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LONDON — An unprecedented war in the West should have been an opportunity for Britain’s sanctions watchdog to step up.
But when it emerged last month that the regulator had dished out zero fines to Russians circumventing their sanctions since the illegal invasion of Ukraine in February 2022, few were surprised.
Critics fear the Office of Financial Sanctions Implementation (OFSI) has become representative of the U.K.’s approach to punishing Russia for its war: in name only.
In February, to mark the two-year anniversary of Russia’s invasion, Britain announced 50 new sanctions to “diminish Putin’s arsenal and war chest.” Foreign Secretary David Cameron accompanied that announcement by saying “our sanctions are starving Putin of the resources he desperately needs to fund his struggling war.”
But sanctions are of little impact if they are not actually enforced.
A sanctions lawyer, granted anonymity to speak freely, said they believe the U.K. government “passed new legislation as an excuse to not enforce the legislation we already have.”
OFSI, which sits within the Treasury, is the main body tasked with sanctions enforcement. It was established in 2016, after Britain left the EU and needed its own sanctions enforcement body. It defines its mission to “rapidly detect, respond to and address financial sanctions breaches.”
Yet since Vladimir Putin invaded Ukraine in 2022, OFSI hasn’t issued a single fine for sanctions evasion related to Russia. Experts say that’s unlikely to be because no Russian individuals have breached their sanctions, or even that British companies have not breached sanctions.
“The fact that there has been little-to-no enforcement action on our own companies can only point to one of two possibilities: either everyone is complying perfectly (which then begs the question of how trade is still flowing to the third-country transshipment hubs), or they are simply not being caught when they break the rules,” Tan Albayrak, a sanctions lawyer at Reed Smith, told POLITICO.
Helen Taylor, a senior legal researcher at Spotlight on Corruption, believes it’s the latter: “The government hasn’t shown that there’s real political appetite to actually enforce what are potentially criminal breaches of sanctions,” she said.
“It’s quite striking to compare the big, bold claims versus the hard facts: that there have been zero fines for breaches of Russian financial sanctions committed since the invasion,” she added.
Now MPs want to do something about it. Parliament’s influential Treasury Committee is investigating whether Russian sanctions are working, with a focus on the effectiveness of the work of OFSI.
Speaking to the Treasury Committee on May 14, Richard Bronze, the head of geopolitics at Energy Aspects said “the question is, is there a political appetite [for change in sanctions enforcement]?”
“It’s one thing to announce and introduce sanctions,” he added. “It’s a different thing to actually consistently enforce it.”
Lame duck
OFSI is often criticized for its lack of proactive investigations due to reliance on self-referrals, which means firms coming to them and admitting they’ve made a mistake.
“There hasn’t yet been any indication of OFSI investigating breaches from intelligence that they have gathered themselves. All breaches are as a result of relevant firms self reporting,” lobby group UK Finance wrote to MPs on the Treasury Committee in advance of their investigation.
Between April 2022 and 2023, OFSI issued two monetary penalties worth £45,000, according to its annual review. But there have been no fines for post-invasion breaches of financial sanctions. HM Treasury issued a fine of £30,000 against the Hong Kong Wines and Spirits Competition in September 2022 for Russia-related sanctions, but the breaches were committed before the war, between 2017 and 2020.
That’s despite £22.7 billion worth of assets in relation to the Russia war regime being frozen, as of October 2023.
And sanctions keep coming — even if there’s no enforcement alongside. On Friday, the Foreign Office announced a package of sanctions against Russia and North Korea, in order to target the “arms for oil trade” between the two countries which is providing Putin with more arms for his war in Ukraine. Russia and North Korea are already two of the most sanctioned countries in the world.
In its submission to the Treasury Committee in May, OFSI said it’s progressing the first monetary penalties from the 2022 Russia designations. It said: “We expect to see the first enforcement action from these in 2024.”
Yet those who should be worried about impending enforcement action don’t seem to be. The sanctions lawyer who spoke on the condition of anonymity said that when discussing sanctions breaches with clients, they tell them “that it is extremely unlikely that they will be penalized in the event that they breach sanctions, because OFSI will not find out unless they report it themselves.”
OFSI lacks full investigative powers, as it is not classed as an “investigative agency” under U.K. law and can only probe cases that have been reported to it, although it does have statutory powers to request information. Any cases that may meet the threshold for criminal prosecution are passed on to its law enforcement partner, the National Crime Agency (NCA) for further investigation.
