UK Sanctions: How the "Ownership & Control Policy" Prevents Sanctions Circumvention

Discover how the UK Government's Ownership and Control Policy Strengthens Sanctions Regulations

The purpose of UK sanctions rules is to make sure that sanctions are difficult to get around. All sanctions regimes, including the 2019 Russia (Sanctions) (EU Exit) Regulations, are covered by this guideline.

I Overview

A person's name will be included on the UK Sanctions List if they are designated, or if a ship is listed, in accordance with provisions enacted under the Sanctions and Anti-Money Laundering Act of 2018. For these reasons, a body of people, whether corporate or unincorporated, as well as any organisation, association, or group of people, are considered entities. Entities that are directly or indirectly owned or controlled by a designated individual will be subject to an asset freeze and certain limitations on financial services. The names of such entities may not show up on the Consolidated List since they might not be designated in and of themselves. Nevertheless, financial fines also apply to such entities.

An entity is owned or controlled by another person in any of the following situations, as stated in UK financial sanctions general guidance: the person holds (directly or indirectly) more than 50% of the entity's shares or voting rights; the person has the authority to appoint or remove a majority of the board of directors of the entity; or it is reasonable to assume that the person would be able to ensure the entity's affairs are conducted in accordance with the person's wishes.

This could be, for instance, appointing, by means of one's voting rights, the majority of the members of the administrative, management, or supervisory bodies of an entity that have held office during the current and previous fiscal year controlling alone, in accordance with a contract with other shareholders in or members of an entity, a majority of shareholders' or members' voting rights in that entity possessing the authority to exercise a dominant influence over an entity, in accordance with a contract entered into with that entity, or in accordance with a provision in its Memorandum or Articles of Association, where the legislation governing that entity permits its being subject to such a contract or provision having the right to exercise a dominant influence mentioned in the above, without being the hold This may be accomplished directly or indirectly by various methods. For instance, it's feasible that a designated individual controls or uses another person's financial resources, such as bank accounts, and is making use of them to get around financial penalties.

Financial sanctions will also apply to the entity in its entirety if any of the aforementioned requirements are satisfied and the entity's owner or controller is also a designated person (i.e., their assets should also be frozen).

The bans on providing money or other resources to a specified individual directly or indirectly also prohibit providing them to any business that the designated individual owns or controls, either directly or indirectly. When it is feasible, the UK government will try to identify owned or controlled businesses or people in their own right.

Businesses and individuals are expected by the Office of Financial Sanctions Implementation (OFSI) to carefully evaluate the risks associated with owning or controlling a business. This might include looking into the matter on your own, asking the organisation for further details, and getting legal counsel if you're unclear of your responsibilities.

According to the guidelines for Enforcement and Monetary Penalties, OFSI does not specify the kind or extent of due diligence that must be done to guarantee adherence to financial penalties. OFSI acknowledges that no one solution is appropriate for every situation.

When there has been a breach, OFSI still evaluates each case separately based on the facts, taking into account a variety of aggravating and mitigating factors, such as how a corporation handled its due diligence. The choice to apply a punishment is never made hastily.

II. Public servants and authority over public entities

The Foreign, Commonwealth and Development Office (FCDO) generally does not believe that a designated public official can control a public body in which they have a leadership role, meaning that the public body's operations should be regarded as being carried out in line with the public official's wishes. For the purposes of the Russia (Sanctions) (EU Exit) Regulations 2019, for instance, rule 7(4).

FCDO does not want the imposition of penalties on public officials to prohibit regular interactions with public entities, such as paying taxes, fees, import tariffs, buying permits, receiving licences, using public utilities, or making any other incidental or normal payments.

When designating the appropriate public person, FCDO would try to designate the public body if it believed that the public official was using UK sanctions rules to exert influence over the public body.

Regarding government ministries, for instance, the public body in which a designated person held a leadership role would not necessarily be liable to penalties just because the minister is designated. This would not apply if the designated person were a high-ranking public official acting as a government minister.

