Letter from the Financial Services Authority regarding sanctions

Published on: 10 March 2022

A multi-agency approach is being coordinated in response to the ongoing conflict in Ukraine to ensure the Isle of Man is not exposed as a weak link in international pressure on the Putin regime.

Maintaining the integrity of the Island’s financial services sector and combatting financial crime are central the Island’s efforts to respond to Russia’s actions.

In line with our constitutional position, sanctions imposed by the UK Government are automatically implemented and enforced in the Isle of Man by the Customs & Excise Division of the Treasury, with updates published on the Customs & Excise website.

The information in this letter is intended to remind all regulated and registered persons of their obligations under Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) legislation.

However, it is important to note that sanctions obligations apply to all persons and businesses in the Isle of Man.

The Financial Services Authority is aware that some Isle of Man businesses have Russian customers or connections within a business relationship associated with Russia.

In light of Russia’s invasion of Ukraine and the sanctions being imposed globally, it is imperative that entities are aware of, understand, and carry out their AML/CFT obligations.

There has never been a more important time for AML/CFT compliance officers.

All relevant persons in the Isle of Man must ensure they have a comprehensive understanding of the risks presented by their customer base and have in place appropriate procedures and controls to mitigate those risks.

Increased vigilance and enhanced monitoring are strongly recommended, and should already be taking place.

Further detail is provided below to assist you in taking the appropriate steps to support the response to the current situation and to help maintain the Isle of Man’s reputation as a responsible international jurisdiction. In summary:

You must not deal with assets owned, held or controlled by a person subject to an asset freeze on the UK sanctions list. This includes making assets available to or for the benefit of a sanctioned person
You must not attempt to circumvent or facilitate the contravention of sanctions
You must adhere to the trade and transport restrictions imposed against Russia, which includes export restrictions of certain goods, and restrictions on the movement of ships and aircraft.

For the purposes of this letter, references to sanctions against Russia include Belarus, and references to ‘customer’ include the beneficial owner and controller.

Further guidance in respect of sanctions, AML/CFT obligations, and reporting is available via the Isle of Man Financial Intelligence Unit (“IOMFIU” or “FIU”), Customs & Excise, the AML/CFT Code and the AML/CFT Handbook.

Legal requirements regarding monitoring of the sanctions list

Paragraph 4 of the AML/CFT Code requires a relevant person to determine whether any customer, beneficial owner, beneficiary, introducer or eligible introducer are included on a sanctions list.
In order to do this effectively, relevant persons should consider a customer’s nationality, residency, expected activities and source of funds to ensure that they are not subject to any relevant sanctions, both at the outset of the relationship[1] (Paragraph 4 of the AML/CFT Code) and also on an ongoing basis throughout the relationship (Paragraph 13 of the AML/CFT Code).
Appropriate procedures and controls must be in place to detect when a customer involved in an existing business becomes listed on a sanctions list. Periodic or trigger event reviews alone may not be adequate to detect such listings in a timely manner. Therefore screening of customers must take place on a continuing basis.
In this case the trigger event – Russia’s invasion of Ukraine – has already occurred, sanctions continue to be issued and are developing every day.
There must be clear procedures and controls for staff regarding actions to be taken should a customer appear on the sanctions list.
The Customs & Excise Division, as the competent authority designated by the Treasury, directs that any funds held for or on behalf of the individuals or entities named in the sanctions lists having effect in the Island must not be made available, except under the authority of a licence in writing from the Treasury. Any funds should be blocked or frozen and the details reported to the Financial Intelligence Unit immediately.
It is recommended that entities subscribe to the RSS feed on the Customs & Excise website in order to stay up to date with sanctions applicable in the Isle of Man and any associated updates.
Relevant persons should also monitor for any other global sanctions that might be imposed which could impact on their customers.

