Summary

The UK Office of Financial Sanctions Implementation (OFSI) has imposed a penalty of £465,000 on the Moscow subsidiary of Herbert Smith Freehills (HSF) for breaches of UK financial sanctions imposed on Russia following the invasion of Ukraine.¹ This is the first enforcement action brought against a law firm for breaching the Russia sanctions. The penalty notice merits a close review and could have some unintended consequences on the way that companies on notice of similar good faith technical sanctions breaches react in the future.

OFSI imposed the fine on 11 November 2024, but HSF exercised its right to a ministerial review of the penalty. The penalty was upheld by a senior Treasury official on 14 February 2025. On 14 March 2025, HSF London agreed to pay the penalty in full on behalf of its Moscow subsidiary. No findings were made against HSF London.

The penalty relates to six payments totalling £3,932,392.10 made by HSF Moscow (incorporated in the UK) to three designated Russian banks over a seven day period in the lead up to the closure of HSF Moscow on 31 May 2022. HSF London promptly and voluntarily self-reported the breaches and cooperated fully with OFSI. As a result, the fine was half of the £930,000 that OFSI would otherwise have imposed.

Analysis

An HSF spokesperson said that the firm was “…disappointed by the fine that has been imposed.” A more detailed consideration of the facts underpinning the penalty notice offers insight into the source of the disappointment.

• Of the six payments, only one – totalling £3,915,232 (related to the transfer of HSF Moscow’s lease agreement to a local firm) – was high value. This single payment accounted for almost all the transferred amounts. The other payments were all low value: three payments totalling £3,903.76 (life insurance policy payments); one payment of £13,216.32 (an employee redundancy payment); and one payment of £39.71 (an auditing fee).

• The context to the £3,915,232 transfer was that following Russia’s invasion of Ukraine, HSF London decided to close its Russian subsidiary (in direct support of the UK policy objectives). HSF Moscow entered contractual arrangements with a local firm relating to the transfer of HSF Moscow's existing lease agreement. This local firm was to be operated by former HSF Moscow employees. The local firm had two bank accounts, one with a designated bank, Alfa Bank, and one with a non-designated bank, Raiffeisenbank. Due to a failure to follow internal screening processes, the payment was mistakenly made to Alfa Bank. Having realised the error, HSF Moscow contacted the local firm, which transferred the funds to its Raiffeisenbank account.

• OFSI accepted that HSF Moscow staff had limited facilities to finalise transactions on the day of the office’s closure. This led to finance officers at the firm acting in haste and accidentally making the payment to Alfa Bank.

• During the period in which HSF was withdrawing from the Russian market, HSF London provided HSF Moscow with detailed, regularly updated guidance relating to financial sanctions compliance. Key staff received training from HSF London on HSF global sanctions policies.

• OFSI accepted that there was no intent or actual knowledge on the part of the HSF Moscow staff when making the payments that their actions would be in breach of the Russia sanctions.

• HSF London’s initial disclosure to OFSI came almost immediately after the lease payment breach was discovered by HSF Moscow. All reporting was voluntary, prompt and contained significant detail. HSF London conducted its own investigation and cooperated fully with OFSI.

Pulling those threads together, OFSI’s view was that these sanctions breaches were accidental, the result of human error and made in the context of the hasty closure of the HSF Moscow office in full support of UK policy objectives. Furthermore, OFSI accepted the only substantial payment was promptly recovered and HSF voluntarily and promptly self-disclosed all breaches and cooperated fully with OFSI’s investigation. It is therefore surprising that OFSI concluded this amounted to a “serious” case and justified the imposition of a significant monetary penalty.

One of the more concerning aspects of the decision is that OFSI determined that the remedy of the breach by prompt transfer to a non-designated bank was not a mitigating factor. OFSI reached this conclusion because it was the local firm, not HSF, that took this remedial action. The fact that HSF Moscow requested that the local firm make this transfer made no difference to the analysis. By implication, companies who identify similar accidental breaches in the future will not be incentivised by a potential penalty reduction to take steps to remedy the breach.

The notice states that this “reasonable and proportionate” outcome, “…will promote compliance and deter breaches.” It is difficult to see what more HSF Moscow and HSF London could have done to promote compliance with and deter breaches of the Russia sanctions. It is even more difficult to see how the imposition of a financial penalty in circumstances such as these will incentivise other companies to voluntarily and promptly investigate and self-report future good faith breaches of the sanctions regime to OFSI.