UK Financial Sanctions FAQs

Question 1

General

Accepted Answer

1. How do I stay informed about new designations?

OFSI operate an E-Alert service to provide helpful updates on designations and important changes. You can subscribe to OFSI’s e-alerts on OFSI’s website.

The Foreign, Commonwealth and Development office also operate an E-Alert service, providing updates on designations, important changes, policy changes, and press releases. You can subscribe to FCDO’s e-alerts on FCDO’s website.

Amended on: 8 May 2024

2. Are UK entities’ subsidiaries located outside the UK expected to comply with UK sanctions?

UK financial sanctions apply to all persons within the territory and territorial sea of the UK, and to all UK persons wherever they are in the world. UK persons will include legal persons established under UK law, including their branches.

Additionally, to come within OFSI’s enforcement of financial sanctions, there must be a connection to the UK, which we call a UK nexus. A UK nexus will be considered on a case-by-case basis but might be created by such things as a UK company working overseas, transactions using clearing services in the UK, or in respect of a UK company directing the overseas actions of a local subsidiary (these examples are not exhaustive).

3. What measure (if any) should companies adopt in respect of designated persons with shares in a UK financial institution?

Shares qualify as ‘funds’ and therefore must be frozen if owned, held or controlled by a designated person. Accordingly, unless there is an applicable exception or OFSI licence in place, it is prohibited to “deal with” shares that are frozen, which includes dealing with the shares in a way that would result in any change in their volume, amount, location, ownership, possession, character or destination.

Question 2

Russia

Accepted Answer

4. If two or more designated persons are each minority shareholders in a non-designated person, but their aggregate ownership amounts to more than 50% of that non-designated person, should that non-designated person be considered as being owned by a designated person for the purpose of the Russia (Sanctions) (EU Exit) Regulations 2019 (the Regulations)?

When making an assessment of ownership or control, OFSI would not aggregate different designated persons’ shareholdings in a company, unless, for example, the shares or rights are subject to a joint arrangement between the designated persons or one designated person controls the rights of another designated person.

Regulation 7 sets out what is meant by a person being owned or controlled directly or indirectly by a designated person.

If each of the designated persons’ shareholdings is at 50% or falls below the 50% threshold in respect of share ownership and there is no evidence of control over the non-designated person, the non-designated person will not be subject to sanctions. However, if there is evidence of control, the non-designated person will be subject to sanctions.

5. Should a UK credit or financial institution process payments that are received directly or indirectly from a bank designated for the purposes of regulation 17A, when both the remitting account holder and beneficiary account holder are not designated?

No. Regulation 17A(2) prohibits UK credit or financial institutions (referred to as banks within this response) from processing payments which have previously been processed by banks designated for the purposes of that regulation. In other words, the prohibition prevents UK banks from clearing and settling the payment. However, the legislation permits the first credit of funds into the UK bank’s account (in their name, excluding any accounts where funds are held on behalf or for the benefit of a customer) given that banks may not receive detailed payment information prior to initial receipt of funds for some transfers. An exception under regulation 59A(2) enables banks to move funds internally (excluding to customer accounts) for the purposes of complying with regulation 17A(2) without breaching this prohibition.

Regulation 17A(2) prohibits UK banks from the onward processing of payments which have previously come from, been routed via, or which are intended to be paid to banks designated under the regulation. This includes cases where the designated bank is involved in the transaction as the remitting bank, a correspondent or intermediary bank in the payment chain or the beneficiary bank. Similarly, it includes cases where the UK bank is involved as a correspondent, intermediary or beneficiary bank in the payment chain.

Regulation 17A(2) prohibitions also apply to banks owned or controlled by banks designated under the regulation.

Some of OFSI’s general licences permit payments that would otherwise be prevented by Regulation 17A. If you are an account holder in such a transaction, please consult OFSI’s general licences and contact your bank to clearly explain how the transaction meets the criteria for the relevant general licence.

If there is a relevant licensing ground which applies to the transaction, OFSI may be able to issue a specific licence to enable a UK bank to process the payment. Licensing grounds applicable to these transactions, these are set out at Parts 1B and 1C of Schedule 5 of the Russia Regulations.

6. Do the Regulations prohibit the payment of dividends to designated persons?

Regulations 12 and 13 prohibit making funds available to, or for the benefit of, designated persons. Regulation 58(4) provides an exception from these which allows a relevant institution (as defined in Regulation 58) to credit a frozen account held by a designated person under specific circumstances.

7. A Russian resident who is not a designated person and not acting on behalf of a designated person holds accounts at a sanctioned bank that is subject to an asset freeze. Can a UK person accept wire transfers from this Russian resident if made from an account held with this sanctioned bank?

No. If funds are deposited in a sanctioned bank, a transfer of funds from said bank cannot be accepted by a UK person in the absence of an OFSI licence. This is noting that such a transfer would otherwise constitute dealing with funds owned, held or controlled by a designated person (the sanctioned bank) in contravention of Regulation 11. This is the case irrespective of whether the account holder or the person receiving the funds is designated.

