OFSI publish further guidance on the licence application process

Financial sanctions and, in particular, targeted asset freezes, impact not only the sanctioned individual but also their family and close associates. The UK sanctions regime recognises there are circumstances where otherwise prohibited transactions or activities should be permitted.

There are now many different sanctions regulations but they all broadly contain similar exceptions and the power for the Office of Financial Sanctions Implementation (OFSI) to issue general and specific licences where the relevant grounds apply (for example, to enable the basic needs of a designated person or financially dependent family members to be met).

The sheer volume of designations over the last few years means OFSI are now grappling with a significantly larger number of licence applications and consequently applicants are likely to encounter substantial delays and difficulties in seeking to obtain the licences they need to discharge their liabilities and operate their businesses.

Any insight and clarity into OFSI’s approach to these applications should help to lower the number of incorrect or rejected applications and therefore expedite the process. This is why sanctioned individuals and their legal teams will welcome the guidance published by OFSI on 27 February 2024 setting out the principles it applies to licence applications relating to sanctioned individuals. Alongside this guidance OFSI has also published the delegation framework it has in place to determine whether a decision is contentious and how it should be dealt with.

Licensing Principles

The ‘OFSI Licensing: Designated Individuals Licensing Principles’ guidance sets out 16 principles to be applied by OFSI’s licensing decision makers. Although described as ‘fundamental principles’, they are not absolute and may be departed from in exceptional circumstances. They must also be considered in conjunction with the general and other specific guidance already published by OFSI.

The principles address the key issues of basic needs, frozen assets, ownership and control and general principles and include the following standards:

1. Licensing decisions should not significantly cause harm to the health or personal security of the sanctioned individual or their dependents (principle 3).

2. A licence should permit a reasonable standard of living as compared to a person receiving the net UK median wage (principle 4). OFSI will take an objective view of what is required to fulfil an individuals’ ordinary basic needs where the expenditure is in excess of the net UK median wage (principle 4(b)).  

3. In most cases, and in the absence of mitigating or extenuating circumstances, licences will not enable a sanctioned individual to continue the lifestyle or business activities they had before designation (principle 5).

4. OFSI will consider the impact of their licensing decisions on non-sanctioned UK individuals and whether they would have a detrimental impact on those individuals (principle 6). The detriment to third parties will not determine a licensing decision and must be balanced against the objectives of the UK’s sanctions regime (principle 6(a)).

5. OFSI will generally only license payments to maintain the current state of an asset belonging to a sanctioned individual and not improvements (principle 8).

6. OFSI will generally not make ownership and control determinations on behalf of applicants unless it is necessary to do so to issue a licence. An applicant must demonstrate how a company is owned or controlled and therefore subject to sanction (principle 11).

7. OFSI will not generally license an activity which can reasonably be provided by the State (for example health care or education) (principle 14).

Applications for a licence from OFSI should now set out as clearly as possible how the request adheres to these principles or, alternatively, it must provide clear and compelling reasons why it would be appropriate for OFSI to depart from its principles.

Licensing delegation

OFSI will use the ‘Licensing delegation framework’ to determine whether a decision is contentious and should be taken by a Minster (rather than an OFSI Senior Civil Servant or Head of Licensing). The relevant considerations include:

1. Whether the decision to grant or refuse a licence could have significant economic impact or impact UK commercial interests.

2. Whether it is likely that the decision to grant or refuse a licence will attract significant adverse media, parliamentary or international comment.

3. Whether there are significant risks of a potential legal challenge as a result of a decision to grant or refuse a licence.

4. Whether there are significant risks of potential reputational damage as a result of granting or refusing a licence.

Further Information

For further information on the issues raised in this blog post, please contact a member of our Criminal Litigation team. Kingsley Napley advises on the impact of sanctions designations and we can provide assistance with applications to have these restrictions reviewed and removed or to obtain a licence authorising the use of frozen funds.

About the author

Gemma Tombs has particular expertise in sanctions-related matters and advises on the impact of sanctions not only on designated persons but also the individuals and businesses they are linked to. Gemma’s work in this area includes advising on the risk of sanction breaches, reporting obligations and obtaining specific licences from OFSI.