FCA as gatekeeper of UK crypto AML regime: two years in
As part of the post-Brexit landscape an International Sanctions Bill designed to support the UK’s role as a “leading player on the world stage” will be introduced. This will establish a new sovereign UK framework to implement international sanctions on a multilateral or unilateral basis. This was outlined in the Queen’s Speech 2017 on 21 June. (See our related blog). Since then the question of a sanctions regime post-Brexit has been the focus of discussion in both Houses of Parliament and the Government has given further indication as to what future legislation will contain.
Before the summer recess a general debate took place in the House of Commons on “Exiting the European Union: Sanctions”. Parliamentary Under-Secretary of State for Exiting the European Union, Robin Walker, led for the Government. He outlined that the UK has some limited powers to impose sanctions but these are not sufficient to replicate the full range of sanctions in force through the European Union. He recalled that the UK currently implements 34 sanctions regimes, around half of which result from legally binding resolutions of the UN Security Council, and half from additional measures agreed with partners in the European Union.
While the European Union (Withdrawal) Bill will preserve or freeze existing sanctions, it will not provide the powers necessary to create new regimes. He confirmed that the International Sanctions Bill will focus on powers, not policy, establishing the legal framework that is needed to continue implementing UN sanctions, “and to return decision-making powers on non-UN sanctions to the UK.”
The Minister of State for Europe and the Americas, Sir Alan Duncan, concluded the debate, confirming that “replicating a sanctions policy once we have left the EU is absolutely essential. If we did not do that, the world would be a poorer place.” “The intention is to remain aligned with the EU—with existing sanctions—so that we are in harmony with it”.
As part of the parliamentary scrutiny process of Brexit the House of Lords EU External Affairs Sub-Committee is undertaking a short inquiry into UK sanctions policy after the UK leaves the EU.
The proposal for a bill was further advanced on 2 August when HM Treasury published its response to an earlier public consultation on the UK’s future legal framework for imposing and implementing sanctions. The paper looked at the UK’s current approach to sanctions and outlined future powers and process.
The paper confirms that the International Sanctions Bill would specify the main measures that may be included in a specific sanctions regime but would also give the government a degree of flexibility to suggest other measures when it creates or amends a specific sanctions regime through secondary legislation. This flexibility will allow the government of the day to impose sanctions measures appropriate to the circumstances.
The paper outlines the proposed powers to designate individuals and impose financial and trade restrictions and the procedures for the exercise of those powers. The government rejected the suggestion for interim sanction powers, confirming that it only intends to introduce one threshold for designation – with “reasonable grounds to suspect” an individual or entity as the appropriate criteria for all entities.
The paper sets out that a review and challenge mechanism will be put in place. An annual review of regimes will be introduced to ensure that they remain appropriate. In addition, it is envisaged that every individual listing under each UK autonomous regime would be subject to review by government every three years. The ability to review UK autonomous sanction regimes in “response to significant events” will be set out.
Confirmation is also given that individuals and organisations will be able to challenge any sanctions imposed on them.
The paper confirms that it does not intend to change the penalties (civil and criminal) for breach of sanctions as recently reformed under the Policing and Crime Act 2017. (See our related blog). However there are proposals for a new power to improve the enforcement of sanctions by allowing the government to seize funds and assets in order to freeze them. The Government intends to create the power to enable law enforcement to seize and detain assets that are subject to an asset freeze whether or not they have been obtained through, or are intended for use in, unlawful conduct, without breaching the asset-freeze itself.
The paper also confirms that the Government is developing powers that would be contained in the bill, to ensure that they enable the government to compel the production of information where it is appropriate to do so.
The Government intends to broaden the licensing powers available to the Office of Financial Sanctions Implementation (OFSI). A power enabling general licences to be introduced in certain circumstances to authorise specific activities, for example to facilitate humanitarian aid to regions affected by sanctions will be created. A power in the bill to create more specific licensing grounds which, for example, would enable persons affected by sanctions to pay for their basic needs, access justice, and make payments under contracts and judgments will be introduced.
The Government confirms that it will use the powers in the future Bill to align UK designations with those of international partners “where this suits our security and foreign policy objectives”.
Indeed, the UK currently plays a key role in relation to EU sanctions and, through its participation, adds significant strength to the regime. Whilst EU and UK foreign policy positions remain largely aligned, there is a common interest in ensuring this continues. Legislators will be aware, however, that this may change after 29 March 2019. The Government faces the challenge of providing for a sanctions policy that is flexible enough to allow for the UK to prioritise its own economic self-interest, whilst retaining the ability to wield global influence.
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