8. Would a licence be required for a UK company to pay a non-designated Russian resident’s pension either to a UK bank or to a non-sanctioned Russian bank?

A payment from a UK company to a non-designated person would not need to be licensed if none of the persons in the payment chain are either designated or owned or controlled by a designated person.

9. Regulation 16 prohibits “dealing with” transferable securities and money-market instruments. What activities does this include?

Dealing with transferable securities and money-market instruments includes purchasing or selling the security or instrument, providing investment services relating to the security or instrument or assisting in the issuance of the security or the instrument. In this context, investment services means the reception and transmission of orders in relation to one or more financial instruments, the execution of orders on behalf of clients, dealing on own account, portfolio management, the provision of investment advice, the underwriting of financial instruments or placing of financial instruments on a firm commitment basis, the placing of financial instruments without a firm commitment basis and any service in relation to the admission to trading on a regulated market or trading on a multilateral trading facility.

10. Do the restrictions cover transferable securities issued by persons connected with Russia traded on the secondary market? Under what conditions?

It is prohibited by Regulation 16 to deal with a transferable security on secondary markets that was issued by a person connected with Russia after 1st March 2022.

Under the terms of Regulation 18B, it is prohibited to buy securities issued before this date if by doing so you acquire an ownership interest in persons connected with Russia for the purpose of making funds or economic resources available to or for the benefit of persons connected with Russia. However, purchasing a relevant transferable security (the definition of which includes a requirement that it was to a regulated market or multilateral trading facility prior the SI coming into force) is permitted.

11. How would OFSI determine the purpose of a transaction for the prohibitions in Regulation 16, 17 and 18B?

OFSI may consider a person as having knowledge or reasonable cause to suspect that a transaction was for the purpose of making funds or economic resources available to a person connected with Russia where this is explicitly stated to be the purpose of the transaction. For example, if the intention to make funds available to a person connected with Russia was stated as the purpose of a share issue in the prospectus for that share issue. If funds are raised for a purpose other than making funds or economic resources available to a person connected with Russia but despite that those funds are subsequently made available to a person connected with Russia, then the prohibition would not be breached.

12. Are UK firms still allowed to deal with transferable securities and money-market instruments which are not the subject of restrictions in the Regulations on Russian exchanges?

UK firms are still allowed to deal with transferable securities and money-market instruments on Russian exchanges as long as such dealing with does not contravene any of the prohibitions in the Regulations. Dealing with transferable securities and money-market instruments issued before the relevant dates indicated in Regulation 16 is possible, provided that such dealing with does not contravene any of the other prohibitions in the Regulations, including 18B.

13. Are UK persons still allowed to purchase shares in persons who are not connected with Russia from Russian persons who hold those shares?

UK persons may purchase shares in persons who are not connected with Russia from Russian shareholders so long as the purpose for which those shares were issued is not for an activity that is prohibited under Regulation 18B (see Regulation 60ZZA); and the purchase does not otherwise breach the financial prohibitions imposed by the Russia Regulations.

14. Does Regulation 16 cover existing securities or does it apply only to new securities (issued on or after 1 March 2022)?

Regulation 16 of the Regulations sets out what transferable securities and money-market instruments are covered by the prohibition. This includes some transferable securities and money-market instruments issued before 1 March 2022.

15. Do the Regulations prevent UK persons operating in Russia from paying usual statutory taxes in Russia directly to the Russian Central Bank?

Regulation 18A of the Regulations does not prevent a person from paying taxes lawfully due in Russia to the Russian Central Bank.

16. I own shares in a designated person. Can I sell those shares?

Provided that the shares do not fall within the scope of Regulation 16, you can sell your shares on the secondary market without an OFSI licence as long as (a) you are not a designated person and (b) the sale will not result in funds or economic resources being made available to a designated person.

17. Might payment terms for goods and services whose trade is not prohibited under the Regulations be considered as a relevant loan for the purpose of Regulation 17?

No, payment terms or delayed payment for goods or services are not in general considered as a relevant loan for the purpose of Regulation 17. However, the provision of payment terms/delayed payment may not be used to circumvent the restrictions to provide a relevant loan under this Regulation. Payment terms which are not in line with normal business practice or which have been substantially extended may constitute circumvention (as defined in Regulation 19).

18. What are the sanctions reporting obligations for firms falling outside of the definition of a ‘relevant firm’?

Firms that fall outside of the definition of “relevant firms” (found at Regulation 71) do not have a legal requirement under Regulation 70 to report to OFSI if they know or suspect someone is a designated person or has committed a financial sanctions breach.