However, the relevant legal test under UK sanctions regulations may be satisfied if there was enough evidence to show that the designated individual exercises control over the public body within the meaning of the relevant regulations (see, for example, regulation 7(4) of the Russia (Sanctions) (EU Exit) Regulations 2019). Depending on the specific circumstances, it may or may not be reasonable to assume that the designated person's preferences could really be carried out in the public body's operations. One pertinent factor to take into account may be if the designated individual receives a large personal gain from the payments made to the public body, making those payments to that individual rather than the public body.

III Public servants and their authority over private companies

The UK government does not assume, just because a private business is headquartered or established in a jurisdiction where a designated public person plays a prominent role in economic policy or decision-making, that the entity is under the control of the designated public official. In order to prove that the necessary official is in charge of that business in accordance with UK sanctions legislation, further proof is needed.

For instance, the UK government would not consider private entity X to be controlled within the meaning of regulation 7(4) just because it is headquartered in or incorporated in the same nation if the designated person was a high-ranking public officer. The applicable legal criteria under UK sanctions legislation may be satisfied if there was enough evidence to show that the designated public official explicitly exerts control over private entity X in terms of regulation 7(4).

To be more precise, the UK government does not believe that President Putin has de facto or indirect control over any entity in the Russian economy simply by virtue of holding the office of Russian President for the purposes of Russia (Sanctions) (EU Exit) Regulations 2019, regulation 7(4). On a case-by-case basis, a person should only be permitted to exert control over certain private organisations if this is backed by enough evidence.

For further guidance on ownership and control, see chapter 4 of OFSI’s general guidance.

How to Get More Support

1. If you have any questions, call our helpline at +44 79 14 650 183 or schedule a call at www.customsmanager.org -> top-right corner.

2. Book Export Control Training for you and your team at www.customsmanager.org/events

3. Download Support Guides, on-demand training and more at www.customsmanager.org/shop

About Customs Manager’s Customs & Global Trade Intelligence Services

The Premium Professional Legislative Monitoring Service (PLM) is a research and curation service which checks for legislative updates from official government websites based on the selected jurisdictions and topics. Paid Plan subscribers can access regular law change notifications to ensure they never miss a significant legal change on www.customsmanager.info – a website dedicated to customs & trade intelligence. At the same time, they save valuable time by engaging our dedicated trade specialists to carry the monitoring out for them. Premium subscribers also unlock all content on the Customs Manager’s Ltd. website, including our Customs & Trade Blog on www.customsmanager.info , providing vital thought leadership development services to empower them to trade effectively, efficiently and, of course, compliantly, across borders. Premium Subscribers can add jurisdictions and topics for an additional charge.

About Customs Manager Ltd.

We aim to empower people with import, export and transport responsibilities with helpful advice, insightful training and relevant trade intelligence services. We devote all our passion and energy to helping businesses grow faster cross-border. Working with us means having your own multilingual Customs Manager on standby to help you trade effectively, efficiently and, of course, compliantly wherever you want to go. Includes Brexit support and the ability to lodge customs declarations + Rules of Origin

Stay in Touch

· Website: www.customsmanager.org

· E-Mail: info@customsmanager.org

· YouTube: https://www.youtube.com/c/CustomsManagerLtd

· Twitter: @customsmanager

· Linked In: https://www.linkedin.com/company/69768402/admin/

Important Notice

Customs Manager Ltd. owns the copyright in this document, except for external documents and links we refer to or make available.

You are not allowed to use this information in any way that infringes its intellectual property rights. You may have to hold a valid licence to use this information. A licence can be obtained by becoming a Paid Plan subscriber to the Customs Managers’ Customs & Trade Intelligence service, also known as Professional Legislative Monitoring (PLM). As a Paid Plan subscriber, you may download and print this information which you may then use, copy or reproduce for your internal non-profit-making purposes.

However, you are not permitted to use, copy or reproduce this information to profit or gain.

In addition, you must not sell or distribute this information to third parties, not members of your organisation, whether for monetary payment or otherwise.

This information is intended to serve as general guidance and not constitute legal advice. The application and impact of laws can vary widely based on the specific facts involved. This information should not be used as a substitute for consultation with professional legal or other competent advisers. Before making any decision or taking action, consult a Customs Manager Ltd. professional.

In no circumstances will Customs Manager Ltd be liable for any decision made or action taken in reliance on the information contained within this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.