Cork-based Apple subsidiary fined for breach of UK's Russia sanctions

Payment was made to developer whose ownership changed

The UK's Office of Financial Sanctions Implementation (OFSI) has fined a Cork-based subsidiary of Apple £390,000 (€449,000) over a breach of Britain's Russia sanctions over payments to an app developer. Picture: AP Photo/Matthias Schrader

The UK's Office of Financial Sanctions Implementation (OFSI) has fined a Cork-based subsidiary of Apple £390,000 (€449,000) over a breach of Britain's Russia sanctions over payments to an app developer.

The penalty was issued to Apple Distribution International Limited (ADI), a subsidiary of the US-based technology giant. A notice from the British government on Monday said ADI had made funds available to a designated person without a licence in relation to two payments in 2022.

OFSI said the Apple subsidiary had voluntarily disclosed the payments. 

In response, Apple said it followed the laws in countries where the company operates, and takes sanctions compliance "extremely seriously". "After identifying two payments to a developer that days earlier had become affiliated with a sanctioned entity, we promptly and proactively reported our finding to the UK government," it said in a statement.

"We are constantly working to enhance our already robust compliance protocols, which are consistent with industry standards."

Apple Distribution International is incorporated in Ireland and is responsible for instructing payment transactions for revenues earned by software developers who have placed their software applications on the ‘App Store’ online marketplace. The payments are made using funds held in a UK-based bank account. 

The Russian app developer in this case, Okko, operates a Russian online media streaming platform.

Okka changed ownership

According to OFSI, Russia's largest bank, PJSC Sberbank acquired majority control and full ownership of Okko on August 9, 2018, and remained the sole shareholder of Okko until May 17, 2022, when it sold Okko and its assets entirely to the Russian entity JSC New Opportunities. The sale occurred after Sberbank was sancationed by the UK on April 6 2022.

JSC New Opportunities was not designated under UK sanctions at the time they acquired Okko from Sberbank. "The designation of JSC New Opportunities was published by the Foreign, Commonwealth and Development Office on June 29, 2022. As soon as JSC New Opportunities was designated, Okko again became subject to asset-freeze prohibitions in the Russia regulations by virtue of being owned or controlled by a designated person," the OFSI statement said. 

According to OFSI, Apple Distribution International instructed a UK-based bank to make two payments - one in June 2022 and another in July 2022 - totalling £635,618.75 (€732,464) to Okko when its new owner JSC New Opportunities had fallen under the scope of the UK's Russia regulations. 

Voluntary disclosure was made by ADI to OFSI on October 4, 2022. "After being made aware by a third party of concerns (unrelated to UK financial sanctions) regarding Okko, ADI commissioned an external due diligence report to ascertain the ownership of Okko," OFSI said. "Following receipt of that report – which indicated that Okko may be owned by JSC New Opportunities – ADI then proactively notified its third-party due diligence providers of this ownership link. ADI has also committed to making improvements to its sanctions compliance framework since the breach payments, including working to implement a new process to require Russian paid app developers to provide direct and indirect ownership and control information at onboarding and periodically thereafter."

OFSI said it values voluntary disclosure and in this case a discount of up to 50% was granted for prompt and complete voluntary disclosure to the authority. 

Additional reporting by Reuters