Please note, however, that every year HM Treasury carries out a review to update our records to reflect any changes to frozen assets during the reporting period. As part of this review, HM Treasury requests all persons (not only “relevant firms”) that hold or control funds or economic resources owned, held, or controlled by a designated person, to provide a report to us with the details of these assets. If you possess this information you are required to complete such a report and submit it to OFSI. This review generally takes place in the autumn.

19. Are insurers allowed to insure Russian ships and cargo carrying food and fertiliser from Russia and Ukraine to a third country?

Insurers may apply for a licence from OFSI under the food security purpose within the Regulations. This allows anything to be done in connection with the production or distribution of food for the benefit of the civilian population of a country. Furthermore, applying under the food security purpose does not preclude applicants from also applying under other purposes in the Regulations (e.g prior obligations) if applicable. Applicants must demonstrate how their activity satisfies that particular purpose, for example how their activity is in connection to the production/distribution of food.

20. If a UK person has provided a good or service to a person subject to the prohibitions in Regulation 17, would payment terms/delayed payment for such a good or service exceeding 30 days constitute a new loan or credit?

For the purposes of Regulation 17, payment terms/delayed payment for goods or services are not considered loans or credit. The provision of payment terms/delayed payment may not be used, however, to circumvent the prohibition to provide new loans or credit.

21. How should the rollover of debt obligations by persons subject to the prohibitions in Regulation 17 be treated?

The prohibitions in Regulation 17 extend to the rollover (including cashless) of existing debt. Any rollovers must comply with the 30-day maturity limit imposed for new transactions made after IP completion day, or after 1 March 2022 depending on what entity is involved. However, multiple rollover agreements with a maturity of 30 days or less could amount to circumvention.

22. Can a UK person provide funds to a non-designated person, which are channelled through a person who is subject to the prohibitions in Regulation 17, provided that the funds do not stay with the latter person for more than 30 days?

Such an arrangement would not constitute providing a new loan or credit with a maturity exceeding 30 days to a person subject to the prohibitions in Regulation 17. It would therefore not fall within the prohibitions set out in therein.

23. Are derivatives covered by the prohibitions in Regulation 16?

Derivative products which give the right to acquire or sell a transferable security or money market instrument covered by Regulation 16, such as options, futures, forwards or warrants, irrespective of how they are traded (on-exchange or over-the-counter (OTC)) are covered by the prohibitions set out in Regulation 16. Certain other derivatives which do not give the right to acquire or sell a transferable security or money market instrument covered by Regulation 16, such as interest rate swaps and cross currency swaps, are not covered by the prohibitions in that Regulation, nor credit default swaps (except where these give the right to acquire or sell a transferable security). Derivatives used for hedging purposes in the energy market are also not covered by Regulation 16.

24. Can a modification be made to a transferable security entered into prior to 1 August 2014,12 September 2014 or 1 March 2022 respectively?

It is prohibited under Regulation 16 to adjust a transferable security which falls within the scope of that Regulation, entered into prior to 1 August 2014, 12 September 2014, or 1 March 2022 respectively where the change would result or potentially result in additional capital being made available to a targeted entity. While certain other changes may be permitted, a case by case assessment would be made of the effect and substance of any changes in order to determine whether or not such changes reasonably requires this to be considered a new instrument.

25. Do promissory notes fall within the scope of prohibitions relating to transferable securities or money-market instruments in Regulation 16?

As a freely transferable debt instrument, promissory notes may be dealt in on the money markets and thus, to the extent that they are issued by a person subject to the restrictions in Regulation 16, they would fall into the scope of the prohibitions in that Regulation.

If a person subject to the prohibitions in Regulation 16 were to issue a non-negotiable promissory note as a means of payment for non-prohibited goods with UK persons, that would not be prohibited by Regulation 16 (albeit this could not be used as a means to circumvent the prohibition). This allows legitimate trade to continue while remaining consistent with the objectives of the Regulations.

26. Do bills of lading fall within the scope of prohibitions relating to transferable securities or money-market instruments in Regulation 16?

In so far as bills of lading document the carriage and receipt of goods and serve as proof of entitlement to such goods, they do not fall under the prohibitions in Regulation 16.

In any negotiable form where bills can be traded for financing purposes, or any similar activity which could amount to circumvention, these instances would be prohibited by Regulation 16 (or Regulation 19 in the case of circumvention).

27. Can UK persons use repurchase agreements or securities lending agreements with a person not subject to the prohibitions in Regulation 16 using any transferable securities or money market instruments issued by a person subject to the prohibitions in Regulation 16 as collateral?

UK persons are prohibited from entering into repurchase agreements or securities lending agreements where transferable securities or money market-instruments which fall within the scope of Regulation 16 are used as collateral.

28. Can UK persons enter into repurchase agreements or securities lending agreements with a person subject to the prohibitions in Regulation 16, if non-prohibited instruments are used as collateral?

