The UK’s Office of Financial Sanctions Implementation (“OFSI“) has published updated guidance (the “Russia Sanctions Guidance“) on the implementation of the Russia (Sanctions) (EU Exit) Regulations 2019 (“UK Russia Regulations“), including a new FAQ addressing circumstances where a UK financial institution receives funds indirectly from or via a designated bank.
In parallel with this update to its Russia Sanctions Guidance, OFSI has also published a new General Licence relating to Correspondent Banking Payments (INT/2023/3566356).
Updated Russia Sanctions Guidance
OFSI’s updated Russia Sanctions Guidance includes an FAQ asking whether a UK financial institution should freeze funds that are received indirectly from a Designated Person (DP) bank, when both the sender of the funds and the receiver of the funds are non-designated account-holders.
The response to this FAQ states that “[w]here the only connection to a DP is that a UK financial institution receives funds indirectly from a designated bank (and there is no DP bank after the UK financial institution in the chain), OFSI’s view is that the asset freeze prohibitions are not engaged, and the UK financial institution does not need to freeze the funds it has received“.
The guidance further states that, while this position “reflects OFSI’s view of the law as it currently stands“, the government intends to amend the UK Russia Regulations to ensure that UK financial institutions cannot process any payments which have been received from an originating designated bank or via a designated bank. The guidance includes images of two payment chains to serve as examples of circumstances in which an asset freeze would not currently be triggered.
This new guidance departs from OFSI’s previous version of the Russia Sanctions Guidance, which had indicated that transfers received from or via a designated bank should be frozen by a UK financial institution. That position was also communicated in a notice published by HM Treasury in 2014, which stated that “any funds arriving in the UK, or in a UK bank anywhere in the world, which have come from, or via, a designated person based outside the EU, will be required to be frozen in a suspense account, or other separate account, on arrival in the UK bank“. OFSI’s former position is also reflected in the current version of the European Commission’s FAQs on its Russia sanctions, which indicate that “transfers from a listed bank should not be rejected nor should the funds be returned to the sender; instead, the funds should remain blocked in the EU bank“.
General Licence INT/2023/3566356
In addition to the above updates to the Russia Sanctions Guidance, on 29 September 2023 OFSI issued General Licence – Correspondent Banking Payments INT/2023/3566356.
In summary, this licence provides that where a credit or financial institution receives a “Relevant Payment”, it can return the Relevant Payment to a non-DP bank in the payment chain that sent the Relevant Payment to it (subject to certain conditions). In summary, a “Relevant Payment” is categorised as a payment meeting all of the following criteria:
- the payment has been received by a credit or financial institution which is not a DP;
- the payment was received directly from a credit or financial institution which is not a DP;
- the payment has, at some point in the chain of payments, been processed by a credit or financial institution which is a DP acting as an originating, correspondent or intermediary institution; and
- the original account holder and the original intended recipient of the payment are not DPs.
The licence includes introductory wording stating that it is being “issued for the purpose of providing certainty and does not reflect a view that UK financial sanctions are engaged by the actions referred to in this licence“.
A copy of the General Licence is available here, and OFSI’s publication notice is available here. The General Licence took effect from the 29 September 2023 and expires at 23.59 on the 1 December 2023.