Sanctions and AML: first #BREXIT bill makes its way through Parliament

28 November 2017

With all eyes focused on the EU Withdrawal Bill, the Sanctions and Anti-Money Laundering Bill (“the Bill”) is making its way through the Houses of Parliament with very little attention.  This is somewhat surprising given that it is the first of the so-called “Brexit bills” to appear.

The Bill reached the House of Lords for its first reading on 18 October 2017. The next phase is for a line by line examination of the Bill, at committee stage – which begins on 21 November.

Supporting the UK’s role as leading player on the world stage

The Bill seeks to establish a new sovereign UK framework to implement international sanctions on a multilateral or unilateral basis. This was outlined in the Queen’s Speech  on 21 June 2017.

The sanctions section of the Bill seeks to create a new regime for the implementation of sanctions from international bodies such as the UN.  It also empowers the UK Government to make its own sanctions regulations, and contains special provisions to keep the UK in line with the EU sanctions regime at the time of exiting the EU, and for a two year transitional period.

If the Bill passed in its current form, the appropriate UK Minister would be empowered to make sanctions regulations to comply with UN Security Council Resolutions or other international obligations. They could also create an ‘autonomous’ sanctions regime by making sanctions regulations if they consider that doing so would serve one of the purposes of the Bill. The regulations would need to:

  • further the prevention of terrorism, in the United Kingdom or elsewhere;
  • be in the interests of national security;
  • be in the interests of international peace and security; or
  •  further a foreign policy objective of the government of the United Kingdom.

The framing of these prescribed purposes and the court’s traditional reluctance to apply close scrutiny to Government decision making in these areas is likely to give ministers a broad discretion when making sanctions regulations.

Checks and balances

The Bill provides for two methods of review of a decision of a Minister to make sanctions regulations; a right to request that the appropriate Minister vary or revoke a designation, and a Court Review. The Bill does not envisage that recourse to the courts could take place before a request to the Minister had first been made and decided upon. The rules of court for such reviews would be governed by the same provisions of the Counter-Terrorism Act 2008 that apply to financial restrictions (with minor modification to take into account the different entities involved).  The Court would only be empowered to award damages to the claimant if they found that the tort of negligence had been committed or if the decision under review was brought in bad faith.

Consistency with the EU?

Specific temporary powers are also set out in the Bill that would allow the UK to remain aligned with the EU sanctions regime. For two years after the passing of the Act an appropriate Minister would be empowered to modify any retained EU law relating to sanctions to add or remove persons to keep the UK in line with the EU regime.  There are ways in which EU and UK Sanction regimes could still diverge during this period.  When adding persons to the EU law sanctions lists the Minister is expected to make her own judgments as to whether the individual should be designated under the relevant EU provision and must also consider requests from persons who are on EU law sanctions list to be removed. Such decision making could become very problematic if the UK Minister does not have access to the material that EU institutions relied upon when making the decision. The UK court’s application of a Court Review could also yield a different result to challenges at the Court of Justice of the European Union. Both the standards of review and, if closed material procedures are used in the UK, the evidence available will be different.

Going it alone?

Given the rhetoric that surrounded much of the Brexit campaigning and, to some extent, the structure of the Bill itself it might be expected that the government envisages ‘going it alone’ with its sanctions regime as soon as it is able to. However, the language of Sir Alan Duncan MP before the EU External Affairs Sub-Committee on 26 October was quite different emphasizing the importance of multilateral action and the desire to stay aligned with the EU sanctions regime. The uncertainty that surrounds the UK’s post-Brexit relationship with the EU and the institutional uncoupling that this Bill envisages may make such alignment more difficult than the government expects.

In short companies and financial services firms will need to watch this Bill’s progress carefully. As things currently stand there is a risk that different systems may develop for sanctions between EU member states and the (future) UK, whatever the alignment language currently being espoused. There is every chance that post-Brexit the sanctions landscape will become more complex for companies to grapple with. They will have to monitor and keep track of who they cannot trade with and designated persons they can’t do business with separately for the UK and the EU.

This article first appeared on Thomson Reuters Practical Law Business Crime and Investigations wire on 22/11.

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