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UK payment solutions company becomes sixth company to receive financial penalty from OFSI for breaching sanctions

On 2 February 2022, the UK Treasury’s Office of Financial Sanctions Implementation (OFSI) announced a fine of £36,393.45 against Clear Junction Limited (Clear Junction) for multiple breaches of the 2014 Regulations on Ukraine (European Union financial sanctions) (No. 2) (UK regulations).

According to the OFSI sanction report, Clear Junction, a financial technology company, transferred funds to accounts held by unnamed persons with the Russian National Commercial Bank (RNCB), an entity subject to a freeze assets. This resulted, according to the OFSI, in 15 transactions carried out between March 20, 2018 and June 18, 2018, in which Clear Junction made funds available to a designated person under Regulation (EU) No 269 Council /2014 (EU Regulation) (i.e. RNCB).

The transactions were initiated by TransferGo Limited (TransferGo), a client of Clear Junction and subject to a previous OFSI monetary sanction on August 5, 2021, relating to the same series of transactions. For more information on TransferGo’s enforcement action, see our previous blog post here.

The Clear Junction case represents the sixth use of OFSI’s civil monetary penalty powers since their introduction under Part 8 of the Policing and Crime Act 2017 (PACA). Several useful clues as to OFSI’s enforcement priorities can be drawn from the Clear Junction case.

OFSI’s focus remains broader than traditional financial institutions

Clear Junction’s enforcement action points out that the OFSI is targeting fintech and other companies, as well as traditional financial institutions. Three of OFSI’s six enforcement actions to date have involved fintech or telecommunications companies, suggesting that OFSI’s investigations could continue to cover a wide range of sectors.

The Potential Benefits of Materially Complete Voluntary Disclosures

Under the PACA, the OFSI has the discretion to determine the amount of a sanction up to the greater of £1,000,000 or 50% of the value of the funds or resources involved in a sanctions breach. The OFSI’s version of the monetary penalties guidelines for financial sanctions violations applicable to the Clear Junction case state that the OFSI “considers the voluntary disclosure of a financial sanctions violation by a person who has committed a violation as a mitigating factor when we assess the case. This will also have a real effect on any subsequent decision to apply a sanction.

Clear Junction’s penalty of £36,393.45 linked to transactions with a combined value of £7,703.68. The maximum possible fine was therefore £1,000,000. Clear Junction voluntarily disclosed eight initial transactions to the OFSI and received a 26.7% voluntary disclosure reduction on its penalty relating to those transactions.

During OFSI’s investigation, eight other transactions were identified before and after Clear Junction’s voluntary disclosure. Clear Junction provided statements regarding one of the transactions, which showed that the transaction was the result of a technical issue with Clear Junction’s compliance system which had since been resolved. Although OFSI considered the payment to be a violation of financial sanctions restrictions, it removed the payment from its sanctions assessment due to specific mitigating factors.

However, the OFSI considered the remaining seven transactions as breaches for which it was reasonable and proportionate to impose a financial penalty. As these transactions were not subject to self-declaration, no voluntary disclosure discount was applied by the OFSI.

The OFSI stated in its sanction report that, “[h]and all violations were voluntarily disclosed to OFSI, Clear Junction would have been eligible for a 50% remission of the base penalty amount” instead of the 26.7% remission it received.

The importance of due diligence

Clear Junction’s enforcement action underscores the OFSI’s position that a person transferring funds to accounts held by unnamed persons at named banks is in breach of UK regulations’ ban on placing funds at the disposal of a designated person if the person knew or had reasonable grounds to suspect they were doing so.

The OFSI Sanctions Report makes it clear that it expects companies and individuals to ensure they exercise due diligence on parties to transactions, banks and institutions involved in these transactions, as well as any other party to these transactions to ensure that the financial sanctions are not violated.

Clear Junction’s enforcement action also communicates OFSI’s position that Clear Junction was unable to rely on TransferGo – another licensed payment institution regulated by the Financial Conduct Authority and supervised by HM Revenue and Customs – ensuring that his instructions complied with the financial sanctions restrictions. Instead, companies should undertake their own due diligence and audit their systems and controls to ensure they are complying with the financial sanctions restrictions.

There is not always a benefit to be gained from appealing the initial OFSI sentence

As in TransferGo’s previous enforcement action, after reviewing the case documents, the Minister upheld the OFSI’s decision both to impose a penalty on Clear Junction and on the amount of the penalty, concluding that the original penalty was “within the range of reasonable and proportionate options open to the OFSI. Although Clearjunction initially appealed against the Minister’s decision, those proceedings have now been withdrawn.

The minister also denied Clear Junction’s request for anonymity in the event that his sanction is upheld following the ministerial review process. As in the TransferGo case, the Minister considered that the anonymization of the sanction was contrary to the objectives of the OFSI sanctions enforcement regime and not in the public interest.

The OFSI will continue to investigate and impose sanctions for breaches of financial sanctions occurring under EU sanctions regulations

The sanctions breaches in the Clear Junction case occurred before the end of the Brexit transition period in 2018 and were therefore breaches of the applicable EU regulation. The case reiterates the OFSI’s commitment to continue the investigation and, if necessary, to impose financial penalties for breaches of European sanctions regulations before the end of the Brexit transition period on December 31, 2020 .

Key points to remember

  1. Sanctions compliance for fintech and non-financial institutions continues to be important as the OFSI has once again demonstrated its willingness to prosecute financial sanctions violations across various sectors.
  2. It is critically important for businesses to conduct thorough checks to ensure they understand who they are doing business with.
  3. The investigation and disclosure to OFSI of potential financial sanctions violations should be undertaken with care and with appropriate cooperation, in order to maximize the likelihood of a prompt and satisfactory outcome.