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Is this overkill? Sanctions checks on counter parties

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It’s no secret that the SRA is taking an active interest in how firms are approaching their management of the sanctions regime.


Sparked and fuelled by the widening of the sanctions regime in the wake of the Russian invasion of Ukraine in February last year, there has been an increased focus as the issue has become more relevant for UK law firms.


Whilst this is not a new area of regulation, it is quickly becoming one of the most hotly debated issues amongst compliance professionals within law firms.

Often misunderstood and conflated, there are a number of differences between AML and sanctions regulatory obligations. For example, where an AML allows for a risk-based approach, there is strict liability in instances where the sanctions regime has been breached.  The sanctions regime applies to all law firms, not just those within the scope of the Anti Money Laundering Regulations and, unlike AML regulation, there is no set of rules to navigate, the requirement is simple, don’t breach the regime!


Given the lack of guidance from statute, law firms are looking to legal sector regulators for a steer on how they should be approaching the risk in this area.

One of the most controversial areas is how to deal with sanctions due diligence on counter parties. Where a counter party is represented by another law firm, there is comfort that the appropriate AML due diligence has been done without the need for further due diligence. The same comfort is not extended to firms in relation to sanctions.


Over the last few months, this issue has featured strongly during Compliance for Law Firms sessions, a weekly compliance forum attended by a cross-section of law firm compliance professionals nationally. On two occasions, these sessions benefited from the input from live participation from SRA representatives who confirmed on both occasions that firms should take the cautious approach and run sanctions checks on counter parties.

In a recent webinar by the SRA, it was confirmed that they are following OFSI’s guidance which suggests that it is possible that OFSI may take action where there has been a breach of the regime where a counter party is a designated person.


During the webinar, Ross Gilson, Head of AML policy, emphasised that as this is a strict liability regime, firms need to manage the risk of breaching the regime due to counter parties. He encouraged firms to incorporate counter party sanctions checks into their conflict checking process utilising the search function on the OFSI website


Whilst this approach may cause alarm within the profession, particularly firms dealing with high volume transactional work, it was confirmed that the extent of checks on counter parties should be proportionate and wouldn’t necessarily need to go into the same detail as due diligence for a firm’s own client.

Tapping into the mood of the profession, the following question was posed from a high street conveyancing practice with a local client base: ‘Isn’t it overkill to do all these check on my clients?’. Ross was clear in his response that the SRA did not consider it to be overkill, pointing out that there are around 66 people on the sanctions list who are British nationals or dual nationals and so ‘it’s not possible to have a stereotyped idea of who might be subject to sanctions’. The point was also made that we’re looking at ownership and control which can be quite a nebulous and layered thing.


The SRA guidance and OFSI guidance are essential reading to ensure that the risks posed to law firms by the sanctions regimes are managed.

Any conveyancing practices which have a visit scheduled with the SRA, as part of their programme of firm visits for AML, should expect their approach to sanctions to be discussed in detail.


Firms should consider reviewing and refreshing their current approach, documenting the reason for any departure from the SRA’s clear guidance given in their recent webinar.


As ever, raising awareness of the requirements firm—wide, and effective training in this area for all relevant personnel, is a necessity.


This article was originally written for Express Legal and can be seen here.


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