Repurchase agreements or securities lending agreements are money market instruments as defined in Regulation 16 of the Regulations, as they are instruments normally dealt in on the money market. UK persons are therefore prohibited from entering into repurchase agreements or securities lending agreements with persons subject to the prohibitions in Regulation 16 where those agreements meet the conditions set out in that Regulation.

29. Is the provision of financial research in relation to prohibited transferable securities allowed?

Regulation 16 sets out the prohibition on dealing with certain transferable securities or money-market instruments as set out therein. Regulation 16(9) states that “dealing with” includes providing investment services, including the provision of investment advice, relating to the security or instrument, or assisting in the issuance of the security or instrument. While the provision of research may not equate to the provision of advice, to the extent that it does constitute direct or indirect advice, it would fall under the definition of “investment service” and would thus be prohibited.

30. Can a UK credit institution owned by a person subject to the prohibitions in Regulation 17 provide collateral (e.g. in the form of guarantees, deposits, pledges, risk participations or funded participations) for intra-group risk mitigation purposes to its non-UK subsidiary?

Yes, provided the collateral provided does not constitute a relevant loan under Regulation 17 and the collateral used is not a transferable security or money market-instrument covered by Regulation 16.

31. Where the underlying of cash-settled derivatives consists of securities falling under Regulation 16, are transactions with such derivatives permitted under that Regulation so long as this does not involve the actual purchasing, selling, or holding of the underlying securities?

The prohibitions in Regulation 16 extend to direct or indirect dealings in all “transferable securities” with a maturity exceeding 30 days, issued by the persons listed in Regulation 16 after a certain date. Under Regulation 16(10), “transferable securities” includes any securities “giving the right to purchase or sell any” transferable security”. In such cases, the prohibition on dealing with transferable securities in Regulation 16 applies regardless of whether or not that right is actually exercised.

32. If a person subject to the prohibitions in Regulation 16 issues new transferable securities after the relevant dates set out in Regulation 16 that are fungible with pre-existing transferable securities, can UK persons still deal with the old securities in the event that it is impossible to identify which of the securities were issued before or after the relevant cut-off dates?

UK persons may deal with transferable securities issued by the persons subject to Regulation 16 before the relevant cut-off dates set out in that Regulation. Market participants bear the onus of ensuring that any trades they enter into do not involve the prohibited securities.

33. Who is considered a “prohibited person” under regulation 18A(1)?

A prohibited person means the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, the Ministry of Finance of the Russian Federation, a person owned or controlled directly or indirectly by these entities, or a person acting on behalf of or at the direction of these entities.

34. What assets must be reported under regulation 70A?

Designated persons must report any funds or economic resource if the value of those funds or economic resources exceeds the value of £10,000. If multiple funds or economic resources of the same type (for example, jewellery, art, bank accounts), taken together exceed £10,000, this must also be reported.

Question 3

Russian Oil Services Ban

Accepted Answer

35. Why do UK services continue to be used to transport Russian oil and oil products in spite of the Oil Price Cap?

The Oil Price Cap (OPC) was designed to meet two core objectives: to bear down on Russian revenues that could otherwise be used to fund their illegal war, whilst also maintaining global energy security and flows of affordable oil to countries that need it. The intention of the OPC was never to cut off G7+ maritime services from insuring or being involved in the global trade of Russian oil. Indeed, one of the key reasons for the effectiveness of the OPC has been due to the prevalence of highly sought after G7+ services in the market: it is very hard to make major trades or gain significant market share without using G7+ services at all.

Our intent is therefore to enable the UK maritime services sector to continue facilitate the transport of oil and oil products to third countries that need it, as long as the oil is purchased below the price cap - constraining Putin’s ability to use inflated oil revenues to sustain his war machine. This is why the UK, alongside G7+ partners, have provided extensive guidance to industry to advise service providers, including insurers, on how they can move Russian oil in compliance with the price cap.

The G7+ Coalition will continue to monitor our oil-related measures and investigate any potential breaches robustly.

36. Coalition partners have increased imports of refined oil products from countries that have become the largest importers of Russian crude. Have you created a loophole?

The OPC is designed to undermine Putin’s ability to fund his illegal war in Ukraine by restricting the revenues flowing to his regime whilst also ensuring that affordable oil continues to flow to countries that need it.

Our oil-related sanctions have contributed to a steep reduction in Russian government tax revenues from oil – down 30% in 2023 vs 2022. The Kremlin itself has acknowledged the impact of these actions – Deputy Prime Minister Alexander Novak, for example, recently admitted publicly that the steps we have collectively taken in recent months to improve the design of our oil sanctions have led to a spike in the discount Russia is being forced to shoulder.

In line with WTO non-preferential rules of origin, even where Russian oil and oil products have been refined in, or moved via, a third country, they will still be considered Russian unless they have been substantially processed.

All importers of oil and oil products into the UK must provide proof of origin and country of last despatch to relevant enforcement authorities, to demonstrate that goods are not of Russian origin. Our sanctions, and those of our partners, operate in this way to minimise disruption to international trade, which is particularly important in the context of the global oil market and related supply chains.

