The £13.4 Billion OFSI Reminder

Hi ,

Parliamentary Q&A Provides Useful Clarification on Interest Treatment

Last week there was an interesting parliamentary exchange on Libyan frozen assets. It provided a useful reminder of the regulatory position on interest accrual, while highlighting the practical compliance challenges that continue to emerge in this area.

The Position Clarified

Emma Reynolds' response provided a clear restatement of the principle: interest on frozen assets remains frozen, with no change in ownership and no transfer to HM Treasury. For the £13.4 billion in Libya-related frozen assets reported by OFSI, this means potentially hundreds of millions in accrued interest subject to the same freezing requirements as the principal.

The Regulatory Framework

OFSI's response clarifies that institutions aren't required to report interest crediting to frozen accounts - so they don't hold this information. This is consistent with the established regulatory framework where the focus is on the freezing obligation rather than detailed reporting of accrued amounts.

The EFG Reminder

Remember the 2024 EFG Bank enforcement action? A properly frozen designated account, but a failure to notify downstream U.S. custodians led to four years of "corporate actions" - interest payments and dividend distributions totaling $468,615. OFAC treated this as 141 separate violations, each carrying potential penalties up to $250,000.

The EFG case perfectly illustrates why the OFSI reporting gap matters: it's not just about tracking interest for policy purposes, but ensuring every institution in the custody chain knows what needs to be frozen.

The Practical Point

With Libya assets potentially generating £400+ million annually in interest, the EFG precedent becomes particularly relevant. Every corporate action, every custody notification, every downstream payment represents potential enforcement exposure - even when the primary freezing obligations are being met.

OFSI might not know what interest is accruing, but they, OFAC and others will penalise for any that gets in the hands of sanctioned entities.

Cheers

Paul