UK government introduces new sanctions and anti-money laundering bill
Bachir El Nakib (CAMS) Senior Consultant Compliance Alert (LLC) Qatar
2 November 2017
On 19 October the UK Government published the text of a proposed new Sanctions and Anti-Money Laundering Bill (the “Bill”), which seeks to create a post-Brexit domestic legislative framework for the imposition and enforcement of sanctions. The introduction of the Bill follows the publication on 2 August of the Government’s response to the consultation on the UK’s future legal framework for sanctions (see our previous blog post).
The new proposals would give the Government broad discretionary powers to impose a wide range of sanctions by way of secondary legislation, including asset freezes and other financial sanctions, travel bans and immigration restrictions and trade restrictions affecting goods and services. The Bill also provides for the creation of exceptions and licences in relation to any sanctions, including a new ability for the Government to issue general licences to permit particular types of conduct, such as (according to the impact assessment for the Bill) the operation of NGOs in Syria.
The Government has expressly stated that the Bill is not designed to bring any substantive policy changes in respect of the current sanctions regime, with the main aim being to make it easier to impose sanctions and respond to future events while maintaining the existing sanctions regime, which currently comprises a mixture of EU and UK legislation. The proposals also give the Government wide-ranging powers to supplement or amend the UK’s existing anti-money laundering (“AML“) regime, although the Bill itself does not impose any new AML-related requirements.
Extension of the criminal offence of not complying with sanctions reporting requirements
One significant change introduced by the Bill is the proposed power exercised by secondary legislation to extend the obligation to report specified sanctions-related information to apply to anyone. In other words, the Government intends to extend the criminal offence of not reporting information relating to financial sanctions from the current scope of “relevant businesses or professions” to all natural and legal persons.
Prior to August this year, reporting obligations only applied to credit and financial institutions and required the reporting of information “that a person is a designated person” and information about breaches. With effect from 8 August, the reporting regime in relation to financial sanctions was extended to include non-financial sector businesses, as explained in more detail in our August briefing on the new sanctions reporting requirements. Under clause 15 of the Bill, regulations may be passed to require any persons of a prescribed designation to inform an appropriate authority of any prescribed matters, and to create and retain registers or records. The Regulations may also confer powers on “appropriate authorities” to require the production of information and documents, enter premises, inspect documents, or to impose restrictions on the disclosure of information. Thus, very broad and flexible requirements may be imposed.
In its Impact Assessment the Government has stated that it believes there will be a negligible impact from the proposed extension of this offence, as the requirement to report information already applies to all natural or legal persons through EU law. However, as our August briefing explains, there has previously been no penalty for breach of the EU requirements, those requirements are different in scope, and typically unregulated businesses do not, in practice, actively keep sanctions-related records or report information to the Office of Financial Sanctions implementation (OFSI). By contrast, if and when the Bill becomes law and secondary legislation is introduced to extend the reporting obligation in accordance with the Government’s stated intention, all persons that fail to report specified information relating to financial sanctions could be subject to criminal enforcement. This would have ramifications for all unregulated businesses and, potentially, also for individuals.
Imposition of sanctions
Government ministers will be granted broad powers to impose sanctions where they consider that the imposition of sanctions would:
be appropriate to ensure compliance with the UK’s obligations under international law (including in order to comply with the UK’s UN obligations);
further the prevention of terrorism;
be in the interests of national security or international peace and security; or
further a UK foreign policy objective.
Types of sanctions
The Bill would provide significant flexibility as to the types of sanctions that can be imposed for the purposes above.
Secondary legislation made under the Bill may impose a variety of sanctions. From a financial sanctions perspective, this may include asset freezes, restrictions on the provision of or procurement of financial services, and investment restrictions, as well as restrictions on prescribed types of “commercial arrangements“. Such sanctions may be imposed on prescribed persons, persons connected to a particular country, or a specified class of persons connected to a country.
These and related provisions will allow replication of, for example, the EU/Russia ‘capital markets’ regulations, and the restrictions on the provision of financial services to persons designated under domestic counter-terrorism legislation, as well as traditional asset-freezing measures. However, they will also provide wide scope for the UK to adopt modified versions of these or other sanctions, and novel types of financial sanctions.
Although the Bill adopts some EU sanctions definitions (such as the definitions of “funds” and “economic resources“), it states that regulations made under the Bill may make provision as to the meaning of certain other concepts, such as ownership or control of funds/economic resources and the extent to which an entity is owned or controlled by another person. Depending on the content of these measures, this may result in the UK adopting interpretations of these concepts which are different from those used in the EU.