Sanctions – possible compliance weaknesses

Low awareness of sanctions risk exposure and that sanctions obligations apply to all persons and businesses in the Isle of Man, not just regulated entities.
Lack of awareness of variations in sanctions put in place by different jurisdictions (they may apply to your clients or customers, and hence to you).
US sanctions may be wider than UK/IOM sanctions and IOM businesses and people may be covered if they are linked to, transacting with, or providing services to entities or persons so sanctioned. (Same if transactions involve movements of money/ payments in US dollars).
Reliance on manual screening or checks without a fast batch screening capability. The sanctions picture is changing almost daily.
No – or weak – data screening Know Your Business (KYB) capability that could identify persons or entities connected to sanctioned persons or entities.
Reliance on deficient sanctions programme data.
Missing, or out-of-date customer due diligence checks.
Inadequate due diligence on beneficial owners or controllers of companies, particularly where the ownership structure is complex or opaque. Identity checks are only a small part of due diligence.
Absence of due diligence on customers’ counterparties, third parties or supply chains. It is not enough to simply run customer names against a list of those sanctioned.
Lack of understanding or knowledge of day-to-day activity by client/administered firms. Some jurisdictions have a strict liability on breaches, so a lack of knowledge or suspicion is not a defence.
Sanctions alerts backlog due to under-resourcing or excessive false positive results, preventing ability to work new high-risk potential sanctions matches.

Sanctions – Best Practice

Re-examine customer due diligence gaps, and resolve them (everybody has gaps/weaknesses).
Seek to implement automated and/or real-time screening of business relationships to check for any direct or indirect connections with a sanctioned person or entity.
Relevant persons must be increasingly vigilant regarding their customer base, particularly where there could be a Russian customer and/or connection, or high-value assets.
Screen against the most comprehensive and up-to date sanctions programme data/dataset on a daily/real-time basis.
Seek and consider adverse media (which may indicate some people/entities likely to be at risk of sanctions).
Do not rely on manual one-off screening.
Be agile in anticipation of significant enhancements to sanctions programmes as the conflict continues.
Anticipate the impact of evolving sanctions by identifying your potential risk to Russia/Belarus/others as a matter of urgency.
Do not wait to see if clients/customers or their associates are sanctioned. The event-driven trigger point on Russia/Belarus sanctions has already happened.
Be alert to activity that may attempt to circumvent sanctions, including any changes of ownership of entities or assets.
Know what you need to do if you have, or identify customers who are, or are likely to be sanctioned.
The responsibility for receiving notification of the imposition of a sanction (an asset freeze) has been delegated by the Customs & Excise Division of the Treasury to the IOMFIU. Suspicions of a sanctions matter that is not necessarily a breach (for example, an individual on the OFAC Designations only) should, in the first instance, also be disclosed to the IOMFIU under S24 of the FIU Act (or a Suspicious Activity Report if money laundering is suspected).

Action to be taken

Reports in respect of both suspicious activity and sanctions should be made to the IOMFIU via Themis, the IOMFIU’s secure online reporting system. Details, and the Themis User Guide can be found on the IOMFIU’s website.
A suspicious activity report relating to a sanctions breach should be made using the “sanctions breach” option within Themis.
If you are not registered on Themis, please contact the FIU in relation to the steps to be taken.
An offence is committed under the Proceeds of Crime Act 2008 / Anti-Terrorism and Crime Act 2003 if a disclosure is not made where suspicious activity is identified.
For all other matters involving sanctions, i.e. where money laundering or terrorist financing is not suspected, disclosures should be made under section 24 of the FIU Act 2016.
The IOMFIU has received some excellent pro-active disclosures to-date, and these are encouraged to be submitted.
Also, where anyone has any information that could assist the IOMFIU with its functions, a report should be made under section 24 of the FIU Act 2016. A section 24 report under the FIU Act 2016 can be used if there is uncertainty as to whether a criminal act has/is taking place, but the circumstances appear strange or unnatural when considering the commonplace.

Competent Authorities

The competent authority in relation to the administration of United Nations and UK financial and trade sanctions and export licensing controls in the Isle of Man is the Isle of Man Customs and Excise Division. The Customs & Excise website provides information and the Island’s primary guidance on:

Financial sanctions
Current sanctions regimes
Terrorism and terrorist financing
Proliferation and proliferation financing
Export control and trade control; and
Trade based money laundering.

The Competent Authority to receive the disclosure of suspicion of a breach of sanctions, terrorist financing or money laundering is the FIU.

[1] Or occasional transaction