As with all our sanctions, we continue to monitor the efficacy of our oil measures and, in coordination with our partners, will not hesitate to take further action to ensure their effectiveness.

37. How far back should providers be going to comply with the new requirements in terms of obtaining the per-voyage attestations?

The requirement to obtain per-voyage attestations applies after the implementation date of 19 February 2024. Any attestation for voyages prior to the implementation date is welcome but not required.

38. Does the requirement to cease doing business mean that claims cannot be paid, and unearned premium cannot be returned, even if the claim was received before the inability to provide itemised ancillary costs information upon request?

Yes. This would go against the requirement to ‘cease doing business’ as payment of the claim would take place after the request and subsequent inability to honour that request, and the payment of any claim, as well as the payment of any unearned premium, constitutes doing business. Ceasing doing business means that, while it is not prohibited to insure or be insured, the payment of any premiums or claim payments requires an exception or an OFSI licence. As such, insurance policies do not have to be cancelled, but unearned premium cannot be returned, and claims cannot be paid.

39. Is it expected that a Tier 3A provider would obtain a signed per voyage attestation directly from their Tier 3A counterparty, or ask them to provide an attestation they have received from their Tier 1 or Tier 2 client?

When dealing with other Tier 3A actors, Tier 3A entities can pass on the per-voyage attestation obtained from their Tier 1 and Tier 2 counterparties, but they should add their signature to it to confirm that they are comfortable with its legitimacy.

40. In what circumstances would a provider be required to request itemised ancillary costs?

The impetus to request itemised ancillary costs information could be for a number of reasons. Companies may request itemised ancillary costs information both as part of their own due diligence processes, and also if specifically requested by OFSI, among many other reasons, such as being requested to do so by another contractual counterparty in the supply chain.

41. Which costs should be recorded and can be requested for cost, insurance, and freight (CIF) trades?

For CIF trades, itemised ancillary costs include the cost of export licences, product inspection, shipping and loading the goods at the seller’s port, packaging, customs clearance, duty and taxes, port dues at the point of loading/export, and port service charges at the point of loading/export.

Cost-itemisation for CIF trades must also include insurance, that is the cost of insuring the shipping up until the buyer’s goods have cleared customs in the port of destination, and freight, that is the cost of shipping the freight via sea or waterway from the seller’s port to the buyer’s port of destination.

Any other costs that demonstrate compliance with the general licence and provide assurance that the transaction is being conducted legally should also be included.

42. Which costs should be recorded and can be requested for free on board (FOB) trades?

For FOB trades, itemised ancillary costs should include the cost of packaging the exported items, any charges for loading the product onto transport and delivering the goods to the seller’s port, export taxes, customs duty and costs, and any transfer, handling and loading charges associated with loading the product onto the ship

43. Will it be considered a breach if some costs are not disclosed upon request before loading if such costs are not yet priced or accrued?

The ‘upon request’ requirement means that Tier 1 and Tier 2 entities will only have to pass on itemised ancillary cost information to Tier 2 and 3A entities when they request it. As Tier 2 and Tier 3A counterparties are not required to request cost information on a per-voyage basis, and instead retain the right to request this information on an ad-hoc basis, it should not pose a problem that the cost of oil may only be determined after loading so long as the Tier 1 or Tier 2 entity is able to share the requested breakdown of ancillary costs associated with any relevant voyage within 30 days of that request being made. The ‘upon request’ requirement, as opposed to the ‘per voyage’ requirement, does not require Tier 1 or Tier 2 counterparties to provide attestations prior to the lifting or loading of oil, or to the effective date of contract.

44. Does a river vessel count as a ‘ship’ under the legal definition of the sanctions?

A river vessel falls under the classification of ‘ship’ as set out in Chapter 4IA of the Russia (Sanctions) (EU Exit) Regulations 2019 (“the Russia Regulations”).

45. Does Tier 3A include both follow and lead insurers?

Yes, Tier 3A includes both follow and lead insurers.

46. Is facultative reinsurance to be treated the same way as treaty reinsurance?

Yes, faculty reinsurance is to be treated the same way as treaty reinsurance.

47. Who is responsible for cascading the attestation to the follow market: the lead insurer or the broker?

The broker is responsible for cascading the attestation to the follow market.

Question 4

Libya

Accepted Answer

48. Are subsidiaries of the Libyan Investment Authority and the Libya Africa Investment Portfolio subject to a partial asset freeze?

As outlined in OFSI’s Libya guidance, Both the LIA and the LAIP are subject to a partial asset freeze. Subsidiaries of the LIA and LAIP are not automatically subject to a partial asset freeze simply by virtue of being subsidiaries of these companies. However, it should be noted that some subsidiaries of the LIA and LAIP are designated independently by the UK under the full asset freeze, set out in the Regulations. Therefore, it is advised that you consult the OFSI consolidated list, and that you conduct your own due diligence to understand whether any such subsidiary is subject to financial prohibitions.

