assessment.
This case underscores the importance of robust compliance frameworks and diligent adherence to sanctions regulations, particularly during periods of organizational change or market exit.
