Failure to properly take precautions can result in severe penalties

Due diligence is a key function of any director when screening potential new clients, creditors, investors or counterparties. 

This duty is to protect themselves and the company from obvious negative consequences if they don’t have the finances claimed or might not even be who they represent as. 

But a new update to the government’s sanctions framework could spell disaster for companies and directors that overlook or fail to spot dodgy or delinquent elements. 

The UK Sanctions List (UKSL) is now the only search tool to find out which people, entitites and ships are designated or specified under regulations made under the Sanctions and Anti-Money Laundering Act 2018. 

It replaces the former Office of Financial Sanctions Implementation (OFSI) Consolidated List as the primary source of UK sanctions data. 

For financially distressed companies or those entering an insolvency process, this development carries a new and heightened risk. Failure to properly screen contacts against the updated list can now result in severe penalties including substantial fines and in the most serious cases, personal liability for directors.

At a time when many businesses in the UK are already facing increasing economic pressure, compliance failures could prove critical.

What’s changed?

The new upgrades which have gone live include:-

  • “Fuzzy” search functionality fo near-match results
  • Ranked search outcomes for more accurate screening
  • Highlighted matches to improve clarity
  • Enhanced downloadable data for integration into compliance systems

The UKSL will now serve as the single authoritative list of individuals and entities that are subject to UK financial sanctions.

Businesses relying on older OFSI data feeds or legacy compliance software must urgently ensure systems have been updated to reference the UKSL and its revised “Unique ID” format. 

Why this matters

Sanctions compliance can often be overlooked by most firms, especially in periods of financial distress when they will rationalise that they have more pressing issues to concentrate on. 

However, directors, insolvency practitioners and turnaround professionals will face particular exposure here if there are breaches such as:-

  • Accepting funds from sanctioned lenders or investors
  • Making payments to sanctioned creditors
  • Transferring assets subject to an asset freeze
  • Continuing trade with sanctioned counterparties

Under the Sanctions and Anti-Money Laundering Act 2018, breaches can lead to substantial civil penalties and criminal prosecutions. One of the key pieces of evidence enforcement authorities assess is whether the business took reasonable steps to maintain effective screening systems. 

For companies in financial difficulty, sanctions breach can trigger frozen bank accounts, regulatory investigation, reputational damage and accelerated collapse. 

Director liability and personal risk

Directors of struggling companies need to be particularly cautious as scrutiny over decision making is always investigated in insolvency contexts.

If any breaches occur then investigators will closely examine whether:

  • Compliance Systems were up-to-date
  • If directors ignored any “red flags”
  • If professional advisers were consulted or properly instructed 
  • If ongoing trading was conducted lawfully

Failure to demonstrate reasonable compliance on any of these questions could expose directors to personal consequences alongside any corporate penalties.

How to reduce exposure and risk

There are certain steps directors and business owners can take to make sure they are not dealing with people and institutions they will regret.

Firstly internal compliance systems should be updated to source data directly from the UK Sanctions List. 

It would also be sensible and practical to rescreen all existing clients, creditors and counterparites – better safe than sorry. 

Make sure staff are trained on identifying and escalating any potential matches and red flags and ensure sanctions checks from part of any insolvency due dilligence.

Finally, seek specialist advice immediately if a potentially sanctioned connection is identified or even suspected. 

Chris Horner, insolvency director with BusinessRescueExpert, underlines how serious this threat could be. 

He said: “Sanctions compliance is not optional – even for companies in or about to go into insolvency. 

“We’re seeing increasing regulatory scrutiny and directors who fail to properly screen transactions against the updated UK Sanctions List are facing some serious fines and other consequences. 

“Financial distress doesn’t excuse compliance failures – it actually increases the risks.

“A frozen bank account or enforcement action at the wrong moment can destroy any chance of a turnaround or rescue. Directors must ensure that their systems are up-to-date and if there is any uncertainty at all – get some advice straight away.”

As sanctions enforcement in the UK continues to tighten, regulators will expect businesses to maintain robust compliance frameworks, regardless of their financial position or circumstances.

For businesses already facing financial pressure, there is no effective margin of error. Directors neglecting sanctions screening risk turning cash-flow issues into regulatory crisis.

If you have any concerns about director liability, creditor pressure or compliance risks – get in touch for a free initial consultation – especially when anybody online can literally say and look like they are anybody else.