On February 27, 2024, HM Treasury’s Office of Financial Sanctions Implementation (“OFSI”) published a number of guidance documents on financial sanctions licensing addressing the process of applying for a licence, as well as the principles applied when making licensing decisions relating to designated individuals.  Publication of the guidance follows a recent court case in which OFSI’s decision to refuse certain licence applications in relation to a designated individual sanctioned under the UK’s Russia sanctions regime was unsuccessfully challenged.  The newly published guidance provides additional clarity regarding OFSI’s process for financial sanctions licensing, as well as the factors OFSI considers when exercising its decision-making powers in relation to certain specific licensing grounds.  OFSI does not intend for the new licensing guidance to replace any previous guidance on the financial sanctions licensing regime and it should be read alongside OFSI’s general financial sanctions guidance, regime-specific guidance, introduction to licensing, and reasonableness in licensing blog posts. 

OFSI Licensing Policy

In October 2023, Mr. Justice Saini’s judgment in the case of R v HM Treasury [2023] EWHC 2657 (Admin) suggested that OFSI should consider making prescriptive policies on the assessment of financial sanctions licence applications public so that those seeking licences can make submissions relating to the criteria established by the policy.  On February 27, 2024, OFSI seemingly responded to this call by publishing a blog post on its licensing process and policies.

OFSI follows a step-by-step process when evaluating financial sanctions licensing applications, which takes into account an assessment of the urgency and validity of licence applications.  The process also seeks to ensure that accurate licensing decisions are made.

Stage 1 – Initial Assessment of Licence Application

When a new financial sanctions licence application is submitted, or an amendment request is made for an existing licence, OFSI’s licensing team conducts an initial triage exercise. Priority is given to applications that demonstrate a genuine and evidenced need, particularly for humanitarian purposes or in situations involving a potential risk to life.  

OFSI’s licensing team then reviews each licence application to ensure it includes the essential information required to further consider its merits.  Incomplete licence applications are returned to the applicant with an explanation of the further information that is required for the application to be assessed as complete (see OFSI’s blog on returning incomplete applications for more information).

Stage 2 – Gathering Information

Once a licence application is assessed as complete, it is passed to an OFSI caseworker for a more detailed review.  This phase involves a comprehensive examination of the licence application to identify whether the information provided supports the licensing purpose relied upon and enough information has been provided to make a well-informed recommendation on the application.  OFSI will reach out to the applicant to request any additional clarificatory or supplemental information that is required, when necessary.

Stage 3 – Assessing the Licence Application

Once the OFSI caseworker has confirmed that all essential details have been provided, the licence application is assessed in line with the applicable sanctions regulations, considering any necessary legal advice obtained and relevant guidance to decide whether to recommend that a licence be granted.

Stage 4 – Making a Decision

The case then proceeds to a decision in line with OFSI’s licensing delegation framework, which requires OFSI caseworkers to assess whether a decision is contentious such that it should be taken by a minister.  OFSI may request additional information from the applicant at this stage of the licensing process.

In applying the licensing delegation framework, OFSI caseworkers are required to consider a range of factors, including:

  • whether the decision could have a significant economic impact or impact UK commercial interests;
  • whether the decision will attract significant adverse media or parliamentary comment;
  • whether it is likely that the decision will attract significant adverse international comment (e.g., from international organisations, other countries, governments, or opposition groups) whose views the UK would respect;
  • where licensing a payment would run the risk of inconsistency with the UK’s current foreign policy objectives;
  • whether it is likely that the decision will attract significant adverse comment by campaigning, human rights, or expatriate groups whose views the UK would respect;
  • whether there are significant risks of a potential legal challenge as a result of a licensing decision;
  • whether the decision presents any national security risks;
  • whether there are significant risks of potential reputational damage as a result of a licensing decision (e.g., because of why the designated person is sanctioned and whether any recent activity on the part of the designated person would increase the reputational risk of the decision); and
  • whether granting a licence application could raise wider public policy concerns.

When ministers previously have established a precedent in relation to a particular entity, set of circumstances, or activity, OFSI should rely on that precedent to inform an OFSI Senior Civil Servant (“SCS”) and not refer the case to a minister for a decision.  However, if there are differences between the circumstances of the precedent case and the particular licence application that would render the use of precedent inappropriate, or if OFSI was minded to recommend deciding against the precedent, OFSI would refer the decision to ministers.

When an application relates to an administrative change to an existing licence (and does not involve a change to the substantive terms of a licence), OFSI should refer the decision to the Head of Licensing or a Licensing Branch Head (and not refer the case to a SCS for a decision).  For example, increases to an existing payment cap of up to 1% or £1,000 can be approved by a Branch Head or up to 10% or £10,000 by the Head of Licensing.