It is to be hoped that the Government will bear in mind the additional compliance burden that would arise from divergences between the UK and the EU in terms of substantive sanctions prohibitions. The Impact Assessment does not address the potential impact of new, autonomous sanctions, on the basis that their imposition and impact would depend on future UK foreign and security policy, future relationships with the EU and other partners, and external triggers which cannot be predicted, as well as the possibility of retaliation from other countries in the event of UK unilateral sanctions being imposed. Accordingly, the likelihood of sustained future divergence in the regimes remains unclear at this stage.
The legislative framework for the imposition of trade sanctions is similarly broad and flexible and such sanctions may include, for example, sanctions on the provision or procurement of goods, services, transfers of technology, dealings in land, etc, whether to particular persons, a specified description of persons connected to a country, or all persons connected to the prescribed country.
The envisaged “aircraft sanctions” and “shipping sanctions” will permit, for example, the detention in the UK of specified ships and aircraft, preventing them over-flying, entering or leaving the UK, and restrictions on owning, chartering or operating aircraft and ships registered or flagged in a particular country, or preventing the registration of aircraft or ships owned by or chartered to designated persons.
Basis for designation
With regard to sanctions targeting designated persons, the Government will be required to have reasonable grounds to suspect that a person has been involved in or connected to terrorism or another activity specified in the relevant sanctions instrument (or is otherwise connected to such a person, for example through being owned or controlled by such a person), and that sanctions would be an “appropriate action” against that individual or entity.
Enforcement and review
The enforcement powers set out in the Bill seek to maintain the current system as far as possible. The Bill also provides for an annual review of each sanctions regime to ensure that the sanctions remain appropriate for their purpose, whilst individual designations must be reviewed every three years. The Bill also includes protections for individuals and entities subject to sanctions, enabling such persons to demand a review of their designation, and to challenge the outcome of any such review before the courts.
Licensing and compliance
Helpfully, the Bill contains a wide power for Regulations to contain exceptions, or to provide for the issuance of general or specific licences. At present, UK secondary legislation in relation to sanctions routinley contains what is, on its face, a broad licencing power, but for EU-derived sanctions licences are only issued consistently with licensing grounds in the underlying EU legislation. The new approach will therefore provide – in common with other aspects of the Bill – scope for a more flexible approach.
A provision which has been carried through from the EU regimes but which will be welcome to businesses is to the effect that, where an act or omission is done in the reasonable belief that the act is in compliance with relevant regulations or directions under the Bill, a person will not be liable in civil proceedings as a result.
Finally, a further useful development is the inclusion of a requirement for the relevant Minister to issue guidance about any prohibitions and requirements contained in Regulations made under the Bill. Such guidance may include material about best practice compliance, enforcement, and the circumstances in which relevant sanctions do not apply.
Transposition of powers to supplement existing AML regime
The Bill gives ministers broad powers to introduce regulations for the purposes of detecting, investigating or preventing money laundering and terrorist financing (“ML/TF“) or to implement standards set by the Financial Action Task Force. These are similar to powers currently in place under EU law and include the ability to require “prescribed persons” (to be defined in any such regulations) to:
put in place policies, controls and procedures to prevent ML/TF;
take prescribed measures in relation to their customers; and
provide or disclose information upon request and produce and retain registers and records (including beneficial ownership information).
Ministers may also pass secondary legislation to amend (or revoke) the recently introduced Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “ML Regulations”). The stated purpose of these provisions is to allow the Government to amend or update the ML Regulations post-Brexit, when the operative statute, the European Communities Act 1972, falls away. The Bill does not, however, itself introduce any new AML-related obligations on businesses.
The introduction of the new Bill must be viewed against a Brexit backdrop and the fact that many of the UK’s legal powers relating to the imposition of sanctions, as well as to measures to prevent money laundering and terrorist financing, currently flow from the EU and will therefore cease to be effective following the UK’s anticipated withdrawal from the EU in 2019.
The powers conferred by the legislation will be very broad, which has both advantages (in added flexibility) and disadvantages (in that there will be greater scope for regulatory divergence, and for potentially far-reaching subordinate legislation to be passed with relatively little scrutiny). Some limited comfort is provided by the Government’s assurance that it will continue to coordinate with international partners on sanctions policy, and its stated intention to issue guidance to ensure clarity for businesses in complying with the Bill.
The first debate on the Bill is scheduled for 1 November.