Contributors
The Sanctions and Anti-Money Laundering Act 2018 (SAMLA) has now received Royal Assent. Its prime purpose is to ensure the UK can impose financial and trade sanctions and related measures after Brexit, but the Government has taken the opportunity to fine-tune other aspects of anti-money laundering (AML) and terrorist financing (TF) laws.
In this article, Emma Radmore of Womble Bond Dickinson (UK) LLP looks at the provisions of SAMLA that relate to financial sanctions and AML powers.
Type of sanctions regulation
SAMLA provides for the "appropriate Minister" to make "sanctions regulations" in a number of carefully defined and controlled circumstances. The sanctions in question may be:
- Financial
- Immigration
- Trade
- Aircraft or
- Shipping
Different considerations and conditions will apply depending on the type of sanction.
Who can make sanctions regulations?
Sanctions regulations are made by the "appropriate Minister". These are the Treasury and the Secretary of State (although this is defined in the singular, it presumably means the Secretary of State of any relevant Government department – the sponsoring departments for the legislation were the Foreign and Commonwealth Office and the Department for International Trade as well as the Treasury)
When can sanctions regulations be made?
The appropriate Minister can make sanctions regulations when the Minister considers it is appropriate:
- to comply with an obligation that arises as a result of a UN Security Council Resolution
- to comply with any other international obligation; or
- for another permitted purpose (a "discretionary purpose") specified in SAMLA (which includes purposes that further the prevention of terrorism, that are in the interests of national or international security, that further UK foreign policy objectives or which deter human rights violations or generally (and widely) promote respect for democracy, the rule of law and good governance).
Any regulations must state their permitted purpose. A Minister wanting to use a discretionary purpose must have considered that there are good reasons to pursue the purpose and that the imposition of sanctions is a reasonable course of action for the purpose. A report setting out the purpose and reasons must be laid before Parliament at the same time the relevant statutory instrument or draft instrument is laid. The only exception is where disclosure would damage national security or international relations.
Financial Sanctions
Financial sanctions can comprise one or more of:
- Freezing funds or economic resources owned, held or controlled by designated persons
- Preventing financial services being procured from, or for the benefit of, (i) designated persons, (ii) persons connected with a prescribed county or (iii) a prescribed description of persons connected with a prescribed country (in this article we will refer to these three categories collectively as "prescribed persons")
- Preventing funds or economic resources being made available to or for the benefit of prescribed persons
- Preventing funds or economic resources being received from prescribed persons
- Preventing financial services being provided or providing certain financial products issued by designated persons, being provided
- Preventing persons from owning, controlling or having a prescribed interest in prescribed persons who are not individuals
- Placing prohibitions or requirements on entering into or continuing to be a party to arrangements for prescribed or any commercial purposes with prescribed persons.
Key terms are defined, including:
- Funds, which includes financial assets and benefits of "every" kind
- Economic resources, which includes asset of every kind that can be used to obtain funds, goods or services
- Freezing, which means preventing funds from being dealt with, which in turn includes using, transferring, or doing anything that would result in a change, including to their volume, location or ownership, or any other change that would enable their use (including portfolio management). In the context of economic resources, freezing includes preventing them being exchanged or used in exchange (eg pledged) for funds, goods or services
- Financial services, which means "any services of a financial nature", including all types of insurance and reinsurance business and broking, banking, lending and money transmission services, financial trading (for own account or for customers, in financial products), participating in issues of any kind, asset management, settlement and clearing services, advisory or auxiliary services and financial data processing and similar services where provided by suppliers of financial services
- Financial products, which means money market instruments, foreign exchange, derivative products, exchange rate and interest rate instruments, transferable securities and other negotiable instruments and financial assets.
However, there is no definition of "prescribed country", although it is used many times in SAMLA, in connection not only with financial sanctions.
The designation process
"Designated persons" are defined as any person designated by the appropriate Minister under powers in relevant Regulations, or those designated under any provision in Regulations by virtue of them being named by or under UN Security Council Resolutions. A "person" includes organisations and associations and combinations of persons as well as individuals and bodies corporate or unincorporated.
Generally, Regulations will authorise the appropriate Minister to designate a person by name, or provide that persons of a description the Minister specifies will be designated persons, or to designate different persons for the purposes of different provisions of the relevant regulations. The Regulations can include information on notification or publishing the making or revoking of a designation, but there is no obligation to notify designated person of any designation.
SAMLA imposes controls such that:
- The Minister cannot designate a person by name except where the Minister has reasonable grounds to suspect the person is an "involved person" and considers the designation is appropriate, having regard to the purpose of the Regulations and the likely significant effects of the designation on that person. A person will be an "involved person" if they
- are or have been involved in an activity specified in the regulations;
- are owned or controlled directly or indirectly by a person who is or has been so involved;
- are acting on behalf of or at the direction of a person who is or has been so involved; or
- are a member of or associated with a person who is or has been so involved;
- The Minister cannot specify an activity for the purposes of Regulations unless the Minister considers the specification appropriate having regard to the purpose of the Regulations (and the Regulations can specify what they mean by a person "being involved" in an activity); and
- Where the Minister designates persons by description, three conditions must be met:
- The description is such that a reasonable person would know whether the person fell within it;
- At the time the description is specified it is not reasonable for the Minister to identify and designate by name all the persons who would fall within it at that time; and
- The Minster has reasonable cause to suspect that the persons falling within the description (whether by virtue of being members of an organisation or otherwise) would be involved persons and considers the designation is appropriate with regard to the purpose of the Regulation and the likely significant effects of the designation on the relevant persons
- Any designation made by name or by description must require the Minister to provide a statement of reasons – but the Minister may exclude certain information from the statement if justified on grounds of security, prevention of serious crime or in the interests of justice;
Where a designation is made because a person is named by or under UN Security Council Resolutions, Regulations will explain this.
