UK Sanctions: OFSI Publishes New Guidance On Ownership And Control

• Law Firm: Mayer Brown
• Subject Matter: Corporate/Commercial Law, International Law, Corporate and Company Law, Export Controls & Trade & Investment Sanctions, Shareholders
• Author: Mr Jason Hungerford, Paul Whitfield-Jones, James Ford, Tamer A. Soliman, Timothy J. Keeler, Nikolay Mizulin, Paulette Vander Schueren, Jing Zhang and Yoshihide Ito
• Published date: 29 March 2023

On 16 March 2023, the Office of Financial Sanctions Implementation ("OFSI") updated its Enforcement and Monetary Penalty Guidance (the "Guidance").¹ The Guidance offers new and welcome insight into OFSI's expectations around sanctions ownership and control assessments under UK sanctions. Among other things, the Guidance:

• Provides a more detailed framework to inform the policies and procedures and decision-making process companies should follow in making an ownership and control assessment;
• Offers a non-exhaustive list of due diligence steps a company may take to assess whether a UK sanctions target exercises (i) formal ownership and/or control; and (ii) indirect or de facto control over a company; and
• Sets out certain factors that OFSI will consider as aggravating or mitigating in an enforcement context where an incorrect assessment of ownership and control is a relevant factor.

The Guidance states that OFSI "does not prescribe the level or type of due diligence" a company should undertake in making an ownership and control assessment. However, the Guidance also states that OFSI will consider as a mitigating factor in the event of a breach an "ownership and control determination reached... in good faith" where such determination is a "reasonable conclusion" based on the due diligence conducted. In practice, the examples of due diligence enquiries set out in the Guidance will form a helpful part of a company's toolkit in conducting an ownership and control assessment.

Ownership and control - better understanding OFSI's expectation

It is well-established under UK sanctions that asset freeze restrictions targeting a designated person extend to any person the designated person owns or controls. OFSI has previously set out guidance in its OFSI's General Sanctions Guidance²

("OFSI's General Sanctions Guidance") on the ownership and control test. Assessing a party's control status under UK sanctions, however, has presented practical compliance challenges for companies, for example, where a sanctions target holds a significant minority share in a company or previously held a majority interest in a company and has divested some portion of the stake to family members or business associates.

The Guidance provides new insight into OFSI's expectations of companies making an ownership and control assessment under UK sanctions. While these expectations may reflect the existing sanctions compliance framework a company may have in place, the Guidance provides a helpful...