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The importance of complying with Russian financial sanctions
8 March 2022

In the wake of the UK Government imposing sanctions on Russia, the SRA has reminded firms of the importance of their role in ensuring all measures and restrictions are complied with. They have also set out the actions they are taking to both assess and support compliance.

Areas covered below include:

  • financial sanctions
  • anti-money laundering
  • strategic litigation against public participation (SLAPP)
  • continuing to act for clients

Financial sanctions

Breaching the financial sanctions requirements can result in criminal prosecution or a fine by OFSI. However, the Code of Conduct also requires all SRA-regulated firms to keep up to date with and follow the law and regulation relating to their work, and the SRA would take disciplinary action if there is any evidence of serious non-compliance.

Firms must have appropriate policies in place to ensure compliance with sanctions legislation, including carrying out regular and appropriate checks of sanctions lists. The SRA expects firms to take their responsibilities under the regime to safeguard the UK and protect the reputation of the legal services industry seriously.

The financial sanctions regime prevents law firms from doing business or acting for listed individuals, entities or ships (without a licence). Firms should check the financial sanctions lists before offering services or undertaking transactions for clients. If an individual is on the sanctions list and subject to an asset freeze, firms may not deal with those funds or make resources available to that person.

The SRA are commencing a process of spot checks on firms to assess compliance with the financial sanctions regime.

Making reports

Firms must also make a report to the Office of Financial Sanctions Implementation (OFSI) if they suspect a customer of their firm is a designated person under the financial sanctions regime. Firms have responsibilities under this regime to safeguard the UK and protect the reputation of the legal services industry. Breaching the financial sanctions requirements can result in criminal prosecution or a fine.

The lists and information about the UK sanctions regimes in force are constantly updated and published online. The Financial Conduct Authority (FCA) has also published helpful guidance on the sanctions regime.

There are some exemptions for which firms can seek a licence from the Office of Financial Sanctions Implementation (OFSI). These include applying for a licence in order to receive reasonable fees for the provision of legal advice. OFSI will judge whether the fees are reasonable. Guidance on these is available online.

Checking thoroughly

The situation in Ukraine is very fast moving and this has meant that there have been frequent additions to the sanctions lists. The sanctions lists are frequently updated, and we are experiencing an unusual and fast pace of change at the moment.

If firms have undertaken sanctions checks as part of customer due diligence when taking on the client and there has then been a period of time before a transaction takes place, they are reminded that it’s helpful to re-check the sanctions list ahead of the transaction completing because individuals may have been added to the list in the interim.

If your firm is using an electronic verification system for customer due diligence and sanctions checks, check they are refreshing sanctions lists with sufficient frequency.

As this is a fast-moving situation, firms can sign up to receive alerts on the latest sanctions changes on the OFSI website.

Other regulatory requirements: anti-money laundering

Firms must take a risk-based approach to preventing money laundering, meaning firms must understand the risks of how their business may be used to launder money and take steps to appropriately mitigate those risks.

The SRA proactively visits firms to check whether they are complying with the money laundering regulations and investigates non-compliance with the money laundering regulations based on its proactive work, reports, or intelligence sharing with other agencies and regulators.

Some of the key areas where firms need to ensure compliance include:

  • risk assessing your firm, relevant clients and matters
  • putting in place policies, procedures and controls to prevent your firm from being used to launder money
  • identifying and verifying identities of your clients and any beneficial owners of your clients
  • identifying source of funds and wealth where relevant
  • training your staff in the regulations, your policies and how to recognise red flags
  • having a money laundering reporting officer who can alert the National Crime Agency (NCA) where they suspect they have encountered the proceeds of crime.

If the SRA identifies knowledge or suspicion of money laundering itself taking place, they will liaise with law enforcement and the National Crime Agency to open an investigation and take action once any criminal investigation has been concluded.

Misuse of litigation

Concerns have been raised about Strategic litigation against public participation (SLAPP), the term used to describe misuse of the legal system to discourage public criticism and reporting or action to address serious concerns (such as corruption/money laundering). It can include preliminary steps as well as actual litigation, for example letters from firms suggesting that litigation may follow.

The Rule of Law and our legal system provides that there is a right to legal advice and representation for all. However, firms must ensure that proceedings are pursued properly and that your duties to your client don’t override your public interest obligations and duties to the court. That means for example you must not bring cases that are not properly arguable; bring excessive or oppressive proceedings; or mislead or take advantage of others.

The SRA has published new guidance on how to balance your duties when conducting litigation.

Continuing to act

Some firms have contacted the SRA and asked whether or not they should stop representing clients because they are Russian or have links to the Russian regime, even though they are not named on the sanctions list. The SRA have said that they recognise that many firms will wish to review their client lists and consider who they feel comfortable acting for.

When it comes to terminating an existing retainer, firms will need to consider their position in contract law: case law dictates that you should not do so “without good reason”. Each case will be different. For example, it could be a good reason for withdrawing services if the firm felt there were risks in continuing to do so, for example, around money laundering.

If your firm is any doubt about what approach to take, please contact the SRA’s Ethics Guidance helpline for advice.

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