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Herbert Smith Freehills condemned for sanctions-compliance failures: geopolitics reaches the legal sector

In an unprecedented regulatory action, Herbert Smith Freehills (HSF)one of the world’s most influential international law firms has been formally condemned by the UK Financial Conduct Authority (FCA) for serious deficiencies in its sanctions-compliance procedures involving clients linked, directly or indirectly, to Russia.

The FCA imposed: £18 million fine, and a 24-month period of mandatory independent monitoring, arguing that HSF “failed to implement adequate internal controls to prevent certain mandates from being reasonably interpreted as indirect facilitation under the UK sanctions regime.”

Although the FCA made clear that HSF did not intentionally assist sanctioned entities, the regulator concluded that the firm did not document decision-making with the level of rigor required for high-risk geopolitical mandates. This marks a historic turning point: for the first time, a top-tier international law firm faces a major sanction not for misconduct itself, but for failing to anticipate how its work could be perceived in the context of global sanctions against Russia.

For decades, HSF maintained one of the strongest foreign presences in Moscow, advising major corporates, energy companies, financial institutions, and infrastructure investors. After 2022, like many global firms, HSF was forced to reassess its client base, exit sensitive mandates, and navigate a legal battleground between Western sanctions and Russia’s domestic “anti-sanctions” legislation.

Yet, according to the FCA, the rapid and chaotic geopolitical shift exposed weaknesses in: enhanced due-diligence procedures, documentation of internal debate, analysis of complex corporate ownership chains, and assessment of whether a mandate could carry reputational or regulatory exposure.

The FCA’s report states that HSF did not evaluate the geopolitical dimension of certain clients with the depth required under post 2022 standards. This phrase “the geopolitical dimension” has now entered the global compliance vocabulary. It signals a fundamental transformation law firms must examine not only the legality of a mandate, but the international role, political exposure and strategic implications of the client.

The condemnation of HSF makes one thing clear: sanctions compliance has become a central pillar of the legal industry’s risk landscape. The boundaries between lawful advice and indirect facilitation are becoming increasingly narrow, and regulators interpret them with growing severity. Although the monetary penalty will not destabilize HSF, the reputational impact is significant, especially across Europe, Asia and the Middle East, where the firm is a heavyweight.

In the coming years, only law firms capable of integrating rigorous compliance, geopolitical intelligence and stringent client-selection criteria will thrive. The Herbert Smith Freehills case does not merely set a precedent it redefines the future of global legal compliance.

CHRONOLOGY OF THE HSF CONDEMNATION

§  2010–2021: HSF maintains one of the strongest international law-firm presences in Moscow, advising major corporates, energy groups and investors.

§  February 2022: Invasion of Ukraine triggers the largest sanctions regime in European history.

§  March–July 2022: HSF begins reviewing its Moscow portfolio, exiting some mandates but maintaining involvement in several restructuring and litigation matters.

§  Late 2022: FCA launches a sector-wide review of sanctions-compliance programs across major professional firms, including banks, consultancies and law firms.

§  April 2023: Regulators identify inconsistencies in HSF’s documentation of decisions relating to clients with indirect Russian exposure.

§  May–December 2023: FCA conducts interviews, audits internal emails, and reviews client-onboarding files and risk-assessment memos.

§  March 2024: Draft report finds deficiencies in: enhanced due diligence, documentation of internal deliberations, evaluation of geopolitical risk, and monitoring of complex corporate structures.

§  January 2025: FCA issues formal accusation of “serious but unintentional failures in sanctions-compliance procedures”.

§  March 2025: HSF agrees to cooperate fully.

§  April 2025 — FINAL DECISION. The FCA condemns HSF and imposes: £18,000,000 monetary penalty, 24-month independent monitor, obligation to reform governance and risk-framework structures.

§  May 2025: Case becomes the first major sanctions-compliance condemnation involving an international law firm.

Conclusion