Chloe Meredith, Sophie Law and Sarah Butt review the latest OFSI assessment of threats and vulnerabilities in the property and related services sector
On 10 April 2025, the UK’s financial sanctions authority, the Office of Financial Sanctions Implementation (OFSI), published its third sector-specific assessment of threats and vulnerabilities relating to UK financial sanctions. The report focuses on the property and related services sector, outlining specific threats and patterns of non-compliance which OFSI has observed since February 2022. It is intended to assist firms with prioritisation as part of a risk-based approach to compliance.
Recap of sanctions restrictions
The UK’s financial sanctions regime contains “asset freeze” restrictions. Individuals or entities can be, and regularly are, designated as the subject of such restrictions. As the name suggests, the effect of these restrictions is to freeze any assets which are owned or controlled by such designated persons (DP).
It is prohibited for UK persons to deal with funds or economic resources owned or controlled by a DP, or make funds or economic resources available to, or for the benefit of, DPs or any persons owned or controlled by them. The test for ownership is holding more than 50% of shares or voting rights. The test for control is more nuanced and involves consideration of whether the person could ensure that the affairs of the entity in question are conducted in accordance with their wishes.
The report reiterates OFSI’s position that property is an economic resource and is thereby caught by UK asset-freeze restrictions. This means that UK persons are prohibited from dealing with properties owned directly or indirectly by a DP.
UK persons are also prohibited from making money available to, or for the benefit of, a DP, providing them with valuable services which they would otherwise to required to pay for, or paying debts on their behalf. This restriction extends to companies owned or controlled by DPs.
The report contains numerous examples of how property and related services firms may breach UK financial sanctions, including:
• Landlords owned or controlled by a DP paying for utilities, service charge, works, etc, without a licence from OFSI.
• Property management companies facilitating payments from a DP. For example, for council tax, maintenance and management fees.
• Managing agents collecting rent and other payments from tenants and passing these monies on to a DP landlord.
Role of UK property and related services firms
The report highlights that UK conveyancers and legal service providers play a crucial role in ensuring compliance with UK financial sanctions in the property and related services sector.
OFSI states that, while some firms may not be directly involved in transactions that could breach UK financial sanctions, they are likely to have knowledge of relevant parties, their intermediaries and enablers, or how those transactions are funded.
Since February 2022, only around 1% of suspected breach reports submitted to OFSI were made by property and related services firms. However, a higher number (around 7%) of suspected breach reports by other firms involved property and related services firms in some capacity, perhaps indicating under-reporting by the sector.
Key judgments
The report identifies five key judgments concerning threats to sanctions compliance relevant to UK property and related services firms:
1. Under-reporting of suspected breaches: It is almost certain that UK property and related services firms have under-reported suspected breaches of financial sanctions to OFSI.
2. Non-compliance by DPs: It is also almost certain that DPs have breached UK financial sanctions by making or facilitating transactions for the benefit of their UK properties without, or outside the scope of, an OFSI licence or applicable exception.
3. Facilitation by small-scale firms: It is highly likely that property-related suspected breach activity by, or on behalf of, Russian DPs has been facilitated by small-scale property, or related services, firms or sole practitioners with high-risk appetites and longstanding relationships with DPs.
4. Use of intricate ownership layers: It is also highly likely that DPs, particularly Russian DPs, have used intricate layers of ownership to distribute their wealth by placing property and related assets under the ownership and control of their family members.
5. Professional enablers: It is almost certain that UK property and related services firms have acted as professional enablers for DPs, thus facilitating sanctions breaches.
Other threats to compliance
OFSI has observed instances of insufficiently detailed due diligence checks by property firms. Based on this, the report identifies several common “red flags” which may indicate sanctions evasion and should trigger increased due diligence.
Since February 2022, 22% of suspected breach reports involving the UK property and related services sector have included an intermediary jurisdiction nexus. The jurisdictions appearing in these suspected breach reports include: Austria; Azerbaijan; the British Virgin Islands; Cyprus; Jersey; Guernsey; Luxembourg; Switzerland; Turkey; the UAE; and the USA. Firms should remain alert when OFSI’s “red flags” arise alongside an intermediary jurisdiction nexus.
What should property and related services firms do next?
The report emphasises the importance for UK property and related services firms of reporting any suspected breaches of UK financial sanctions to OFSI and engaging in thorough due diligence and appropriate risk management. Compliance professionals in the property sector should review the report, particularly the “red flags”, to assess whether their firm’s sanctions systems and controls are attuned to the identified threats and vulnerabilities, and make any necessary adjustments.
From 14 May 2025, UK letting agents are now subject to financial sanctions reporting requirements. This requires them to report to OFSI if they know, or have reasonable cause to suspect, that a person is a DP or if a person has breached financial sanctions regulations. They must also report the nature and amount or quantity of any funds or economic resources held for that person.
OFSI encourages property and related services firms to conduct lookback exercises to identify any suspected breaches which have not been reported. Any suspected breaches identified should be reported promptly, as OFSI typically imposes far more lenient financial penalties in these cases.
OFSI also highlights that there are a number of further resources available which UK property and related services firms should continue to monitor, including prior threat assessments, red alerts and OFSI FAQs.
Image: © Adobe Stock
Chloe Meredith is a senior expertise lawyer, Sophie Law is a senior associate and Sarah Butt is a trainee at Ashurst