Question 5

General Licensing

Accepted Answer

Legal Services General Licence (INT/2024/4671884)

49. What has changed?

General Licence INT/2024/4671884 resets the fees and expenses caps for Parts A and B for the six-month period from 29 April 2024 until the licence expires on 28 October 2024). In addition, OFSI has made three amendments to the GL. These are:

The fee and expenses caps now apply to each law firm instructed by the designated person to cover all matters on which that law firm is instructed by that DP;
Part B now permits brief fees and refresher fees to be paid to Counsel in the event these are fixed fees and not subject to hourly rates; and
The definition of Counsel now includes a barrister who is regulated by the Bar Council of Northern Ireland and an advocate who is regulated by the Faculty of Advocates (in Scotland).

50. How do the fees and expenses caps apply? Is it per DP (i.e., for all a DP’s matters across all law firms) or is it per law firm being instructed by a DP?

OFSI has amended the General Licence so the £500,000 caps for Parts A and B, and the related expenses caps, now apply to each law firm instructed by the designated person. The caps cover all the designated person’s matters being handled by that law firm (i.e., the caps do not apply to each individual matter at that law firm). This change is effective from 29 April 2024.

51. Are brief fees and refresher fees covered by the GL?

Under all Legal Services General Licences issued to date, brief fees and refresher fees can be paid for under Part A (Legal Services based on a Prior Obligation) as this part does not stipulate hourly rates to be charged by Counsel. This is provided that the legal fees (together with Counsel’s fees) do not exceed £500,000 (including VAT if applicable).

OFSI has amended Part B (Legal Services not based on a Prior Obligation) to permit brief fees and refresher fees in addition to Counsel’s fees, which remain subject to an hourly rate which must not exceed £1,500. Brief fees and refresher fees are included in the overall cap of £500,000 for professional legal fees including Counsel’s fees. The brief fees and refresher fees should be identified as a separate item on the Part B reporting form. This change is effective from 29 April 2024.

52. Are UK Counsel/barristers/advocates outside of England and Wales covered by the UK?

Yes. OFSI has amended the definition of Counsel in General Licence INT/2024/4671884 to include a barrister who is regulated by the Bar Council of Northern Ireland and an advocate who is regulated by the Faculty of Advocates (in Scotland) in addition to a barrister who is regulated by the Bar Standards Board. This change is effective from 29 April 2024.

Scope of Legal Services General Licence

53.Which sanctions regimes are covered by the Legal Services General Licence?

The Russia (Sanctions) (EU Exit) Regulations 2019 and The Republic of Belarus (Sanctions) (EU Exit) Regulations 2019.

54. Why aren’t other sanctions regimes covered by this General Licence?

The General Licence has been designed bearing in mind the purpose of the Russia and Belarus regimes and the volume of applications made since the invasion of Ukraine. Specific licence applications for other regimes should continue to be made to OFSI.

55. Does this General Licence only apply to UK law firms and Counsel?

Yes.

56. What counts as prior obligation work?

Fees which are payable as a result of work which has or is being undertaken pursuant to a prior obligation (for example, further to an obligation which was entered into by a designated person prior to that person’s designation).

57. Can an entity owned and/or controlled by a designated person (DP) pay the DP’s legal fees even though the entity did not explicitly receive the legal advice?

Yes, provided the conditions of the General Licence are met. This is because it states at paragraph 5 that ”a DP may pay professional legal fees, Counsel’s fees, and/or Expenses to a Law Firm, a Legal Adviser, Counsel or a provider of Expenses for Legal Services which have been provided to that DP” and DP is defined in the General Licence as ”any individual or body of persons (corporate or unincorporate) designated […] and/or any individual or body of persons (corporate or unincorporate) owned or controlled by that designated person.”

58. Can a non-DP pay a DP’s legal fees?

Yes, provided the conditions of the General Licence are met. This is because it states at paragraph 4 that “any Person […] may: 4.1. receive payments from or on behalf of a DP; 4.2. make payments (directly or indirectly) for or on behalf of a DP; 4.3. make payments for the benefit of a DP; 4.4. process payments which relate to a DP; and 4.5. carry out any other act which is reasonably necessary to give effect to 4.1 – 4.4 above”.

59. Can a DP pay a different DP’s legal fees?

No. Whilst paragraph 4 states that “any Person […] may: 4.1. receive payments from or on behalf of a DP; 4.2. make payments (directly or indirectly) for or on behalf of a DP; 4.3. make payments for the benefit of a DP; 4.4. process payments which relate to a DP; and 4.5. carry out any other act which is reasonably necessary to give effect to 4.1 – 4.4 above”, the definition of Person in the General Licence does not include a DP.

