UK pharma firm fined $206,000 for payments to sanctioned Russian banks

The UK’s Office of Financial Sanctions Implementation (‘OFSI’) has imposed a penalty of £152,750 (about $206,000) on Colorcon Limited for making 79 unauthorised payments to employees and service providers holding accounts at sanctioned Russian banks.

The UK-registered pharmaceutical company operated a representative office in Moscow that made 123 payments with a collective value of £191,290.57 to non-designated employees and service providers holding accounts at designated entities Alfa Bank JSC, Promsvyazbank, Sberbank and VTB Bank between March and December 2022, OFSI said in a notice.  

It assessed that 44 of the payments were permitted under General Licence INT/2022/2055384 for companies winding down operations in Russia prior to its expiry, bringing the total amount of payments in breach of UK financial sanctions to £128,277.72.

The payments were predominantly to pay Colorcon’s Moscow office employee salaries, with a small number of payments for the company’s bookkeeping, payroll services and other expenses.

OFSI, which imposed the fine earlier this month, concluded that for payments that fell prior to the introduction of strict civil liability in June 2022, ‘Colorcon had knowledge or reasonable cause to suspect that their actions would make funds available to designated persons’.

Colorcon made initial and full disclosures to OFSI and cooperated fully with the investigation. However, there was a four-month delay between Colorcon becoming aware of the breaches and making an initial notification to OFSI. OFSI did not consider that Colorcon’s disclosure could reasonably be considered prompt. Consequently, a 35% discount against a maximum of 50% was made to the final penalty amount. Were it not for this reduction, OFSI would have imposed a penalty of £235,000, the notice said.

As a UK-based company actively operating in Russia with a Russian office, Russian staff and Russian customers, Colorcon had a specific and heightened exposure to sanctions risk, making it reasonable to expect the firm would make itself aware of its sanctions obligations, risks and exposures, OFSI stated.

Colorcon asserted that its understanding was that their bank would apply UK sanctions across the bank’s business, and that any payments made by Colorcon to the Moscow office would be subject to sanctions screening. OFSI noted that this was never explicitly tested by making appropriate enquiries with the bank in question.

‘It is insufficient for a company to rely on a third party to undertake financial sanctions checks or screening on their behalf,’ OFSI stated. ‘The company undertaking the actions will be liable for any breach that occurs and should ensure that the activities of third parties are appropriately understood, including through the making of proportionate enquiries.’

OFSI identified that reporting requirements for payments made under General Licence INT/2022/2055384 were not complied with, which was considered an aggravating factor when assessing the monetary penalty to be imposed and is an offense in its own right.

The case highlights that UK financial sanctions apply to all UK persons including entities established under UK law irrespective of where their activities take place and including their overseas offices.