Financial Sanctions – Implications for Legal Sector/Arbitration Pete Maydon Deputy Head Office of Financial Sanctions Implementation HM Treasury International Arbitration and Economic Sanctions Seminar 7 September 2016 Official

Office of Financial Sanctions Implementation (OFSI) Est. 31 March 2016 as part of HM Treasury Continues and builds on the work of HMT’s Sanctions and Illicit Finance (SIF) team OFSI’s principle aims are to: increase awareness of and compliance with financial sanctions; ensure that sanctions breaches are rapidly detected and effectively addressed; and provide a professional service to the public and industry on financial sanctions issues. Official Official

What are financial sanctions? Country Sector Financial Sanctions There are a number of reasons why financial sanctions may be imposed: Coerce a regime, or individuals within a regime into changing their behaviour or aspects of it by increasing the cost on them to such an extent that they decide to cease the offending behaviour; Constrain a target by trying to deny them access to key resources needed to continue their offending behaviour, including the financing of terrorism or nuclear proliferation; Signal disapproval of a target as a way of stigmatising and potentially isolating them, or as a way of sending broader political messages to international or domestic constituencies; Protect the value of assets that have been misappropriated from a country, until such point as they can be repatriated. Depending on the measures involved financial sanctions can target individuals, entities, or entire countries. Entity Individual Official Official

What do financial sanctions do? An asset freeze prohibits… dealing with the funds or economic resources belonging to or owned, held or controlled by a designated person making available funds or economic resources, directly or indirectly to, or for the benefit of, a designated person ‘Dealing with’ move, transfer, alter, use, allow access to, exchange or deal with in any way that would result in any change in the volume, amount, location, ownership, possession, character, destination or any other change that would enable the funds to be used. Official Official

What do financial sanctions do? Funds includes… financial assets and benefits of every kind – including cash, cheques, money orders, deposits, securities, and financial assets. Economic Resources are… assets of every kind Provision of services Does this involve making funds or economic resources available or otherwise enabling the prohibitions to be breached? Official Official

Other financial sanctions Other financial sanctions can include… Prohibition on the provision of financial services Provisions of insurance or reinsurance Restrictions on financing and raising capital Official Official

Does provision of arbitration breach sanctions? Official Official

Does provision of arbitration breach sanctions? YES! Official Official

Does provision of arbitration breach sanctions? …possibly Official Official

Does provision of arbitration breach sanctions? Parties involved Is a sanctioned person involved? Are you dealing with a designated persons funds? A DP’s funds should be frozen: a licence will be required to allow a DP to pay for arbitration/legal services. If you hold funds for a DP, a licence will be required to return unused funds (generally to a frozen account). Will the outcome involve dealing with a DP’s funds/resources? Will a designated person derive an economic benefit? Does this involve making funds or economic resources available to/for a DP? Official Official

Does provision of arbitration breach sanctions? Will a designated person derive an economic benefit? Is someone else paying for services from which a DP will/may benefit? Could the activity aid sanctions evasion? or otherwise enable the asset freezing prohibitions to be breached? Does the activity engage other financial sanctions? Insurance, capital markets, and financial services restrictons. Official Official

Does provision of arbitration breach sanctions? If the answer to any of the above is “yes”, a licence will be required before the activity can take place. Official Official

OFSI Licences Licensing grounds (found in the legislation) Basic expenses Extraordinary expenses Legal fees Routine maintenance of funds / assets Some prior contracts Humanitarian Approval processes UK approval processes – policy, legal and Ministerial EU and UN – may need to be notified or asked to approve a licence. Can add at least 14 days. Official Official

Licence applications: top tips Read OFSI’s guide to financial sanctions and the relevant legislation Identify the most appropriate licencing ground Use the licence application form on our website Provide a clear description of the payment chain and who is involved Apply for the licence well before you need it Be available to discuss the application Make sure your bank is aware of the situation A licence only permits an otherwise prohibited act It doesn’t compel a person to make a payment Official Official

Legal sector and compliance The legal sector must comply with financial sanctions Compliance needs to be inline with regulations and licence conditions Guidance available from: OFSI Law Society Joint Money Laundering Steering Group (JMLSG) Suspected breaches must be reported to OFSI Official Official

New Powers Policing and Crime Bill Harmonisation of criminal penalties across all financial sanctions regimes Alternative enforcement tools… Deferred Prosecution Agreements (DPAs) Serious Crime Prevention Orders (SCPOs) Administrative fines Implementation of UN listings ‘without delay’ Official Official

Further information Read our guide to financial sanctions: https://www.gov.uk/government/publications/financial-sanctions-faqs Sign up to our free email alerts: https://public.govdelivery.com/accounts/UKHMTREAS/subscriber/new Monitor the consolidated list: https://www.gov.uk/government/publications/financial-sanctions-consolidated-list-of-targets Official Official

Contact us Web: https://www.gov.uk/government/organisations/office-of-financial-sanctions-implementation Email: ofsi@hmtreasury.gsi.gov.uk Helpline: 020 7270 5454 Official Official