Brexit: the implications for financial crime and investigations

We have considered the impact of the UK’s withdrawal from the EU on a number of financial crime and investigations topics. See the dropdown menus below for further information.

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The European Arrest Warrant and extradition
  • The UK is currently a member of the European Arrest Warrant (EAW) scheme. This enables an arrest warrant issued in one member state to be executed in any other member state in order to secure a person’s rapid removal to the requesting state. It replaced the separate extradition arrangements in place between each EU member state.

    There has been controversy regarding the scheme in the past, and in particular the accusation that it was being used regarding very minor crimes and to surrender UK citizens to jurisdictions such as Greece where standards of trial process have been criticised. In November 2013, the UK Parliament’s Home Affairs Committee concluded that the EAW was “fundamentally flawed”, but parliament voted to stay in the scheme anyway.

    According to the National Crime Agency, the annual level of requests from the UK for extradition of an individual from an EU member state has stayed relatively constant, ranging from 219 to 271, between 2010 and 2015. In 2015 150 people were arrested and 121 of those were sent to the UK as a result of EAWs issued by the UK.

    Pro-Brexit politicians have stressed their desire to maintain cooperation with European authorities in combating crime. Norway, Iceland, Switzerland and Croatia are all members of the EAW scheme, despite not being members of the EU.

    However, it is now clear that (unless a deal is reached before exit day) the UK will not remain part of the EAW scheme and EU Member States will be designated “Part 2” territories under the Extradition Act 2003. This means that they will therefore enjoy the same status as countries such as America. Requests for extradition from these territories need decisions by both the Secretary of State and the courts, so present a slower route to extradition than under the EAW, but still represent an enhanced level of cooperation between states. Further information is set out in The Law Enforcement and Security (Amendment) (EU Exit) Regulations 2019 and the accompanying Explanatory Memorandum.

International cooperation
  • Broadly, the pan-European targeting of complex cross-border criminal activity is founded upon inter-governmental cooperation as much as it is upon specific EU law frameworks. Where this legal foundation remains unchanged, most importantly the European Court of Human Rights and the Council of Europe, cooperation and participation in these cross-border endeavours will continue.

    EU crime agencies

    There are two EU agencies that explicitly require membership of the EU for participation: Europol, the EU police intelligence agency, and Eurojust, the coordinating network of EU prosecution agencies. A negotiation will be required to establish a new legal foundation for the UK’s membership of, or cooperation with, these bodies. Issues of data protection in the sharing of intelligence information will also require resolution, as the UK will be outside the EU regime following Brexit. But it is unlikely that either the UK or the EU will want to see any reduction in cooperation in investigating criminal activity and it can be expected that a relatively early resolution of these issues will be found. Other non-EU states, such as the USA, Canada, Australia and Norway, have developed relationships with Europol and, with its geographical proximity, it seems very likely that the UK will too.

    Mutual legal assistance

    The UK can offer judicial assistance to any country or territory in the world, regardless of the existence of an agreement providing a framework for such assistance. The only stipulation is that if there is such an agreement, any request be made within the framework provided.

    The European Union based its framework of cooperation on a protocol negotiated by the Council of Europe. Consequently, the UK will be able to rely upon this pre-existing agreement, as the UK’s membership of the Council of Europe remains unchanged. However, this protocol does not provide the specific mechanisms or detail that was created under the European Union framework. For example, the European Investigation Order (EIO), seeks to allow the transfer of evidence through a single instrument prescribing detailed methods for gathering evidence. The Regulations introduced by the UK in 2017 to implement the EIO (Criminal Justice (European Investigation Order) Regulations 2017) will be revoked on the UK’s withdrawal from the EU, albeit that orders issued prior to the withdrawal will remain to be complied with.

    Whilst some detail for the process of mutual assistance is provided under the 1978 protocol, the impact of Brexit will be for subsequent requests from, and of, EU members to become ad hoc and the outcomes less predictable. This may lead to delays and potentially inconsistent treatment of requests for mutual legal assistance. The ultimate solution is likely to be a bi-lateral treaty between the UK and the EU, as the UK has had with China since the beginning of 2016.

    See here for detail on how data protection will be affected by Brexit.

Money laundering
  • The UK implemented the provisions of the Fourth Money Laundering Directive in June 2017 following adoption of the Directive by the EU in 2015.

    Following Brexit, the UK will be under no obligation to implement the provisions of future money laundering Directives. Having said that, we expect that the UK will continue to make changes to our regime to be in line with EU standards. This is because the provisions of EU legislation flow from recommendations made by the Financial Action Task Force, a global inter-governmental body. Given the UK’s strong position on money laundering regulation in the past and in particular the UK’s approach to gold plating of EU requirements, it is unlikely that the UK will want to fall behind international standards (albeit that any changes that will need to be made in the UK are likely to be minimal).

    The Government is committed to implementing amendments made to the Fourth Directive by the Fifth Directive (adopted by the EU in 2018). The deadline for implementing the Fifth Directive is 10 January 2020. It is therefore likely that amendments will be made to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) during 2019.

    A number of amendments to MLRs have already been prepared in readiness for Brexit. The draft amendments make a number of changes, reflecting the fact that, for example, the UK will become a “third country” (ie outside of the EEA) and references to customers based in other EEA jurisdictions need to be modified.

Financial sanctions
  • Brexit will have no impact on UN Security Council sanctions measures, which will continue to be adopted in the UK and within the EU Member States. However, the EU often introduces measures that are broader in scope than those adopted by the UN. The EU also introduces sanctions where the UN does not - the measures introduced in respect of Russia and Ukraine are a recent example of this. Post-Brexit, those additional EU measures will no longer automatically apply in the UK.

    Notwithstanding that, it is likely that the UK will seek to follow the approach taken by Switzerland and introduce measures that reflect the EU position. This will ensure that transactions and funds are not routed through the UK by persons seeking to circumvent or evade EU sanctions. That being the case, the sanctions in force within the EU and the UK would be largely the same. However, the way that such measures could be challenged would differ - a person seeking to challenge a designation in the UK would be required to do so by means of a judicial review. Where such person is also designated by the EU, a parallel challenge would need to be made in the ECJ.

    The Sanctions and Anti-Money Laundering Act 2018 puts in place provisions to permit the UK to make financial sanctions and to designate individuals and entities under those sanctions outside of the EU framework. The UK has commenced issuing sanctions in readiness for Brexit, see, for example, sanctions on Iran and Venezuela.

    Brexit’s impact is likely to be felt most in relation to policy. Post-Brexit, the UK will have no formal input into the designation of EU sanctions targets or the formulation of EU sanctions policy. In the past, securing the required unanimity from the Member States has often depended on strong support from the UK. Its absence from discussions may result in weaker measures being introduced by the EU.

    Weaknesses in EU sanctions could prompt the UK to introduce more stringent measures of its own. However, the impact of any such measures is likely to be limited without wider support from the EU, or perhaps the US. The newly established Office of Financial Sanctions Implementation (OFSI) has recently been armed with greater powers of enforcement, including the power to impose civil fines for financial sanctions breaches and increases to maximum prison sentences from two to seven years. This has been interpreted by some as a step towards the tougher US model. However, it seems more likely, given their close trade, political and geographic ties, that the UK will continue to push for the use of robust restrictive measures within the EU, albeit now from the side-lines.

    Read our article on Impact of the New Sanctions and Anti-Money Laundering Act Considered for further information on this topic.