Key Takeaways: OFSI Legal Services Threat Assessment April 2025

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Overview

The OFSI publication - 'Legal Services - Treat Assessment' is 24 pages in length. This blog only scratches the surface of this detailed report.

The report aims to provide an overview of:

the threats to UK financial sanctions compliance involving UK legal services providers since February 2022

with a particular focus on those related to Russian Designated Persons (DPs) following the invasion of Ukraine

Russian Invasion February 2022

The report references February 2022 throughout. The significance of this month and year, relates directly to when Russia invaded the Ukraine, as a result this led to a major change in the UK sanctions landscape, with the UK Government and international partners implementing unprecedented financial sanctions on Russia.

Threat

The report sees that Designated Persons and their enablers as a threat, this because they could seek to circumvent and undermine UK financial sanctions, particularly those implemented following the illegal Russian invasion of Ukraine in February 202.

The Office of Financial Sanctions Implementation (OFSI) highlights that financial sanctions have resulted in the freezing of billions of pounds worth of Russian DPs’ assets in the UK.

Methods

In response, these DPs and their enablers repeatedly try to recoup frozen assets and dissipate them beyond the reach of UK financial sanctions.

The report specifically outlines the following ways in which DPs and their enablers pose a threat:

Obfuscation of asset ownership and control through complex structures: DPs and their family members often use complex corporate structures, including trusts, to hide their ownership or control of assets, including those in the UK. This makes it difficult for UK legal services providers and other firms to determine if assets should be frozen under asset freeze prohibitions. OFSI notes that it is almost certain that such structures have obfuscated the ownership and control of assets that could be frozen.
Post-designation transfer of assets: Following their designation, Russian DPs have been observed removing themselves from complex corporate structures and attempting to transfer assets to non-designated individuals and entities. These transfers, especially if made for the benefit of a DP, can constitute enabler activity and breach UK financial sanctions. OFSI assesses it as likely that Russian DPs have transferred ownership and control of assets to non-designated parties.
Use of enablers to breach sanctions: OFSI defines an enabler as anyone providing services or assistance to DPs to breach UK financial sanctions. This includes both professional enablers (who may be deliberately, recklessly, improperly, dishonestly, and/or negligently facilitating breaches) and non-professional enablers (often individuals with close personal ties to DPs using less sophisticated methods)
Money Laundering: Russian DPs and their enablers may engage in money laundering to obscure the source of their funds and circumvent sanction. This can involve complex methods like using cash and crypto assets.
Pressuring legal services providers into non-compliance: Clients, including Russian DPs and related individuals, may pressure UK legal services providers into actions that would breach sanctions, including by threatening legal action.

Why Legal Service Providers?

This particular report focuses on UK legal services providers, in the context of financial sanctions, particularly those related to Russian Designated Persons (DPs) following the invasion of Ukraine. The basis of the focus stems from several key factors:

Crucial Role in Ensuring Compliance: Legal services providers play a crucial role in ensuring compliance with UK financial sanctions both within and outside their sector
Advice work: Legal service providers advise a range of UK and international clients, including potentially DPs, on how to comply with these sanctions.
Unique Position to Identify Breaches: In providing services to DPs, legal services providers are uniquely positioned to identify suspected breaches of financial sanctions. This is because they often have access to information about their clients' assets, transactions, and corporate structures.
Gatekeepers to the Financial System: Lawyers and other legal service providers can act as gatekeepers to the financial system. It is suggested that their involvement can either facilitate compliance or, if they are negligent or complicit, enable the circumvention of sanctions by DPs and their enablers.
Observed Non-Compliance: The Office of Financial Sanctions Implementation (OFSI) has observed patterns of non-compliance within the legal services sector since February 2022:

