Sanctions in the spotlight: Treasury Committee inquiry

5 April 2018

With less than a year to go to the UK’s official departure from the European Union, Parliament’s workload - with the EU Withdrawal Bill – is immense. In addition, one of the key “Brexit bills” - the Anti-Money Laundering and Sanctions Bill - is wending its way through the legislative process (see our related blogs).  As one of the major stand alone post-Brexit Bills it is receiving considerable scrutiny, most recently at the House of Commons committee stage (Fifth Sitting) in March. Meanwhile, in February the Government responded to the House of Lords EU Committee report “Brexit: Sanctions Policy”.  

Beyond Brexit

The issue of sanctions has been identified by the UK as a major part of its global trade and foreign policy post-Brexit and the Government paper emphasises that the UK intends to continue playing a leading role in international sanctions policy – not least because of its UN Security Council membership.  The response looks to present a global picture – beyond the borders of the EU sanctions regime – because “the UK’s influence on international sanctions policy derives only partly from our current EU membership”.  Instead, UN Security Council-imposed sanctions are described as “ideal”, being legally binding on the “entire international community”.  Co-operation in particular with the United States, Japan and Canada and international bodies such as the Financial Action Task Force are set out as playing an important role in this area, including on “counterterrorism sanctions and sanctions against Russia and North Korea”.  

Nonetheless, and presumably with an eye to the ongoing attractiveness of UK Plc as a place to do business, the Government strikes a note of caution: while takes sanctions very seriously, pressing the case for them where we believe they make sense” it will also work to ensure “ that they are used responsibly and lifted when no longer needed” and that sanctions “are properly targeted, legally robust and designed to minimise unintended consequences, for example on humanitarian assistance or other legitimate business.” The Government also acknowledges that in addition to a new domestic legal framework for sanctions, Brexit will also require the development of new ways of working with “allies and partners”.  However, HMG is confident that the UK will remain an influential player.

Tackling sanctions violations

Taking action against sanctions violations is a key part of the law enforcement agenda in the fight against economic crime.  The UK Anti-Corruption Plan published in December 2017 cites both the launch of the Office of Financial Sanctions Implementation and stiffer penalties introduced by the Policing and Crime Act 2017 signs that “we are acting decisively to tackle offending behaviour”.  The new legislative regime increases sentencing powers for sanctions offences under Schedule 3 to the Anti-terrorism, Crime and Security Act 2001 (failure to comply with freezing orders) and Schedule 7 to the Counter-Terrorism Act 2008 (failure to comply with requirements such as undertaking customer due diligence, limiting or ceasing certain types of business). The previous maximum of two years’ imprisonment is now increased to seven.

Much has been made about stemming the flow of illicit finance into the City of London and the high end property market. A recent Reuters article quoted Nicky Morgan MP, Chair of the Treasury Committee, in respect of the new inquiry: “Given the threats that face the UK, the effectiveness of the regimes that we use to protect our financial system from misuse have never been more important”.  The article states however that despite political tough talk in the current UK-Russia “diplomatic” incident the UK has not named individuals or companies that would be specifically targeted by sanctions.

Questions asked

It is now the turn of the Treasury Committee to take stock of these recent developments, which it seeks to do in the recently launched inquiry into Economic Crime. The inquiry has two  strands: one looking at the anti-money laundering and sanctions regime, and one considering economic crime as it affects consumers. In relation to the former, MPs are looking to gauge the effectiveness of the current legislative and regulatory regime in tackling money laundering and sanctions violations and to understand the scale and impact of illegal activity. Questions are asked about the UK’s role in international efforts to tackle money laundering and terrorist financing and to implement sanctions, as discussed above. How financial institutions and professional bodies operate in this area is also within the inquiry’s scope, and one can expect a focus on the recently launched Office for Professional Body Anti-Money Laundering Supervision (OPBAS) housed within the Financial Conduct Authority.  

Advisors to those subject to the sanctions regime or adversely affected by it may wish to comment on the impact of the implementation of the current regimes on individuals, firms and the wider economy.  One area of concern is the regime’s unintended consequences, such as the removal/refusal of financial services from/to individuals or firms. Another, one emphasised by the House of Lords, is the fairness of any framework to challenge the imposition of sanctions.  The inquiry closes on 8 May 2018 and those who work in this area will be watching developments closely.

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