Bank of Scotland Faces £160,000 Penalty Over Sanctions Violation
The Bank of Scotland has been handed a substantial fine of £160,000 by the UK's sanctions enforcement body following serious regulatory breaches. The penalty relates to the bank's handling of an account for a close associate of Russian President Vladimir Putin, highlighting ongoing concerns about financial compliance in the wake of international sanctions.
Details of the Sanctions Circumvention
The Office of Financial Sanctions Implementation (OFSI) investigation revealed that Dmitrii Ovsiannikov, a former Russian government official with senior roles including governor of Sevastopol in Russian-occupied Crimea, managed to open a personal current account with Halifax, which operates under the Bank of Scotland brand. This occurred despite Ovsiannikov being listed on UK sanctions registers designed to prevent such access to the British financial system.
During February 2023, Ovsiannikov conducted twenty-four separate transactions through this account, moving a total of £77,383. The account remained operational for approximately eighteen days before bank officials identified the compliance failure through enhanced screening procedures.
How the Sanctions Were Evaded
The breach occurred due to a discrepancy in name spelling between Ovsiannikov's official documentation and the sanctions lists. When applying for the account on 6th February 2023, Ovsiannikov presented a UK passport containing a variant spelling of his name that differed sufficiently from the sanctioned individual listings to avoid detection by automated screening systems.
This technical loophole allowed the account to be established without immediate red flags, though the bank's subsequent politically exposed person screening eventually identified the match on 24th February 2023.
Background of the Sanctioned Individual
Dmitrii Ovsiannikov holds particular significance in international sanctions history. The European Union originally designated him under sanctions legislation in November 2017, citing his activities as compromising Ukraine's territorial integrity and sovereignty. Although the EU annulled this designation in 2022, the UK maintained Ovsiannikov on its independent sanctions list following Brexit.
In a separate legal proceeding last year, Ovsiannikov became the first individual successfully prosecuted in the UK for circumventing sanctions regulations. Court documents from that case revealed he had applied for a UK passport from Turkey in August 2022 after travelling from Russia.
Bank's Response and Reduced Penalty
The Bank of Scotland, which operates as part of Lloyds Banking Group, received a 50% reduction in its financial penalty due to voluntary disclosure of the breaches. The bank reported the violations to OFSI within one month of the problematic transactions occurring.
A Lloyds Banking Group spokeswoman emphasised the institution's commitment to regulatory compliance, stating: "We take our regulatory responsibilities extremely seriously. We acted swiftly and transparently, proactively referring this one-off, isolated matter to OFSI and working closely with them throughout."
The spokeswoman added: "OFSI has recognised our prompt voluntary disclosure, resulting in the maximum possible reduction of the penalty. We have further strengthened our controls to ensure we continue to meet the highest standards of risk management and governance."
Regulatory Implications and Industry Impact
This case underscores the challenges financial institutions face in maintaining effective sanctions screening systems, particularly regarding name variations and documentation discrepancies. The OFSI enforcement action demonstrates the regulator's willingness to impose significant penalties for compliance failures, even when institutions cooperate with investigations.
The banking sector continues to navigate complex sanctions landscapes following Russia's invasion of Ukraine, with increased scrutiny on customer verification processes and politically exposed person screening. This incident serves as a cautionary example for other financial institutions regarding the importance of robust compliance mechanisms and the potential consequences of screening failures.
While Ovsiannikov was not explicitly named in the OFSI enforcement notice, sources familiar with the investigation confirmed his involvement. Attempts to contact the former Russian official for comment on this latest development were unsuccessful.
