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Law firms under “active investigation” for flouting sanctions regime

25/11/2022

A small number of law firms are being investigated for either actively or negligently breaching sanctions imposed following Russia’s invasion of Ukraine, it emerged yesterday.

The news came in the wake of the Office of Financial Sanctions Implementation (OFSI) issuing a general licence to permit sanctioned Russian and Belarussian individuals and entities to pay legal fees without needing specific permission from OFSI.

The SRA yesterday held its annual compliance officer conference in Birmingham, at which OFSI director Giles Thomson said it and the National Crime Agency have “a number of cases against law firms under active investigation”.

He said there were a “very small minority” of firms “actively trying” to help designated persons avoid sanctions, while a “larger minority” were either being negligent about this or not putting in place the compliance measures needed to identify sanctioned people and entities.

In October, the government announced that UK law firms would be unable to provide “transactional legal advisory services” to Russians in a tightening of the sanctions regime. Mr Giles said the details of this were currently being consulted on and would be announced later this year or early next.

He stressed that this would not affect the provision of legal advice to those seeking to challenge sanctions that have been imposed on them; the move was “primarily concerned with commercial activity” by Russian entities.

Earlier this year, the government also consulted on changes to the anti-money laundering supervision regime, which floated four possible models, including having a single supervisor for the entire legal sector.

Mr Giles said the detailed proposals that emerge from that consultation process would be subject to a further consultation next year.

More than 1,200 individuals and entities have been added to the sanctions list since Russia’s invasion – before February, there were only 2,213 on the list subject to sanctions imposed by the UK government across the globe.

Lawyers seeking payment for legal services require an OFSI licence, but the office said that the “extraordinary number of new designations under the Russia and Belarus regimes” had led to a similar increase in the number of those seeking a licence.

As a result, OFSI has issued a general licence to permit the payment of legal fees owed by individuals and entities designated under either regime.

It means that a UK law firm or barrister who has provided legal advice to a designated person will not have to wait for an OFSI licence before they can receive payment from them, provided that the terms of the general licence are met.

The licence distinguishes between legal fees in relation to ‘pre-designation’ work, and work started ‘post-designation’ as a sanctioned individual or entity.

OFSI said: “For legal work which is carried out in satisfaction of a prior obligation (for example, where a law firm or barrister is engaged before the designation of the individual or entity), there is a £500,000 (inc. VAT) cap on the amount that can be claimed over the duration of the licence.

“This amount reflects the potentially costly nature of legal work and therefore covers legitimate requests, while still maintaining the policy intent of a financial sanctions designation.

“For all legal work commenced post-designation, users of the licence will need to demonstrate through their reporting obligations that all fees which have been paid are reasonable.

“This will be done by providing details of hourly fees, workstreams, and evidence that overall fees are at or below a cap of £500,000 (inc. VAT).”

The cap applies to the total legal fees per case and the cap can be used separately by multiple legal firms involved in a case.

Where applicable, these two caps can also be combined. For any fees above the caps, a specific licence must be sought.

Legal advisers are not allowed to exceed hourly rates set by the licence. Using the way the guideline hourly rates for civil litigation are set out, they allow a grade A fee-earner at a firm in the London 1 area to charge up to £896 an hour, falling through the fee-earner ranges to £326 for trainee solicitors and paralegals. In the National 2 category, the figures are £446 and £221 respectively.

Counsel’s fees are capped at £1,500 per hour

The current term of the general licence expires on 27 April 2023.

Source:

https://www.legalfutures.co.uk/latest-news/law-firms-under-active-investigation-for-flouting-sanctions-regime

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