OFSI UK Releases Penalty Notice for HSF Moscow Highlights Key Sanctions Compliance Lessons

Herbert Smith Freehills CIS LLP Moscow, a UK-registered company, was fined £465,000 by the Office of Financial Sanctions Implementation (OFSI), a division of HM Treasury, in compliance with section 146 of the Policing and Crime Act 2017.

HSF Moscow was penalized for violating Regulation 12 of the 2019 Russia Regulations.

The penalty corresponds to six payments totalling £3,932,392.10 that HSF Moscow made to designated individuals between the 25th of May and the 31st of May 2024.

The sanctioned banks included Alfa-Bank JSC, PJSC Sovcombank, and PJSC Sberbank.

The parent company, Herbert Smith Freehills LLP in London has not been found liable, however, the OFSI has hit its Moscow branch.

On behalf of HSF Moscow, HSF London promptly and thoroughly disclosed details of any violations. The total penalty amount was, therefore, reduced by 50%. Without this reduction, OFSI would have levied a £930,000 fine.

The British regulators are convinced that the HSF Moscow was aware that all six of the payments would wind up in the hands of those who had been sanctioned.

Hence, HSF Moscow’s actions were not accidental, and they were either aware of the potential consequences or were negligent in not recognizing them.

According to the PACA’s financial penalty rules, any entity (an individual or organization) may contest the OFSI’s ruling and have the right to appeal the monetary penalty that was assessed against them through a procedure known as a “ministerial review.”

The minister may decide to rescind the penalty and reverse the OFSI’s judgment, reduce the penalty’s amount, or fully support the OFSI’s decision. These are the three possible outcomes of the ministerial review.

The HSF parent branch in London exercised its right and formally requested for ministerial review relating to the OFSI’s penalty on 19 December 2024.

The senior Treasury official oversaw the ministerial review as requested by the HSF London.

The Treasury official endorsed the OFSI monetary penalty on February 14. On February 19, the ruling was subsequently made public.

On March 14th, HSF London agreed to pay the full amount of the monetary penalty on behalf of its Moscow branch.

Compliance Lessons for All Entities Established Under UK Law

The OFSI penalty notice further mentions the following key points for effective compliance for all UK firms registered under UK laws.

1. OFSI reiterated and mentioned once more that all firms registered under UK law, no matter what, are mandated to comply with UK financial sanctions regulations.
2. OFSI suggested that firms understand the risks of sanctions and do more to address these risks. Firms operating in the heightened sanction risk must educate themselves and also get professional advice on how to navigate the sanctions obligations. Firms are also advised to employ OFSI’s published guidance. Moreover, OFSI recommended parent companies with offices operating abroad to take extra measures and make sure to offer a compliance guide and advice.
3. OFSI stressed that no matter the designation or title, all employees working within UK firms are equally mandated to follow all the due diligence and sanction screening protocols. Having policies in place is definitely not enough, firms are required to follow them to avoid such fines in the future.
4. OFSI suggested assessing and carefully analyzing the application of sanction screening protocols to any given entity.

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