On 29 June 2022, HM Treasury’s Office of Financial Sanctions Implementation (OFSI) announced that a monetary penalty of £15,000 was imposed on 19 May 2022 against Tracerco Limited (Tracerco) for breaches of The Syria (European Union Financial Sanctions) Regulations 2012 (the UK Regulations). Tracerco is a UK registered company based in the UAE and a subsidiary of Johnson Matthey, also a UK company.
According to OFSI’s penalty report, Tracerco made two payments to Syrian Arab Airlines (SAA) for an employee’s flights home between May 2017 and August 2018. According to OFSI, the payments, which had a total value of £2,956.43, resulted in funds being made available for the benefit of a person designated under Council Regulation (EU) No 36/2012 (i.e., SAA). Tracerco booked the flights through a UAE-based travel agency and then refunded the travel agency for the cost of the flights.
The Tracerco case represents the seventh use of OFSI’s civil monetary penalty powers since they were introduced under Part 8 of the Policing and Crime Act 2017 (PACA). Several useful hints as to OFSI’s enforcement priorities can be discerned from the Tracerco case.
OFSI’s focus remains broader than financial institutions
The Tracerco case underscores that OFSI has its sights set on companies across a range of industries and not just traditional financial institutions. Tracerco provides measuring products and services to the oil and gas industry. OFSI’s previous enforcement actions have involved banking, financial services, fintech and telecommunications. The addition of the energy sector to this list suggests that OFSI’s investigations may continue to cover a broad range of sectors.
The potential benefits of voluntary disclosure
Under the PACA, OFSI has the discretion to determine the amount of a penalty up to the greater of £1,000,000 or 50 percent of the value of the funds or resources involved in a sanctions breach. The version of OFSI’s Monetary Penalties for Breaches of Financial Sanctions Guidance applicable to the Tracerco case states that voluntary disclosure of a breach of financial sanctions by a person who has committed a breach may have real effect on any subsequent decision by OFSI to apply a penalty.
Tracerco’s penalty of £15,000 related to two transactions with a combined value of £2,956.43. The maximum possible penalty was therefore £1,000,000 per breach. Tracerco had voluntarily disclosed four transactions to OFSI in January 2020 that had been made over a four year period. OFSI considered all four payments to be breaches of financial sanctions. Two of the transactions pre-dated OFSI’s acquisition of its civil monetary penalty powers, but OFSI took them into account as part of a pattern of breaches by Tracerco as an aggravating factor when calculating Tracerco’s monetary penalty. Tracerco received a maximum 50% discount on the monetary penalty amount for voluntary disclosure.
The importance of due diligence
The Tracerco enforcement action underscores OFSI’s position that companies and individuals must ensure that they carry out financial sanctions due diligence on all transactions they undertake and not just those relating to customers or suppliers.
OFSI’s penalty report makes clear its expectation that companies and individuals conduct their own due diligence. Tracerco engaged in the pertinent transactions through a UAE-based travel agency, however, OFSI noted that “[i]t is not sufficient for any company to rely on a third party to undertake financial sanctions checks on their behalf.” OFSI also noted that the risks of reliance were further heightened when the company relied upon was not a UK company and, therefore, not required to comply with UK sanctions.
OFSI’s holistic approach to case assessment
In calculating Tracerco’s monetary penalty, OFSI took into account a range of mitigating factors, including that:
- the breaches were of an indirect nature;
- the breaches were not deliberate and were of a low value;
- OFSI had not had previous interactions with Tracerco regarding breaches of UK financial sanctions (although OFSI noted that this was not evidence of no prior breaches having occurred);
- Johnson Matthey had taken steps to improve its group’s compliance function after the breaches were reported; and
- OFSI received full cooperation throughout its investigation.
Reminder as to the scope of UK financial sanctions
As noted above, Tracerco is a UK registered company based in the UAE and a subsidiary of Johnson Matthey, a UK registered company. OFSI’s penalty report noted that “UK financial sanctions can also apply to the actions of UK companies abroad. All companies with a UK nexus, not just traditional financial institutions, must make sure they comply with the restrictions in place, and this is especially important when operating internationally.”
- Sanctions compliance for energy companies and other non-financial institutions continues to be important, as OFSI has again demonstrated its appetite for bringing enforcement actions for financial sanctions breaches in a range of sectors.
- It is crucially important for companies to conduct robust due diligence checks to ensure that they understand with whom they are doing business.
- The investigation and disclosure to OFSI of potential breaches of financial sanctions should be undertaken carefully and with appropriate cooperation, to maximize the likelihood of a swift and satisfactory outcome.