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UK imposes sanctions penalty on FinTech money transmitter

Editorial Staff

It sounds very American but the "Office of Financial Sanctions Implementation" is a part of the UK Treasury, effectively the equivalent of the USA's Office of Foreign Assets Control, OFSI as against OFAC, then. OFSI is gaining increased attention since the UK left the EU, as the UK begins to develop its own financial sanctions regime.

This case is brought under EU-era law. Importantly, it is also against a FinTech company, a sector widely considered under-regulated and lacking in compliance structures.

Applying the The Ukraine (European Union Financial Sanctions) (No. 2) Regulations 2014, which is part of UK law albeit designed in the EU, OFSI has imposed a penalty of GBP50,000 on FinTech money transmitter TransferGo Limited.

The specific breach was "making funds available to a designated person, without a licence." No voluntary disclosure was made.

The penalty related to 16 transactions where TransferGo issued instructions to make payments to accounts held at the Russian National Commercial Bank (RNCB). These payments were made between 20 March 2018 and 18 December 2019. The total value of the transactions was GBP7,764.77. In carrying out these actions, TransferGo made funds available to a person designated under Council Regulation (EU) No 269/2014 (the EU Regulation).

In March 2014, the European Union (including the UK) imposed restrictive measures against those responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine. The restrictive measures set out in the EU Regulation impose asset freezes on those identified as being involved in destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty and
independence of Ukraine. RNCB was designated on 30 July 2014. After the illegal annexation of Crimea RNCB became fully owned by the so-called ‘Republic of Crimea’; it has become the dominant player in the market while it had no presence in Crimea before the annexation. By buying or taking over from branches of retreating banks operating in Crimea, RNCB supported materially and financially the actions of the Russian government
to integrate Crimea into the Russian Federation, thus undermining Ukraine’s integrity. Article 2(2) of the EU Regulation prohibits making funds available, directly or indirectly, to a person, entity or body listed in Annex I; Annex I includes RNCB.

On 18 April 2018 OFSI received a suspected breach report detailing 8 payments made by 2 different individuals to 2 different accounts at RNCB. Further payments were subsequently made. OFSI considered that these payments constituted a breach of sanctions and that TransferGo knew or had reasonable cause to suspect that the payments were in breach of financial sanctions restrictions. TransferGo is a Financial Conduct Authority (“FCA”) regulated authorised payment institution, also supervised by HM Revenue & Customs, with knowledge of sanctions and they issued instructions to send payments to accounts of individuals resident in Crimea using a Russian Bank Identification Code which identified RNCB as the receiving financial institution for the relevant payments.

TransferGo made an error in its assessment of whether the payments to RNCB were subject to financial sanctions restrictions. TransferGo asserted that as the relevant clients and beneficiaries were not themselves subject to financial sanctions restrictions, the payments to their accounts with RNCB were not breaches; OFSI considers that this is not the case as funds held in bank accounts ultimately belong to those banks. In respect of this and other factors, TransferGo demonstrated a poor understanding of financial sanctions throughout its engagement with OFSI.

Despite being a relevant institution, as defined in the UK Regulations, which would have required TransferGo to inform OFSI of these breaches as soon as practicably possible, it did not. As has been publicised previously, OFSI values voluntary disclosure and had TransferGo voluntarily disclosed these transactions it could have received a discount of 50% of the baseline penalty amount.