HSF fined £465k for breaching UK sanctions in wake of Russia’s invasion of Ukraine

HSF Fined £465k For Breaching UK Sanctions In Wake Of Russia’s Invasion Of Ukraine

HSF said the payments were the result of human error, in the final week of winding-up of their former Moscow office’s operations

A fine of £465,000 has been imposed on the Moscow subsidiary of Herbert Smith Freehills (HSF) for unintentionally violating UK sanctions imposed following Russia’s invasion of Ukraine.

The Office of Financial Sanctions Implementation (OFSI) in a ruling published on March said that HSF Moscow had made six payments totalling £3.93m to ‘designated persons subject to an asset freeze’ in the period up to the closure of the Moscow office on May 31, 2022.

The said payments were made to Alfa-Bank JSC, PJSC Sovcombank, and PJSC Sberbank and connected to the arrangements being made to close the office, including life insurance and redundancy payments for staff.

The largest payment of £3.92m was connected to the transfer of HSF Moscow's lease agreement to a local firm to be operated by former staff. The day the violation came to light, the money was transferred out of the sanctioned entity.

Having agreed to pay the fine on behalf of its subsidiary, HSF said the payments were the result of human error, in the final week of the winding-up of their former Moscow office’s operations. They were ‘disappointed’ by the penalty, given their self-reporting of the violations, full cooperation with OFSI, and ‘prompt recovery of the only considerable payment’, HSF said.

The penalty had been imposed on HSF Moscow, OFSI clarified. OFSI reportedly explained: “HSF London, on behalf of HSF Moscow, provided prompt and detailed disclosure relating to all breaches. Therefore, a 50% reduction was made to the final penalty amount. Were it not for this reduction, OFSI would have imposed a penalty of £930,000.”

However, OFSI said that while HSF’s withdrawal from Russia was an alleviating factor, the company could have done this in a fully compliant way. OFSI reportedly added: “The driving factor in HSF Moscow’s closure was the imposition of sanctions on large parts of Russia and its economy, and yet HSF Moscow failed to sufficiently account for these sanctions in administering the closure of its office.”

HSF reportedly said that they were pleased that the matter had now been resolved and that they were committed to complying in full with their obligations. HSF clarified that the payments in question did not relate to the firm’s clients or client work or to any of their offices other than the former office in Moscow.

James Clark, a partner at the London disputes boutique Quillon Law, reportedly said: "OFSI’s decision to impose a monetary penalty and publish detailed findings in that regard demonstrates their commitment to promoting better compliance with the UK sanctions regime, and highlights the importance of disclosing any potential breaches."