Breaches: Non compliance included breaches of OFSI licence conditions, delays in freezing funds, and the transfer of frozen funds incorrectly.
Second Highest Number of Breach Reports: Since February 2022, the legal services sector has submitted the second highest number of suspected breach reports to OFSI. This accounts for 16% of the total.This highlights their involvement in identifying potential breaches, but also suggest areas where breaches might be occurring.
Involvement with Complex Structures: Legal services providers, particularly Trust and Company Services Providers (TCSPs), are often involved in setting up and managing complex corporate structures, including trusts, which Russian DPs and their families may use to obfuscate ownership and control of assets potentially subject to sanctions.
Risk of Enabler Activity: Legal professionals can become enablers, either deliberately, recklessly, improperly, dishonestly, and/or negligently, by providing services that help DPs breach financial sanctions. They are well-placed to advise on and facilitate the transfer of assets or changes to ownership structures post-designation.
Pressure from Clients: Clients, including Russian DPs, Persons Connected with Russia (PCWR), or related individuals, may pressure UK legal services providers into non-compliance, even threatening legal action.

Therefore, the focus on lawyers and the legal services sector is due to their critical role in the sanctions regime, their ability to identify and prevent breaches, the observed instances of non-compliance, and the risk that they could be used, wittingly or unwittingly, to circumvent financial sanctions targeting Russian DPs and their assets following the invasion of Ukraine. OFSI is actively engaging with this sector through their threat assessments and guidance to strengthen compliance.

What can the Legal Sector do to Mitigate this Threat?

Drawing on the information provided by the report and general information the legal sector can take several key actions to reduce the threat posed by Designated Persons (DPs) and their enablers in relation to financial sanctions:

Conduct Robust Due Diligence: Legal services providers can strengthen compliance by ensuring robust due diligence is conducted where relevant, including when the red flags are detected. This is particularly important when dealing with potential Russian DPs and Persons Connected with Russia (PCWR), but also applies to DPs designated under other regimes. Legal professionals are gatekeepers to the financial system and their due diligence is crucial in preventing sanctions evasion.

Be Vigilant for Red Flags: The report provides a list of cross-sector red flags that legal services providers should be alert to.

These red flags primarily concern Russian DPs and PCWR but can apply to DPs under other regimes and include:

Close name matches with individual Russian DPs or non-designated individuals with discernible links to them
A non-designated individual or entity making payments previously made by a Russian DP
Low profile legal services providers potentially acting on behalf of DPs to facilitate breaches
Trusts with unclear identities of individuals in the structures
Complex corporate structures, including trusts, with unclear source of wealth and links to Russian DPs
Non-designated individuals with links to Russian DPs dealing with assets potentially subject to an asset freeze
Extensive links between a non-designated individual and a Russian DP without a clear business purpose
Non-designated individuals serving as shareholders in entities linked to a Russian DP without a clear business purpose, potentially as nominees
New clients (entities) with unclear beneficial ownership obfuscated by complex structures
Counterparties or clients claiming their relationship with a Russian DP ended following designation without providing substantiation
Potential PCWR hiding connections to Russia to receive trust services
TCSPs claiming a client is not a PCWR without robust due diligence or providing substantiation
Clients, including Russian DPs, PCWR, or related individuals, pressuring UK legal services providers into non-compliance
Clients refusing to provide information upon request
The presence of an intermediary jurisdiction nexus alongside these red flags should also increase vigilance

Carefully Consider Complex Ownership Structures: Legal services providers, especially Trust and Company Services Providers (TCSPs), are encouraged to carefully consider the ownership and control of assets held through complex corporate structures, including trusts, linked to Russian DPs, their family members and associates. The report highlights that such structures have almost certainly obfuscated the ownership and control of assets that could be frozen

Report Suspected Breaches to OFSI: OFSI encourages legal services providers to report if they suspect a breach linked to the content of the assessment has occurred. This includes reporting suspected breaches arising from non-designated individuals or entities dealing with frozen assets held through complex corporate structures and any suspected breaches resulting from the activities of designated Russian businesses. The legal services sector has submitted the second highest number of suspected breach reports since February 2022, indicating their role in identifying these issues

Conduct Lookback Exercises: Where appropriate and proportionate, OFSI encourages legal services providers to conduct lookback exercises to identify any suspected breaches which have not been reported. This is particularly encouraged for TCSPs in light of the strengthening of trust services sanctions.

