As global sanctions regimes continue to evolve and expand, solicitors and law firms face increasing pressure to ensure that they are in compliance with all applicable regulations. Non-compliance with sanctions can result in significant legal and reputational risks, including fines, legal action, and damage to the firm’s brand and reputation. To avoid these risks, solicitors and law firms must take proactive steps to ensure that they are aware of and compliant with all relevant sanctions regimes.
In this post, we’ll explore some key considerations for solicitors and law firms looking to ensure compliance with sanctions regulations.
The importance of sanctions compliance
Sanctions compliance refers to the process of ensuring that individuals and businesses are not engaging in activities that are prohibited under sanctions regimes. Sanctions are measures that are imposed by governments or international bodies to restrict or prohibit certain activities, such as financial transactions or trade, with a particular country, group, or individual.
As a solicitor, it is important to understand sanctions compliance because you may advise clients who are named on a sanctions list, or operate in industries that are particularly susceptible to sanctions, such as banking, finance, and international trade.
There have been cases where solicitors and law firms have been punished for breaches of sanctions. Here are a few notable examples:
- In 2019, the UK law firm Dechert LLP was fined £250,000 by the Solicitors Disciplinary Tribunal for breaches of financial sanctions. The firm had acted for a Ukrainian client who was subject to financial sanctions, and had failed to adequately investigate the source of the client’s funds.
- In 2018, the UK law firm Clyde & Co was fined £50,000 by the Solicitors Regulation Authority for breaches of financial sanctions. The firm had acted for a client who was subject to sanctions, and had failed to take appropriate steps to ensure compliance with the sanctions regime.
- In 2017, the US law firm Skadden, Arps, Slate, Meagher & Flom LLP agreed to pay $4.6 million to settle allegations that it had violated US sanctions by working on behalf of a Ukrainian government official who was subject to sanctions.
These cases demonstrate that lawyers must take steps to comply with sanctions regimes, or face serious consequences, including fines, reputational damage, and even criminal charges. It is important to stay up to date with the latest sanctions regimes and guidance from regulatory bodies to ensure that you are providing the best possible advice to your clients.
Stay up-to-date with sanctions regimes
Sanctions regimes can change rapidly, and new regulations can be introduced with little warning. Solicitors and law firms must have a system in place for monitoring and staying informed about sanctions regulations in all jurisdictions where they operate.
This involves identifying the relevant sanctions regimes that apply to the client’s business activities. This may involve reviewing relevant laws and regulations, as well as guidance from regulatory bodies such as the UK’s Office of Financial Sanctions Implementation (OFSI) or the US Office of Foreign Assets Control. Solicitors should also ensure that they are familiar with any industry-specific sanctions regimes that may apply to their clients.
An effective way to stay informed about individuals under sanction is to subscribe to a reputable sanctions screening service. These services can provide real-time updates on changes to sanctions and can help to identify potential risks and compliance issues posed by clients.
The SRA’s guidance on sanctions compliance emphasises the importance of staying up-to-date with sanctions regimes and ensuring that clients are aware of their obligations under these regimes. The guidance also states that solicitors should conduct appropriate due diligence to ensure that clients are not engaging in activities that violate sanctions regimes. The SRA’s guidance also outlines reporting obligations for solicitors who suspect that a client has violated sanctions regulations.
The Law Society’s guidance on sanctions compliance provides a more detailed overview of the steps that solicitors should take to ensure compliance with sanctions regimes. The guidance emphasises the importance of conducting thorough due diligence on all relevant parties, implementing robust internal controls and procedures, and maintaining appropriate documentation. The Law Society’s guidance also provides advice on responding to suspected sanctions violations, including how to report potential violations to the relevant authorities.
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Conduct due diligence on all relevant parties
Another key consideration for solicitors and law firms is to conduct thorough due diligence on all relevant parties, including clients, vendors, and other business partners. Sometimes even other parties to a transaction. Due diligence should include screening against sanctions lists, an understanding of sanctioned industries and countries, as well as taking into account other risk factors such as adverse media coverage and individuals’ status as a politically exposed person (PEP).
The firm’s money laundering systems may also help. In addition to conducting initial due diligence, law firms within scope of the Money Laundering Regulations must also have a system in place for ongoing monitoring of clients and other relevant parties. This can help to identify potential sanctions risks and compliance issues that may arise over time.
Implement robust internal controls and procedures
To ensure compliance with sanctions, law firms must implement robust internal controls and procedures. These controls and procedures should include:
- Policies and procedures for sanctions compliance: Firms should have clear policies and procedures in place for compliance with sanctions regulations. These policies should be communicated to all relevant parties, and should be regularly reviewed and updated as necessary.
- Employee training: All employees should receive training on sanctions compliance, including how to identify potential risks and how to report potential compliance issues.
- Transaction screening: Solicitors and law firms should have a system in place for screening all transactions against sanctions lists and other risk factors. This screening should be conducted in real-time and should include all relevant parties.
- Record-keeping: Solicitors and law firms should maintain comprehensive records of all transactions and due diligence activities. These records should be easily accessible and should be retained for a minimum of five years.
Respond to suspected sanctions violations
Even with robust controls and procedures in place, there is always a risk that a sanctions breach may occur. Law firms must have a system in place for responding to these situations – for example, understanding how to apply to OFSI for licence to act for a sanctioned client or in a particular transaction.
If a suspected sanctions breach is identified, solicitors and law firms should take immediate steps to investigate the matter and determine the scope of the issue. If necessary, the matter should be reported to the relevant authorities, and remedial action should be taken as appropriate.
Sanctions compliance is a critical issue for solicitors and law firms operating in today’s global marketplace. By staying informed about sanctions regulations, conducting thorough due diligence, implementing robust internal controls and procedures, and responding appropriately to suspected violations, solicitors and law firms can minimise their legal and reputational risks and ensure compliance with all applicable regulations.
While complying with sanctions regulations can be complex and challenging, the costs of non-compliance can be far worse.