International Regulatory Enforcement (PHIRE)
OFAC-OFSI Enhanced Working Partnership
On 17 October 2022, the respective directors of the United Kingdom’s Office of Financial Sanctions Implementation (“OFSI”) and the United States’ Department of the Treasury Office of Foreign Assets Control (“OFAC”), Giles Thomson and Andrea Gacki, announced the details of an enhanced partnership between the two agencies.
By way of background, OFAC and OFSI have much in common: the two agencies are amongst the largest sanctions implementation and enforcement agencies in the world, with similar corresponding functions and tools, such as the ability to issue general licences and civil monetary penalties for breaches of applicable sanctions legislation along with comparable legal thresholds for both compliance and enforcement. At the same time, OFSI is a much newer agency, focused on financial sanctions (as opposed to also maintaining authority to implement trade-in-goods-related measures), with less of an enforcement and administration track record. Additionally, OFSI has been forced to significantly enhance its staffing levels since the beginning of the implementation of Western sanctions on Russia in the wake of its invasion of Ukraine in February 2022.
Collaboration between the agencies
As part of the enhanced working partnership, OFSI and OFAC officials have announced that they will:
- exchange best practices and strengthen working relationships at all levels;
- identify opportunities to “pool expertise”, to “think creatively” about the challenges they face, to “explore opportunities” to align the implementation of sanctions and to “assist stakeholders” either through joint products or by providing guidance resulting from collaboration; and
- continue to work together to develop approaches to address shared priorities such as cyber threats and the misuse of virtual assets, improving information sharing and ensuring that UK and U.S. sanctions do not prevent humanitarian trade and assistance from reaching those in need.
In addition to the enhanced partnership between OFAC and OFSI, the U.S. Treasury is planning to create a new role of chief sanctions economist to examine the economic impact and effect of sanctions, while at the same time OFSI is expanding into a larger organisation. These developments highlight the significance of sanctions regimes in both the UK and the United States – sanctions are increasingly being used to impose restraints on nations, entities and individuals who pose a threat to Western stability or national security interests.
What does this mean?
The proposed enhanced partnership is a clear signal that the UK and United States will continue to work together in relation to sanctions implementation and enforcement. This strategy may also be a tacit response to many in the economic sanctions practitioners’ community who have experienced divergent approaches between the UK and United States to Russia-related and other sanctions, which have left multinational companies and financial institutions unable to pursue transactions that may nevertheless be in their, and the collective UK-U.S. and wider West’s, foreign policy interests.
Businesses operating in both the UK and United States will, of course, need to ensure effective compliance with all applicable sanctions regimes, including with respect to with whom they do business and where their counterparties are located or otherwise operate. The OFAC-OFSI collaboration announcement, however, probably reflects the already-present reality of an increased likelihood that one agency will refer a matter to the other agency when one’s jurisdiction may be implicated.
It is also clear from the agencies’ joint announcement that financial sanctions will continue to be a vital tool in supporting the UK’s and United States’ respective foreign policy and national security aims and companies should be prepared for increased sanctions implementation and enforcement. What is not yet clear, however – and may be lurking in the background of this new cross-border collaborative regulatory effort – is whether OFSI will be able to develop a track record of enforcement that will make it a credible enforcement partner to OFAC in the sanctions space, as the UK Serious Fraud Office and Financial Conduct Authority have sought to become in the foreign bribery and cross-border financial crime spaces more broadly.