UK’s Office of Financial Sanctions Implementation Issues Guidance on Minority Interests and Control
The UK’s Office of Financial Sanctions Implementation (OFSI) has issued guidance on minority interests and control, emphasizing the importance of vigilance in identifying and reporting potential breaches of financial sanctions.
Minority Interests Do Not Necessarily Trigger Financial Sanctions
According to the guidance, a designated person having a minority interest in another legal person or entity does not necessarily mean that financial sanctions also apply. However, if the stake held by the designated person increases to greater than 20% or they obtain a majority interest, financial sanctions will also apply to that legal person or entity.
Control Can Be Established through Various Means
The guidance notes that a designated person can be considered to be in control of another legal person or entity even if they possess only a minority interest. This is because control can be established through various means, including:
- Having the right or exercising the power to appoint or remove a majority of the members of the administrative, management or supervisory body
- Having appointed solely as a result of the exercise of one’s voting rights a majority of the members of the administrative, management or supervisory bodies
- Controlling alone, pursuant to an agreement with other shareholders in or members of a legal person or entity, a majority of shareholders’ or members’ voting rights
- Having the right to exercise a dominant influence over a legal person or entity, pursuant to an agreement entered into with that legal person or entity, or to a provision in its Memorandum or Articles of Association
Criteria for Control
OFSI has provided several criteria that indicate whether a legal person or entity is controlled by another:
- Having the right or exercising the power to appoint or remove a majority of the members of the administrative, management or supervisory body
- Having appointed solely as a result of the exercise of one’s voting rights a majority of the members of the administrative, management or supervisory bodies
- Controlling alone, pursuant to an agreement with other shareholders in or members of a legal person or entity, a majority of shareholders’ or members’ voting rights
- Having the right to exercise a dominant influence over a legal person or entity, pursuant to an agreement entered into with that legal person or entity, or to a provision in its Memorandum or Articles of Association
Warning Against Circumventing Sanctions
The guidance also warns against designated persons using non-designated persons to circumvent sanctions. OFSI emphasizes the importance of reporting suspicious transactions and activities to ensure compliance with financial sanctions.
Failure to Comply with Reporting Obligations
OFSI has also emphasized the importance of complying with reporting obligations. Failure to submit a detailed written return on accounts subject to a freeze order within 24 hours from receipt of the freeze order is considered a less serious violation under the AMLC Rules of Procedure in Administrative Cases, punishable with a monetary penalty.
Conclusion
The guidance serves as a reminder to financial institutions and other designated persons to be vigilant in identifying and reporting potential breaches of financial sanctions. By understanding minority interests and control, these entities can ensure compliance with financial sanctions and avoid serious consequences for non-compliance.