The UK’s Office of Financial Sanctions Implementation (OFSI) has fined Herbert Smith Freehills (HSF) £465,000 (€556,000) for breaching sanctions on Russian banks. The law firm, based in London, voluntarily reported the issue, but UK authorities stressed that all businesses must follow financial restrictions strictly.
HSF’s Moscow branch processed six payments totaling nearly £3.93 million (€4.7 million) in May 2022. These payments went to Russian banks that were under UK sanctions, including Alfa-Bank JSC, PJSC Sovcombank, and PJSC Sberbank. These banks were already subject to an asset freeze under UK law.
Compliance Failures Led to the Breach
OFSI identified compliance failures at HSF Moscow. The agency said the firm did not perform enough due diligence or proper sanctions screening while shutting down its operations. Some payments were made as redundancy settlements to employees with accounts at sanctioned banks. Others were for audit services and insurance costs.
UK Economic Secretary Emma Reynolds reaffirmed the importance of financial sanctions. She stated that these measures help disrupt Russia’s war efforts and support Ukraine’s defense. The UK government has been strict about enforcing sanctions since Russia invaded Ukraine in 2022.
Although HSF voluntarily disclosed the breach, the fine was still imposed. The UK Treasury acknowledged the firm’s transparency, which led to a 50% reduction in the penalty. Regulators encourage businesses to report violations, as this often results in lighter penalties.
OFSI Upholds Fine Despite Appeal
HSF London appealed the fine, requesting a review by a senior Treasury official. However, the official upheld the OFSI’s decision, confirming that the penalty was fair. The agency emphasized that sanctions enforcement applies to all businesses, regardless of size or reputation.
It is important to note that the fine only applies to HSF Moscow. The London headquarters was not involved in the breach and continues to provide legal advice on financial compliance and sanctions regulations.
Broader Implications for Businesses
This case highlights the risks for international companies operating in sanctioned regions. Firms must have strict compliance procedures to avoid financial and legal consequences. Even unintentional breaches can lead to heavy penalties.
Since the UK imposed sanctions on Russia, many businesses have struggled to comply with the evolving regulations. The government has introduced strict enforcement measures to ensure companies do not indirectly support Russian financial institutions.
In recent years, UK regulators have increased oversight on financial transactions linked to Russia. OFSI has issued multiple fines to businesses that failed to follow sanctions laws. This case serves as a reminder that self-reporting can reduce penalties, but it does not eliminate them entirely.
As tensions between Russia and Western nations continue, financial compliance remains a top priority. Businesses must regularly review their procedures to stay aligned with evolving regulations. The UK government has made it clear that sanctions violations will not be tolerated.