60. Can the GL be used to pay the professional legal fees, Counsel’s fees or expenses incurred by family members of DPs?

Not unless the family members are also designated persons. There is no need for the payment of legal or Counsel’s fees or expenses incurred by non-designated persons to be licensed by OFSI.

Law firms should consider the risk of circumvention of sanctions and ownership and control issues when advising family members of DPs.

61. Does the GL extend to in-house Counsel who are UK nationals as part of their employment, especially if based outside of the UK.?

Yes, if they have a bank account in the UK to receive payments under the terms of the General Licence.

Fees, Expenses and Hourly Caps

62.Is £500,000 the maximum that can be paid under this General Licence?

The £500,000 cap applies to each part of the General Licence separately and is available to each law firm instructed by a DP to cover all matters on which that law firm is instructed by that DP. In some instances, both parts of the General Licence can be used – Part A (legal services based on a prior obligation) and Part B (legal services not based on a prior obligation) – by the same law firm, up to a total of £1million.

63. Which fees are covered by the cap of £500,000 per part of the General Licence?

All fees relating to legal services provided to a DP by qualified legal professionals, trainee legal professionals and Counsel.

64. Which fees are not included in the £500,000 cap per part of the General Licence?

Expenses are not included in the £500,000 cap. Expenses include costs of travel, accommodation, translators, and expert witnesses. The General Licence can be used to pay expenses up to either 10% of the total professional legal fees and Counsel’s fees paid or £50,000, whichever is lower, under each part of the GL per law firm instructed.

65. What is the time-period over which the £500,000 cap per part of the General Licence applies?

The cap applies for the duration of the General Licence.

66. What should I do if fees for a case go over the £500,000 cap per part of the General Licence?

In order to pay additional fees above the £500,000 cap per part of the General Licence, an application must be made to OFSI for a specific licence. For example, if a post-designation case accrues £700,000 in fees, then £500,000 may be paid under the General Licence, and an application for a separate specific licence to pay the remaining £200,000 should be made.

Applications must be made using the existing specific licence process and clearly flagging the fees already paid under the General Licence. Case officers will scrutinise the payment of additional fees, considering the overall fees claimed, to see if these meet the reasonableness test.

67. If fees have already been recovered via a specific licence for a particular case, then can a General Licence still be used? Would these fees count towards the £500,000 cap per part of the General Licence?

Where a specific licence has been exhausted, the General Licence may be used instead of approaching OFSI for a licence amendment so long as the conditions of the General Licence are met.

68. Do the hourly rate caps apply to pre-designation work (i.e., Part A of the General Licence)?

No.

69. Can the General Licence be used if most hourly rates are below the caps, but some are not?

No. If any hourly rate breaches the hourly rates caps in the General Licence, then a specific licence application should be made.

70. Are the hourly rate caps set out in the table at the end of the General Licence in reference to solicitors’ guideline hourly rates for summary assessment by courts? If so, London 1 is defined as being for “[very] heavy commercial and corporate work …”. It would be helpful to understand how this will be determined by OFSI.

The hourly rate caps included in the General Licence reference the solicitors’ guideline hourly rates for summary assessment by courts. OFSI has mirrored the HM Courts & Tribunal Service definitions.

71. What counts as expenses under this General Licence?

All expenses associated with the provision of legal services to a DP excluding Counsel’s fees, such as the costs of travel, accommodation, translators, and expert witnesses.

72. What is the cap for expenses?

Up to either 10% of the total professional legal fees and Counsel’s fees paid or £50,000, whichever is lower, under each part of the GL per law firm instructed. For example, if £300,000 was claimed for legal and Counsel’s fees, then up to £30,000 can be claimed for other expenses.

73. What should I do if the case has an expensive expert witness and the 10% or £50,000 cap for expenses is exceeded?

The General Licence may be used to make a payment for expenses of up to £50,000. In order to pay additional expenses above the £50,000 cap per part of the General Licence, an application must be made to OFSI for a specific licence. For example, if a post-designation case accrues £120,000 in expenses, then £50,000 may be paid under the General Licence, and an application for a separate specific licence to pay the remaining £70,000 should be made.

Applications must be made using the existing specific licence process and clearly flagging the expenses already paid under the General Licence. OFSI will scrutinise the payment of additional expenses, considering the overall expenses claimed, to see if these meet the reasonableness test.

Reporting requirement

74. Do I have to notify OFSI before I use the General Licence?

No. There is no obligation to notify OFSI before using this General Licence.

75. What are my reporting obligations?

The Part A (pre-designation) reporting form and/or the Part B (post-designation) reporting form need to be returned to ofsi@hmtreasury.gov.uk within 14 days of receiving payment.

76. Where can I find more details on my reporting requirements?

Reporting forms can be found at the following links: Part A and Part B

77. When do I need to submit reporting?

Since GL INT/2023/3744968, the timeline for sending reports has been within 14 days of receiving payment under the relevant General Licence.

