UK Legal Sector Under Scrutiny: OFSI Highlights Sanctions Compliance Risks Post-Russia Invasion

The Office of Financial Sanctions Implementation (OFSI) has released a detailed threat assessment targeting the UK legal services sector, shedding light on critical vulnerabilities in sanctions compliance since the Russian invasion of Ukraine in February 2022. As sanctions regimes evolve in scope and complexity, OFSI’s findings underline the urgent need for legal professionals, especially trust and company service providers (TCSPs), to strengthen controls and increase transparency.

Legal Sector Second Only to Financial Services in Suspected Breach Reports

Since February 2022, legal services providers have submitted the second highest number of suspected breach reports to OFSI—accounting for 16% of the total, with the financial services sector leading at 65 percent. Most reports have come from solicitors’ firms and barristers’ chambers, with only two percent originating from TCSPs and other legal professionals. OFSI suggests that many TCSPs have likely failed to self-report breaches, raising concerns over the depth of compliance in this sub-sector.

Licence Conditions Breached: A Common Theme of Non-Compliance

The majority of suspected breaches are almost certainly tied to violations of OFSI licence conditions. Key compliance failures include accepting payments beyond licence value limits, processing transactions after licence expiry, and delays in reporting as required by general and specific licences. Legal services providers offering services to designated persons (DPs) must have appropriate OFSI licences for any payments and ensure that reporting obligations are met in full and on time.

Russian DPs & Complex Ownership Structures

OFSI warns that complex corporate structures, including trusts, are being used to obscure the ownership and control of assets linked to Russian DPs and their families. These structures often involve intermediary jurisdictions such as the British Virgin Islands, Cyprus, Guernsey, Switzerland, and the UAE, complicating assessments of whether asset freeze prohibitions apply.

There is growing evidence that Russian DPs are attempting to remove themselves from corporate structures post-designation or transferring assets to non-designated individuals and entities. In some cases, these actions may breach UK financial sanctions, particularly where they serve to maintain the economic benefit for a sanctioned individual.

Red Flags for Legal Services Providers

Legal professionals are urged to be alert to multiple red flags, including:

• Clients with direct or indirect ties to Russian DPs

• Unclear beneficial ownership or obfuscated source of wealth

• Trust structures with undisclosed beneficiaries

• Payments made by non-designated proxies

• Pressure from clients to overlook sanctions obligations

Where these warning signs intersect with intermediary jurisdiction involvement, the risk of breach escalates significantly.

A Call to Action: Risk-Based Compliance & Self-Reporting

OFSI encourages all legal services providers, regardless of size, to conduct lookback exercises and report any suspected breaches. Timely self-disclosure is not only viewed favourably by OFSI but is also essential for maintaining regulatory confidence and upholding the integrity of the UK’s financial system.

This threat assessment builds on the UK Government’s wider strategy to tackle sanctions evasion, money laundering, and the use of legal structures for illicit financial flows. Legal professionals are reminded of their critical role as gatekeepers and are advised to remain vigilant, especially when dealing with clients operating in high-risk geographies or using complex ownership structures.

Conclusion: Upholding Sanctions Integrity in a Changing Global Landscape

As the UK continues to lead on sanctions enforcement against malign actors, particularly in relation to Russia, the legal sector must not become a weak link in the compliance chain. OFSI’s assessment serves as both a warning and a roadmap—highlighting common pitfalls while providing guidance for robust, risk-based compliance. With legal professionals uniquely placed to detect and disrupt sanctions evasion, proactive engagement and transparent reporting will be essential in safeguarding the UK’s financial and legal systems.

Read the full report here.