In February 2025, the UK’s Office of Financial Sanctions Implementation’s (“OFSI”) issued a report outlining its assessment of the sanctions-related threats posed to the UK by firms operating in the UK’s financial services sector. As to be expected, the report focuses on the risks associated with transactions since February 24, 2022, when Russia invaded Ukraine and countries around the world, including the UK, responded with an unprecedented expansion of financial sanctions. However, while OFSI acknowledges that compliance with Russia sanctions must remain a priority for UK financial services firms, it simultaneously makes sure to remind firms that they must strictly comply with all UK sanctions, and many of the insights in the OFSI report are of broader relevance to sanctions compliance.

In our two-part article, we first outline the key threats that OFSI identified in its report, and then we set forth the steps that financial services firms can and should take to address those threats when developing or enhancing their sanctions compliance programs.

Key Threats

Analyzing the period January 2022 through March 2024, OFSI identified the following six key threats or “judgments” in its “Threat Assessment” report[1]:

1. Failures to self-disclose all suspected breaches to OFSI.
   OFSI considers that it is likely that UK financial services firms have not disclosed all suspected breaches to OFSI. However, OFSI notes that the disclosures that were made tended to be made in a timely manner. Of the breaches reported to OFSI, 55% were reported by banks, 27% by non-bank payment service providers (“NBPSPs”), 4% by insurance firms, and 14% by other firms, including auditors and accountants.
2. Improper maintenance of frozen assets and breaches of licence conditions.
   OFSI considers that it is highly likely that most instances of non-compliance by UK financial services firms occurred due to common compliance issues such as:
   – Intentional and unintentional debits from accounts of Russian Designated Persons (“DPs”) at UK banks and NBPSPs, which may relate to pre-existing insurance policies or other contracts, particularly those linked to UK residential properties.
   – Breaches of OFSI licence conditions, which typically are due to expired licences or failures to comply with related reporting requirements.
   – Failures to identify entities owned by Russian DPs, including subsidiaries of Russian conglomerates that are themselves designated or that are majority owned by an individual Russian DP.
   – Failures to notice the involvement of UK natural or legal persons in transactions and misunderstandings of the differences between the UK, EU, and US sanctions regimes. 
3. Usage of new professional and non-professional enablers to evade sanctions.
   OFSI considers that it is almost certain that Russian DPs have turned to new professional and non-professional enablers, such as wealth managers and family members or other proxies, respectively, in their attempts to avoid UK financial sanctions. OFSI defines an “enabler” as any individual or entity providing services or assistance on behalf of or for the benefit of a DP to breach UK financial sanctions prohibitions, and concludes that it has observed a significant increase in enabler activity since 2023.
4. Usage of enablers to make the payments necessary to maintain a DP’s lifestyle and assets.
   OFSI considers that, since February 2022, the greatest enabler activity links to Russian DP’s lifestyles and assets. Considering the liquidity issues caused by UK (and other) sanctions, OFSI considers that it is highly likely that many DPs have relied on enablers, and particularly NBPSPs, to make payments necessary to maintain their assets and continue their lifestyles. Examples include payments related to the maintenance and upkeep of their superyachts and real estate, the salaries of their bodyguards or concierges, and their purchases of high-value goods. Without OFSI licences, all such payments may violate UK financial sanctions. OFSI notes that perpetrators tend to be smaller firms with historical UK nexuses and whose relationships with DPs predate the designations, or non-professional enablers such as family members, particularly children, spouses, ex-spouses and in-laws.
5. Enablers “fronting” for Russian DPs and claiming ownership of frozen assets.
   OFSI considers that it is likely that professional enablers are attempting to front for Russian DPs by claiming ownership of their frozen assets. This is particularly the case where the ownership or control of assets frozen under Russia sanctions is unclear, for example because of insolvency or complicated corporate structures that obfuscate a DP’s ownership or control of an asset.
6. Usage of alternative payment methods and intermediary countries.
   OFSI considers that it is almost certain that professional enablers have assisted DPs to breach UK financial sanctions through a variety of other means, including alternative payment methods, and particularly the use of crypto assets, and the use of intermediary jurisdictions. As an example of the former, OFSI highlights that in December 2024, an investigation led by the UK’s National Crime Agency (NCA) identified a Russian money laundering network that utilized cash-to-crypto exchanges to breach UK financial sanctions and to launder funds. Regarding the latter, OFSI has been following the growing involvement of other jurisdictions in breaches of UK financial sanctions and confirms that, since February 2022, over 25% of suspected breaches reported to OFSI by UK financial services firms included reference to intermediary jurisdictions. The countries flagged to date include the British Virgin Islands, the Cayman Islands, Cyprus, Guernsey, the Isle of Man, Luxembourg, Switzerland, Turkey, and the United Arab Emirates.

Additional Considerations

Given the severe criminal, civil and reputation harm that flow from sanctions violations, it is critical that UK financial services firms take heed of the report and study whether their existing sanctions compliance programs and controls are fit for purpose, or whether there is scope for enhancement.

In the second of our two-part article, which is due imminently, we will look in more detail at how the UK’s financial services sector should respond to the report.

[1] UK Government, Financial Services Threat Assessment, (February 2025).