Ensure Compliance with OFSI Licence Conditions: OFSI has observed patterns of non-compliance relating to OFSI licences. Legal services providers need to ensure they adhere to licence value limits, expiry dates, and reporting requirements when dealing with DP clients or facilitating wind-down activities in Russia. It is noted that breaches of OFSI licence conditions are a significant area of non-compliance within the legal sector.

Be Alert to Post-Designation Ownership and Control Transfers: Legal services providers should be vigilant for attempts by Russian DPs to remove themselves from complex corporate structures or transfer assets to non-designated individuals and entities following their designation, as these actions can breach financial sanctions

Remain Alert to Money Laundering: OFSI encourages UK legal services providers to remain alert to attempts at money laundering by or on behalf of Russian DPs, including indications of high-value crypto asset to cash (or vice versa) transfers.

By implementing these types of measures, OFSI believes the legal sector can play a crucial role in reducing the threat posed by DPs and their enablers and in upholding the effectiveness of the UK's financial sanctions regime.

'Look Back Exercise'

Based on the information in the report titled "OFSI Legal Services Threat Assessment" a lookback exercise is a process that the Office of Financial Sanctions Implementation (OFSI) encourages UK legal services providers to conduct to identify any suspected breaches of financial sanctions which have not yet been reported to OFSI.

The report specifically highlights that lookback exercises are particularly encouraged for Trust and Company Services Providers (TCSPs) in light of the strengthening of trust services sanctions.

How?

Regarding how this is to be done, the report does not provide specific detailed instructions or a prescribed methodology for conducting a lookback exercise.

A look back exercise could involve a review of past activities and client relationships to identify any instances where there is a suspicion that financial sanctions may have been breached but were not reported to OFSI.

This could involve examining past transactions, client due diligence records, and the application of sanctions regulations and licensing requirements over time.

What about historical cases?

The report does not specify a particular timeframe, instead, it states that lookback exercises should be conducted where appropriate and proportionate.

Could this suggest the the scope and depth of the review is to be determined by the legal service provider based on their [sanctions] firm wide risk assessment, the nature of their business, and the likelihood of past breaches. The responsibility for determining appropriate action rests with the relevant firms, potentially considering factors such as changes in the every evolving sanctions legislation, prior client relationships with Designated Persons (DPs) or Persons Connected with Russia (PCWR), and any red flags identified in their historical records.

It's important to note that OFSI values self-disclosure and encourages legal services providers to report any suspected breaches identified during a lookback exercise.

When making a report, the report suggests referencing “OFSI – Legal Services Threat Assessment – 0425”

A few months ago the head of OTSI on a webinar also mentioned the lookback exercise. No elaboration was provided. Further guidance may follow.

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Disclaimer:

This post is not legal or regulatory advice. No warranty or guarantee is provided regarding the accuracy or completeness of any of the information in this post. You should not rely on this post. You should take independent legal and regulatory advice from a firm qualified in the area or seek the advice from a barrister. We do not accept any responsibility for any financial loss or otherwise in you taking a course of action or refraining from such. All decisions remain your own and you remain responsible for your decisions.

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Resources:

OFSI - Threat Assessment (Financial Services, Legal Services and Property & related services)

OFSI - Reporting to OFSI

OFSI - Reporting information to OFSI

OFSI - Guidance on breaches of financial sanctions prohibitions and OFSI enforcement

NCA - Guidance on Suspicious Activity Reports (SARs) from the NCA

OFSI - UK financial sanctions general guidance

Information on trust services sanctions

OFSI - Guidance on enforcement and monetary penalties

Previous publications on sanctions evasion by Russian elites and enablers

NCA and NECC: Report Financial Sanctions Evasion Typologies: Russian Elites and Enablers - July 2022

OFSI Frequently Asked Questions (FAQs)

OFSI e-mail alerts

A conversation with OTSI - on demand webinar

OTSI - Countering Russian Sanctions Evasion - 25 March 2025

Guidance from the Financial Conduct Authority, Office for Professional Body AML Supervision, Solicitors Regulation Authority, and the Financial Action Task Force.

SRA guidance on Sanctions

There maybe other resources, and you should always check for updated resources.