But these bodies have different priorities: “The NCA’s expertise is in gangs and drugs, not sanctions and foreign policy,” said a sanctions policy expert who spoke to POLITICO on condition of anonymity. The NCA declined to comment.
An OFSI spokesperson said: “OFSI is at the global forefront of financial sanctions and has sanctioned over 2,000 people and entities connected with Russia since the start of Putin’s illegal invasion of Ukraine.”
“It assesses every instance of reported non-compliance and investigates any intelligence pertaining to potential non compliance. It will act in all cases where it concludes a breach has occurred, using legal powers to require information and has handed out over £20 million in fines since 2019,” the spokesperson added.
The amount referenced by OFSI is made up almost entirely of one £19 million fine handed to Standard Chartered Bank in 2020, which was in breach of the EU’s sanctions on Russia from 2014. It had made loans to a Turkish bank which was majority owned by a Russian bank. OFSI’s report states that Standard Chartered reported the breach to OFSI itself.
Punching bag
OFSI has become a punching bag for MPs frustrated that sanctioned Russians individuals can do whatever they want and get away with it.
Alicia Kearns MP, chair of the Foreign Affairs Committee, published a statement in February questioning why there had been such little action taken: “Since Russia’s full-scale invasion of Ukraine in February 2022, the number of asset freezes under U.K. sanctions has grown significantly. If this is not soon reflected in the number of enforcement actions, we will have to ask difficult questions about the efficacy of OFSI’s enforcement capacity.”
In its submission to the Treasury Committee, the Treasury stated it had increased OFSI’s resources from 40 to 135 employees across its enforcement, intelligence, licensing and engagement functions. Little information is available on its budget: former City minister John Glen said this is to avoid prejudicing its operational effectiveness.
By comparison, the NCA employs more than 5,000 officers and had a budget of £860 million between 2022 and 2023.
Ben Cowdock, Transparency International’s U.K. investigations lead, told POLITICO that although OFSI’s headcount has tripled since the war started, “in terms of who they’ve been hiring, from my understanding, they’ve just been sort of moving people around the civil service.”
Kearns’ committee in 2019 described the U.K.’s sanctions regime as “fragmented and incoherent,” noting the multiple different government agencies and departments that play a role in the system. MPs also used that report to urge the government to improve OFSI’s, capabilities, describing reviews of its performance to date as “mixed at best.”
Sanctions Minister Anne-Marie Trevelyan described the investment in building up OFSI’s team as “hugely welcome” in an interview with POLITICO.
“It’s not fragmentation,” she added. “Different bits of our enforcement authorities have the access and the expertise to tackle different potential sanctions [issues].”
No tools
If OFSI’s ability to enforce sanctions is lacking, that’s due to a lack of tools or budget enabling it to do so effectively, some believe.
“I think [MPs who criticize OFSI] don’t realize it is not actually set up to be the sanctions police,” said the lawyer who POLITICO granted anonymity.
OFSI lacks “proper investigators with criminal backgrounds,” and has “far too many 25-year-old civil servants,” the lawyer added. To properly investigate sanctions breaches you would need “ex-MI5, lawyers and serious investigators … to know how to conduct investigations, but also the complexities of foreign policy. Even if you gave OFSI criminal powers now, they would have no one who could use them.”
One obvious issue is that, as a government department, it cannot offer competitive salaries compared with the private sector. A recent job posting on the U.K.’s official civil service site for a senior sanctions adviser had a starting salary band of £31,710. Most private-sector lawyers earn at least double that.
But internationally it’s not competitive either. A senior specialist role at the U.S. counterpart, the Office of Foreign Assets Control (OFAC), has a salary range of between $139,395 and $181,216 per year.
The U.S. is known to be a fierce enforcer of sanctions: Gonzalo Saiz Erausquin, a research fellow at RUSI, told POLITICO “there’s a bigger fear of being targeted by OFAC than your own national regulator.”
Speaking at the Treasury Committee’s first hearing on Russian sanction effectiveness on April 30, Tom Keatinge, director of the Centre for Financial Crime at the Royal United Services Institute (RUSI), said that if he had just one recommendation it would be “to create an agency which is pulling in all the information and intelligence that is needed to ensure sanctions are implemented effectively.”
A comparative lack of funding, staff and enforcement action means for now, OFSI can’t offer that service.
