Herbert Smith Freehills’ Moscow subsidiary (HSF Moscow) has been fined £465,000 for inadvertently breaching UK sanctions imposed in the wake of Russia’s invasion of Ukraine.

In a ruling published today (20 March), The Office of Financial Sanctions Implementation (OFSI) said HSF Moscow had made six payments with a total value of £3.93m to “designated persons subject to an asset freeze” in the period running up to the closure of the Moscow office on 31 May 2022.

The payments in question were made to Alfa-Bank JSC, PJSC Sovcombank and PJSC Sberbank and related to the arrangements being made to close the office, including life insurance and redundancy payments for staff.

By far the largest payment (£3.92m) related to the transfer of HSF Moscow's lease agreement to a local firm to be operated by former staff. The money was transferred out of the sanctioned entity as soon as the breach came to light, on the same day.

HSF, which has agreed to pay the penalty on behalf of the subsidiary, said the payments were “the result of human error, in the final week of the winding-up of our former Moscow office’s operations”.

It said it was “disappointed” by the penalty given its self-reporting of the breaches, full cooperation with OFSI as well as “the prompt recovery of the only substantial payment”.

OFSI made it clear that the penalty had been imposed on HSF Moscow and it had not made any findings against HSF London. It explained: “HSF London, on behalf of HSF Moscow, provided prompt and detailed disclosure relating to all breaches. Therefore, a 50% reduction was made to the final penalty amount. Were it not for this reduction, OFSI would have imposed a penalty of £930,000.”

However, while it acknowledged that HSF’s withdrawal from Russia was a mitigating factor, it said it had the means to do this “in a fully compliant manner” and that the office’s closure “should have been conducted in a more orderly fashion”.

It added: “The driving factor in HSF Moscow’s closure was the imposition of sanctions on large parts of Russia and its economy, and yet HSF Moscow failed to sufficiently account for these sanctions in administering the closure of its office.”

OFSI noted that HSF London had requested a ministerial review of the case in December, on behalf of its subsidiary. However, the original decision was upheld.

HSF said it was “pleased that this matter has now been resolved” and that it was “committed to complying in full with its obligations”. It also pointed out that the payments in question “do not relate to the firm’s clients or client work, or to any of the firm’s offices other than our former office in Moscow, Herbert Smith Freehills (CIS) LLP".

James Clark, a partner at London disputes boutique Quillon Law, said: "OFSI’s decision to impose a monetary penalty and publish detailed findings in that regard demonstrates their commitment to promoting better compliance with the UK sanctions regime, and highlights the importance of disclosing any potential breaches."