In a significant move highlighting the UK’s rigorous enforcement sanctions against Russia, the UK’s Office of Financial Sanctions Implementation (OFSI) has imposed a £465k ($600k) fine on Herbert Smith Freehills (HSF) for breaches committed by its former Moscow subsidiary.
The penalty, announced last week, stems from payments totaling £3.9m ($5m) made by HSF Moscow to sanctioned Russian banks, including Sovcombank, Sberbank and Alfa-Bank, between May 25 and 31, 2022. These payments were made during the subsidiary’s wind-down following Russia’s invasion of Ukraine, violating asset freezes imposed by the UK government relating to the Russia (Sanctions) (EU Exit) Regulations 2019.
This marks the first time the OFSI has taken enforcement action against a law firm for Russian sanctions since the conflict began. The agency emphasized the vulnerability of law firms to such breaches, given their broad client base and international operations.
The breaches occurred as HSF, like many other international firms, rapidly withdrew from Russia after the February 2022 invasion. The payments in question covered various expenses, including audit work, life insurance, redundancy payouts, and a lease agreement. OFSI attributed the violations to inadequate due diligence and sanctions screening, compounded by the rushed closure of the Moscow office, which had the authority to approve payments locally.
Human error
Despite voluntarily disclosing the breaches, HSF’s appeal against the penalty, initially issued in November 2024, was unsuccessful. The firm attributed the errors to “human error” and expressed disappointment with the fine, citing the cooperation with the investigation. However, cooperation did result in a 50% reduction of the potential fine.
The OFSI stressed in its public penalty notice that it was issuing the monetary penalty against HSF Moscow, and that it had found no fault with the actions of the parent company, HSF London. However, even though the blame was firmly placed on the Russian subsidiary, it was HSF’s parent company which ultimately bore the financial consequences.
“A just and lasting peace in Ukraine must be our priority, and UK financial sanctions continue to be essential to disrupting Russia’s war machine and putting Ukraine on the strongest footing possible,” stated Emma Reynolds, Economic Secretary to the Treasury, underscoring the governments commitment to enforcing sanctions.
This penalty serves as a stark reminder that all entities operating within the UK’s jurisdiction must adhere to financial sanctions regulations. The OFSI’s actions signal a clear intent to rigorously enforce these measures, sending a strong message to those who might attempt to circumvent them.
