OFSI Legal Services Threat Assessment: Risks and Compliance Challenges

In April 2025, the Office of Financial Sanctions Implementation (OFSI) published a Legal Services Threat Assessment Report, assessing risks to UK financial sanctions compliance within the legal sector.

Key Judgements

• Underreporting of Breaches: Some legal service providers may not fully disclose suspected breaches due to inconsistent detection practices.
• Compliance Failures: Issues include poor client due diligence, misidentification of beneficial ownership, and failure to meet licensing conditions.
• Role of Enablers: Russian designated persons (DPs) increasingly use legal professionals to structure transactions that bypass sanctions.
• Use of Trusts & Companies: Enablers rely on offshore entities and trusts to obscure asset ownership and control investments.
• Legal Advisory Risks: Some firms indirectly facilitate sanctions evasion by advising sanctioned clients on asset restructuring and legal challenges.
• Cryptoassets & Evasion: Legal agreements involving cryptoassets pose risks of sanctions breaches through digital currency transactions.

Threat Overview

Over 75% of UK sanctions since 2022 have targeted Russia. Legal professionals must ensure compliance with multiple sanctions regimes, including those for Libya, Belarus, Iran, and North Korea.

Strengthening Compliance

Key compliance weaknesses include:

• Inadequate due diligence: Weak Know Your Client (KYC) checks and failure to monitor clients’ sanctions status.
• Misuse of legal privilege: Concealing transactions linked to Russian DPs under legal protections.
• Beneficial ownership misidentification: Overlooking sanctioned control of subsidiaries or offshore structures.
• UK nexus errors: Incorrect assessments of transactions’ UK connections and misinterpretation of sanctions frameworks.
• Risky corporate structures: Establishing legal entities that could be exploited for sanctions evasion.

Russian Designated Persons (DPs) & Enablers

OFSI categorizes enablers as:

• Professional Enablers: Lawyers, trust service providers, and corporate advisors.
• Non-Professional Enablers: Business associates, family members, and proxies acting for Russian DPs.

Methods of Evasion:

• Offshore Trusts & Entities: Concealing Russian DP ownership of assets through legal structures.
• Property Transactions: Enablers helping sanctioned individuals retain control over UK properties.
• Litigation & Legal Challenges: Legal action to delay sanctions enforcement or overturn asset freezes.
• Cryptoassets: Agreements involving crypto-to-cash exchanges and stablecoins like Tether (USDT).

Intermediary Countries

Over 25% of reported breaches involve jurisdictions offering financial secrecy. Key locations include:

• Austria, Switzerland, Cyprus, UAE, Türkiye: Used for legal structuring and asset control.
• BVI, Cayman Islands: Trust structures and offshore financial arrangements.

Conclusion

The report highlights the dual role of legal professionals in both enforcing and circumventing sanctions. Strengthening due diligence, ownership assessments, and compliance frameworks is critical to preventing misuse of legal services for sanctions evasion.

Read the full document here.