There is a separate licensing delegation framework for licence applications that are related to counter-terrorism (the “Counter-Terrorism Framework”).  When applications for new or amended licences involve significant changes to a designated person’s authorisations or obligations under the UK’s counter-terrorism regimes the applications will be treated as contentious by default and will require ministerial approval.  The framework makes clear that:

  • administrative amendments (e.g., minor updates to bank details for approved suppliers or the designated person’s account) will be determined by an OFSI SCS;
  • amendments that do not result in additional funds being made available to the designated person (e.g., an extension to the licence period with no other changes) will be determined by an OFSI SCS; and
  • corrections to licences arising from typographical errors (save those that involve values, account details, or amendments materially changing the terms of the licence) may be made by the Head of OFSI’s counter-terrorism unit.

Stage 5 – Outcome, Notification (and Licence Issuance)

Once a decision has been taken regarding whether to approve or reject a licence application in accordance with the applicable licensing delegation framework, the OFSI caseworker communicates the decision to the applicant.  In cases of rejection or partial rejection, OFSI will provide reasons for the decision (see 6.12 of OFSI’s general guidance for further information).  If a licence application or amendment request is approved, the OFSI caseworker will share a draft licence with the applicant.  The applicant is given an opportunity to review and confirm the accuracy of the draft licence prior to it being finalised and issued to the applicant by OFSI.

Designated Individuals Licensing Principles

OFSI’s newly published designated individuals licensing principles establish a set of policy principles applicable to licence applications concerning designated individuals (i.e., natural persons, as opposed to other legal persons such as companies) under all UK financial sanctions regimes.  These 16 principles are hierarchical in order and have been provided to aid applicants in understanding how OFSI interprets common licensing purposes, as well as the circumstances in which OFSI may exercise its discretion to refuse to licence certain activities even when a licensing purpose is met.  OFSI has stated that it will use the principles to inform its decision-making, will keep the principles up-to-date, and may amend the principles from time-to-time. 

These principles have been divided into five categories: (i) fundamental; (ii) basic needs; (iii) frozen assets; (iv) ownership and control; and (v) general.  Within these categories, OFSI generally describes the considerations that it will take into account when making licensing decisions, including the health and safety of UK designated persons and related non-designated UK persons, prior obligations of UK designated persons, the integrity of the sanctions regime, and the appropriateness of the activity.  Conversely, OFSI also describes certain activities for which it will generally not authorise a licence, such as, payments for the use of luxury recreational assets, international travel, and improvements to the state of an asset. 

Applicants are encouraged to consider these principles carefully before applying for a financial sanctions licence.  The following are some of the more broadly applicable principles, although OFSI’s guidance should be consulted for more detail on the principles as a whole:

  • OFSI retains the discretion to refuse licence application requests where it determines that it would not be appropriate to licence an activity, even when the grounds of a licensing purpose have been satisfied;
  • OFSI will not licence activity that could undermine the integrity and objectives of the sanctions regime, either in terms of the nature of the activity or its “value” (i.e., preserving the value of the frozen assets);
  • OFSI generally will not make ownership and control determinations on behalf of applicants unless it is necessary to do so to issue a licence. It is incumbent upon applicants to demonstrate how a company is owned or controlled and speculative applications will not be accepted;
  • when the position on ownership and control is not entirely clear, but there are respectable arguments that an asset is owned or controlled by a designated person, OFSI prefers issuing a licence (as opposed to issuing a negative ownership and control determination for the purpose of refusing a licence);
  • in identifying a prior obligation, OFSI may exercise its residual discretion to licence only a proportion of that obligation (e.g., considering break clauses) where licensing ongoing payments would be disproportionate to the aims of the regime;
  • licensing should permit basic needs, which OFSI considers to include a reasonable standard of living as compared to a person receiving the net UK median wage, with an objective view of what is required to fulfil the individual’s ordinary basic needs taken where expenditure is in excess of that benchmark; and
  • while OFSI will consider the detrimental impact of licence denials on others, it is not a determinative factor and must be balanced against upholding the objectives of the sanctions regime and the operational feasibility of licensing a particular activity.

While the principles will help guide OFSI’s decision-making, they are not absolute.  The OFSI guidance states that applicants should expect that a licence will not be issued if doing so would require OFSI to deviate from the principles, however, each application considered by OFSI will be assessed on a case-by-case basis.  When completing the OFSI licence application form, applicants should explain how their application aligns with these licensing principles and, in cases where OFSI would need to deviate from the principles to issue a licence, applicants should provide additional supporting evidence that explains why there are clear and compelling reasons justifying that course of action grounded in the specific circumstances of the licence application.  For more information on these developments, contact the authors of this post, Alexandra Melia or Elliot Letts, in Steptoe’s Economic Sanctions team in London.