78. Do I need to provide reporting each time I receive payments under the GL?

Yes, unless more than one payment is received within the same 14-day period, a separate reporting form should be submitted for each payment received under each cap.

79. When should Counsel report to OFSI?

Counsel should only report to OFSI when they receive funds directly from a DP or someone on behalf of a DP which does not include a law firm.

Where law firms have already reported the payment from the DP or someone on behalf of a DP there is no need for Counsel to report to OFSI as well.

80. What currency should I report payments received under the GL in?

Where possible, the British pound sterling equivalent on date of receipt.

Interaction of the Legal Services GL with specific licences

Yes, so long as payments are made in respect of different invoices to those authorised by the specific licence and the other conditions of the General Licence are met.

82. Can a law firm which has received an OFSI licence for legal services payments use the GL to recoup payments for additional legal services provided to a DP?

In these circumstances, the law firm may use the GL to receive payment for legal services that have been provided, additional to those permitted under a specific licence, to the same DP, provided:

The payment for the work has not already been licensed in an OFSI specific licence; and
The conditions of the GL are met.

83. Can the GL be used for part payment of initial fees (to get started), but then if the caps are exceeded, an application made for a specific licence to cover the remainder?

Yes, the GL can be used this way. In the event that the caps are exceeded a specific licence must be sought.’

Payment Route

84. Why do payments made under the GL need to be paid into a UK bank account?

This is a risk mitigation that OFSI considered necessary to pursue the policy intention of the two sanctions regimes and limit the risk of circumvention.

85. I’d like to use the GL to receive payment for legal services that have been provided to a DP, but the DP’s bank will not unfreeze the funds under the GL. Can OFSI advise?

OFSI cannot compel banks or financial institutions to unfreeze funds. OFSI recommends explaining to the bank how the transaction meets the GL’s conditions.

Question 6

Definitions

Accepted Answer

86. What constitutes a letter of credit?

A letter of credit is an undertaking by a bank to pay the beneficiary of the credit (or to accept and pay drafts drawn by the beneficiary) in accordance with, and upon satisfaction of the terms and conditions, of the letter of credit. It is no more than an undertaking from the bank (at the request of its customer) to extend a credit, or make a payment, provided that the conditions set out within the letter of credit itself are satisfied and the bank is provided with proof of this (usually by the provision of documents).

By way of example, a simple letter of credit in respect of a transaction to purchase goods, may provide that a bank “B” will undertake to pay a sum of money (equal to the purchase price of the goods) to a third-party provider, “P”, once a document is provided to B showing that the bank’s customer, “C” has received the goods.

87. What constitutes dealing with funds?

The OFSI general guidance outlines that dealing with funds generally means moving, transferring, altering, using, accessing, or otherwise dealing with them in any way which would result in any change to their volume, amount, location, ownership, possession, character, destination or other change that would enable the funds to be used, including portfolio management.

88. What constitutes dealing with economic resources?

The OFSI general guidance outlines that dealing with economic resources generally means using the economic resources to obtain funds, goods, or services in any way, including, but not limited to, by selling, hiring or mortgaging them. The everyday use by a designated person of their own economic resources for personal consumption is not prohibited.

89. What constitutes making available funds or economic resources?

The OFSI general guidance outlines that making available funds or economic resources, directly or indirectly, to a designated person generally occurs where funds are made available (directly or indirectly) to a designated person, or economic resources are made available (directly or indirectly) that would likely be exchanged, or used in exchange, for funds, goods, or services, this may constitute a criminal offence.

Making available funds or economic resources for the benefit of a designated person generally occurs where funds or economic resources are made available for the benefit of a designated person and they obtain, or are able to obtain, a ‘significant financial benefit’, this may constitute a criminal offence. In this case, ‘financial benefit’ includes the discharge, in whole or in part, of a financial obligation for which the designated person is wholly or partly responsible.

Question 7

Crown Dependencies and Overseas Territories

Accepted Answer

90. Does OFSI implement financial sanctions in the Crown Dependencies?

The powers to implement financial sanctions in the crown dependencies are provided through local legislation. You can find more information in OFSI’s Maritime Shipping guidance.

91. Does OFSI implement financial sanctions in the British Overseas Territories?

The powers to implement financial sanctions in the British Overseas Territories are generally provided by UK Orders in Council.

The Governor (or Chief Minister in Gibraltar) of a British Overseas Territory generally has the following powers:

powers to grant, vary or revoke licences, subject to the UK Foreign Secretary’s consent
power to authorise persons to exercise various enforcement and evidence-gathering powers
power to delegate his or her functions
power to designate in certain circumstances for counter-terrorism purposes

Bermuda and Gibraltar are not generally covered by Overseas Territories Sanctions Orders. Provision for implementation of sanctions measures in these jurisdictions is made through local legislation.

You can find more in information in OFSI’s Maritime Shipping guidance.

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