Many governments around the globe have this week announced sanctions on Russia in the wake of the country sending military troops into Ukraine.
The States of Guernsey, following the UK’s lead, has responded by instructing the finance industry to freeze the assets of five Russian banks and three billionaires and are prepared to take further measures in line with other jurisdictions.
Abel Lyall, Partner at Mourant in Guernsey, provides advice around the key issues trustees and financial institutions in Guernsey face when complying with the various sanctions regimes:
“With the increased use of financial sanctions as a foreign policy tool we’ve seen a rise in the number of sanctions regimes being enforced against individuals and companies across a broad range of sectors. This rise poses particular compliance risks.
The Sanctions Law in Guernsey gives the Policy & Resources Committee the power to domestically enforce UN, EU and UK sanctions regimes, as well as the ability to impose independent sanction regimes as required.
In practice Guernsey adopts the sanctions regimes as enforced by the UK Government, as the Committee has done this week in the case of Russia. Financial sanctions are broad and can include a wide variety of measures such as asset freezes as well as prohibitions on making funds available to designated entities or individuals.
Here is what trustees and financial institutions should be doing in order to meet the general reporting obligation imposed by The Sanctions Law:
- Be extra vigilant. Much like the money laundering and terrorist financing obligations, it pays to be hyper-aware of what will fall under the law. The report needs to be made when it is known or suspected that an individual or entity is a sanctioned person or is linked to a sanctioned person. This is regardless of whether any activity that would be a breach of sanctions has been undertaken or is contemplated. Reporting obligations are also not limited to persons or entities that are clients of a relevant institution. Once it has been established that a report is required, this should be made to the Policy & Resources Committee.
- Have a robust screening system. All trustees and financial institutions should have a robust and effective screening and alert system that captures and suitably highlights potential hits. These should be tested on an ongoing basis to ensure that risks are not being missed. Any breach of the provisions of the Sanctions Law, even inadvertently, can be stark with criminal liability attaching to most offences. The use of complex structures in Guernsey means that once a potential sanctions risk has been identified, it can be difficult to ascertain what assets within a structure will fall under the ambit of a sanctions regime and what should be done with those assets.
- Be suspicious. While the technical analysis of the status of assets should be subject to legal advice there are broad principles to be taken into account. Are there any assets within the relevant structure that are owned, held or controlled by the designated person or entity? Would dealing with the assets make them available either directly or indirectly to the designated person or entity? Clear evidence that assets are ‘owned, held or controlled’ by or would be made available to a designated person or entity is not necessary – if there is a suspicion that an individual or entity has breached, or is subject to sanction measures, or that one of the above two points apply, this can ignite obligations under the Sanctions Law.
While there may be pressure to arrive at a decision on dealing with sanctioned assets promptly, it is important to consider the situation from all angles to avoid breaching the Sanctions Law. Where an asset or set of assets meet the relevant tests to be frozen under a Guernsey sanctions regime any deviation from those measures requires a licence from the Policy & Resources Committee. There are limited grounds on which a licence may be granted, and these vary between different sets of sanction measures.
Sanctions compliance can be a difficult area to navigate and will only become more complex as the use of sanctions increases globally.”