Regulations can also specify what they mean by being "owned or controlled directly or indirectly" or being "associated with" a person.
Variation and revocation
The Minister can vary or revoke designations at any time, and must do so if a designation no longer meets the conditions that had to apply for it to be made originally. In some cases, the Minister will be obliged to review designations every three years in any event. Additionally, a designated person can at any time request revocation or variation, and the Minister must consider the request. But if the Minister refuses the request, the designated person cannot make a further request unless there are significant grounds that the Minister had not previously considered. A designated person who is on the list because of a UN designation may also request that the Secretary of State use best endeavours to have the person's name removed from the list.
Anyway, the Minister must review sanctions regulations annually to assess whether they are still appropriate and must report the conclusions of the review to Parliament. Additional controls apply to the review of regulations with a counter-terrorism purpose, requiring independent review.
Information requirements
Regulations can also create a variety of obligations around information retention and submission. They can require specific persons to create and keep registers or records and to tell the authorities about certain matters. The authorities also get powers to require the provision of information and documents and to make inspection visits.
Licences, directions and exemptions
Where there is a designation, there will also be the possibility to make Regulations creating exceptions to any prohibition or requirement. Exceptions would apply where an act is done for the purposes of national security or the prevention nor detection of serious crime anywhere in the world. There can be general exceptions, specific exceptions specified by the relevant Minister, or disapplication of the relevant prohibition to anything done under a licence the relevant Minister grants.
Licences or directions may be general or apply to a specific person or category of persons. They must specify what they allow and what is not allowed. They may contain conditions and Regulations may provide that no licence or direction can be issued unless set criteria apply. Regulations can also provide that licences or directions may be limited in time, or indefinite. Finally, Regulations can provide for variation, suspension or revocation of licences or directions and make provision for notifications and publicity relating to them.
Enforcement
Further Regulations can provide for enforcement of any of the prohibitions or requirements and for preventing any circumvention of general prohibitions or requirements or those arising under licences or directions. The penalties may be criminal, but cannot exceed 10 years' imprisonment.
The appropriate Minister has to report to Parliament on offences created under relevant Regulations, explaining why criminal consequences are appropriate.
Application
Prohibitions and requirements under sanctions Regulations can apply to all conduct in the UK and also to conduct elsewhere by a UK person (which is a UK national or a body incorporated or constituted under any part of the UK). There is also a mechanism to extend application to the Channel Islands, Isle of Man or any British overseas territory.
AML powers
The final few substantive sections of SAMLA deal with AML. These allow the appropriate Minister to make regulations covering:
- Enabling or facilitating the detection or investigation of money laundering or terrorist finance, or preventing it; and
- Implementing FATF recommendations.
It also requires the Secretary of State to make annual reports (starting in May 2019) explaining the progress made in the previous year towards putting in place a register of beneficial ownership of overseas entities. In respect of British Overseas Territories, SAMLA obliges the Secretary of State to provide all reasonable assistance to enable each relevant government to establish a publicly accessible register of beneficial ownership of companies registered in their jurisdiction, and to require any jurisdiction that has not introduced a register by the end of 2020 to do so, including details of the form the register should take. If it becomes necessary to make such an order, it is subject to the affirmative resolution process in Parliament.
Brexit
SAMLA contains a number of transitional provisions, to allow:
- Instruments to be made adding or removing persons from the sanctions list whehre a provision of retained EU sanctions law requires it (that is, any provision of retained EU law that corresponds to a provision in SAMLA allowing the making of the relevant regulations). But the Minister must still have reasonable grounds to suspect any person to be added to the list is an involved person and that it is appropriate to give the direction
- Regulations to be made clarifying the meaning of key terms in retained laws, such as "being involved in", being "owned or controlled directly or indirectly by" and being "associated with"
- Persons on the EU sanctions list to request removal from the list (with Regulations to be made setting out the procedure for dealing with such a request), and similar rights for UN-named persons who are on the EU list.
Controls
Because SAMLA is essentially an enabling Act, permitting ministers to make key pieces of law, including many that create criminal offences, by means of secondary legislation, there are many controls over how the powers can be used. This article has described the conditions that must be met for various regulations, designations and directions to be made. In addition, most of the statutory instruments will be subject to the affirmative resolution procedures in Parliament, meaning that both house have formally to approve them.
So what's new?
SAMLA is, in many respects, a complicated way of ensuring business as usual. Its genesis was to make sure that the Consolidated List could continue to operate after Brexit and to allow the necessary powers to make changes to the list as it stands when Brexit occurs. However, the Government has taken the opportunity to nuance some of the ways in which financial sanctions can be made and how their application will be described. The desire to allow the flexibility that secondary legislation provides has been tempered by mandating conditions that must apply before actions can be taken, reports to be published, and by imposing the affirmative resolution procedure.
The Government has also already set out its intended approach to exceptions and licences under SAMLA.
Essentially, although much is new, businesses for whom sanctions compliance is a frequent issue are unlikely to find much practical change.
Emma Radmore (Legal Director) is a member of Womble Bond Dickinson (UK) LLP's financial services team. Contact her on emma.radmore@wbd-uk.com. This article was written for Financial Regulation International.
