The Office of Foreign Sanctions Implementation (OFSI)'s latest blog describes the grounds for specific license applications which include a "reasonableness" test, and the factors OFSI will consider in examining such applications. According to the blog, OFSI requires a "significant level of evidence when scrutinising the reasonableness threshold". Failure to provide sufficient evidence or adequately respond to OFSI’s questions could be grounds for denial, so it’s important for applicants to understand OFSI’s expectations. 

The Sanctions and Anti Money Laundering Act (SAMLA), in effect since 31 December 2020, includes two licensing grounds where a reasonableness test now applies:

  • expenses under the legal fees licensing ground
  • the maintenance of frozen funds and economic resources licensing ground.

Licenses issued under previous EU regulations may need to be updated under the new SAMLA requirements for reasonableness when due for renewal or updating.

Legal Fees

While legal services may be provided without a license, payment for legal services does require a license - which must meet the reasonableness test. A useful starting point for reasonableness should be the Supreme Court Cost Guidelines (SCCG) or the sums that could be expected to be recouped if legal costs were awarded following civil court proceedings. Where the applicant seeks fees beyond this, the application must clearly demonstrate to OFSI why this is reasonable in the particular matter.

OFSI sets out eight factors which the applicant "should consider" including in the application, such as:

  1. Whether the work has already taken place or if it is anticipated work;
  2. What the work will involve/has involved;
  3. Which fee earner(s) will be/have been involved in the work (and their position(s)/role(s) within the firm, including relevant level of experience);
  4. The fee earner(s)’ hourly rate;
  5. How many hours each fee earner(s) will be estimated to spend/has already spent on each workstream;
  6. Any supporting evidence as to why the involvement and/or the number of hours of the particular fee earner(s) is reasonable and/or proportionate to the nature and complexity of the work;
  7. Any expenses that are expected and have been paid out; and
  8. If any expenses are expected, why are they necessary.

OFSI states that it doesn't consider generic explanations of legal work as privileged and may challenge assertions of legal professional privilege given as a reason for not providing sufficient detail.

Maintenance of funds and frozen resources 

This category can cover a wide range of purposes such as COVID-19-related equipment or living expenses such as property maintenance. Given the broad range of potential applications, OFSI's guidance reiterates the importance of evidence both of why the funds are necessary and clear quotes or estimates for the proposed activity. OFSI states that you should "not assume OFSI understands the process [or] practice of the profession when providing your response."

Conclusion

The burden of demonstrating reasonableness is on the applicant, and while OFSI will ask follow-up questions, a lack of evidence or detail may also be grounds for denying an application. Therefore, it’s important to read OFSI’s guidance and provide as much evidence as possible when applying.