The Sanctions and Anti-Money Laundering Bill

A bill to give the UK Government powers currently derived from the EU, but which contains broad legislative powers that could see changes to the sanctions regime in future.

On 19 October 2017, the UK Government introduced the Sanctions and Anti-Money Laundering Bill (the Bill). The Bill has been through its second reading in the House of Lords and entered the committee stage of the House of Lords on 21 November 2017. Once this is complete a report will be produced, in preparation for the Bill’s third reading in the House of Lords.

As many of the UK’s sanctions and anti-money laundering (AML) powers are derived from EU law, which will cease to have effect when Brexit takes place, the Bill is intended to “future-proof” the UK’s sanction and AML regimes. This includes importing powers that ministers use to transpose sanctions into UK law, but also affords the Government the ability to have another look at the regime and how effective it has been up to this point. As a result, several new ideas have been proposed, which we highlight below.

It is difficult, at this early stage, to understand how wide reaching the impact of this Bill will be. The Government has been keen to note that “this legislation is not about creating new policy”. However, both the anti-money laundering and sanctions sections of the Bill have the potential to be used for wide ranging secondary legislation, which may affect companies that were previously unregulated in these areas. How much of a change the Bill represents will depend upon how these powers are ultimately used.

Anti Money Laundering powers

The Bill sets out powers for ministers to make regulations for the detection, investigation or prevention of money laundering or terrorist financing, or to implement standards issued by the Financial Action Task Force as deemed necessary.

As AML requirements are already well established in the UK through EU law, these powers are effectively the same as those currently available, including requiring prescribed persons to:

  • identify and assess risks relating to money laundering and terrorist financing
  • put in place policies, controls and procedures of prescribed kinds to mitigate and manage these risks
  • take prescribed measures in relation to their customers in prescribed circumstances
  • be capable of obtaining and disclosing information in respect to these risks, and
  • create and maintain records and registers of this information.

Sanctions

Under the draft Bill, the purpose of the sanctions that can be imposed remains broadly the same as under the existing EU framework, be it to comply with UN or other international obligations, to prevent terrorism in the UK, in furtherance of international peace or security interests or a foreign policy objective of the Government. These discretionary powers include:

  • the imposition of financial sanctions such as asset freezing
  • restrictions on the procurement of financial services, investment restrictions, or commercial arrangements; and
  • the prevention of passage through UK airspace or territorial waters by sanctioned craft.
    Similar to existing requirements, any minister imposing sanctions targeting designated persons must demonstrate “reasonable grounds” that the individual in question is an “involved person” and must consider their action in applying sanctions appropriately.

Enhancing the regime

One significant enhancement to the sanctions regime, however, is the potential expansion of those persons who are under an obligation to inform the authorities about sanctions related issues, and potentially requiring these people to create and retain certain records.

At present the requirement to inform authorities about sanctions related issues, or retain records is limited to regulated businesses or individuals. By widening this information requirement to “persons of a prescribed description” the Government is providing itself with more leeway to require previously unregulated companies or individuals to retain records or report breaches. As already noted, the Government has yet to confirm what shape any secondary legislation might take, and so the impact might be wide reaching, or merely retain the status quo.

As a counterpoint to these potentially increased reporting requirements, the Government has helpfully provided two avenues of assistance for businesses. These are:

  • Providing ministers with significant powers to create regulations allowing for the granting of licenses to business to exclude them from certain sanctions related requirements. These licenses may be issued to individuals or classes of peoples and may impose conditions or a specific duration whereby certain activities are allowed.
  • Requiring guidance to be published by the appropriate minister in the event powers relating to sanctions are imposed. This guidance may include best practice for complying with any requirements, explaining the enforcement of the prohibitions and highlighting circumstances where the requirements do not apply.

In addition to these forward looking requirements, the Bill also includes a temporary transition provision in relation to EU sanctions lists, essentially allowing the minister to add an individual’s name to the UK sanctions list in the event that the EU have designated them a sanctioned individual. This power will only be available to the Government for two years from the date that the section within the Bill comes into force. This provision should help ease any concerns from businesses, at least in the short term, as to any potential inconsistencies between the UK and EU in the event that no detailed agreement is reached as to how the two regimes will interact with each other.

Impact of the Bill

The Bill represents one of the myriad pieces of legislation which will be necessary to repatriate powers to Westminster which are currently derived from Brussels. Clearly, whilst the Government is keen to retain a robust sanctions regime that will enable the UK to maintain its position as a global leader on tackling financial crime, it has been acknowledged that there must be space for businesses to thrive in a globalised market place. The very broad powers created by the draft legislation could lead to some beneficial flexibility in the application of sanctions, but any divergence from EU policy will come at the expense of many businesses having to deal with multiple regimes. The stated intention to publish guidance on sanctions policy will be welcomed however.

Finally, one amendment that has been tabled for discussion by the House of Lords is worthy of note: the suggested creation of a public register that requires beneficial owners of foreign companies that own UK property or tender for UK Government contracts to identify themselves. It is unlikely that the Government will support this amendment, because a call for evidence on such a policy was issued in April and the Government are still reviewing feedback in response to this. It is interesting to note, however, that this is further evidence of a growing call for such a register to exist.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.