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SANCTIONS UPDATE: Bad News Bears – Abramovich, Russia, the Economic Crime (transparency and Enforcement) Bill and the Implications for Iran and the renewed JCPOA talks

The Russian destruction and dismemberment of Ukraine’s sovereign territory and population has been rightly met with public outcry and the call for stern and wide-ranging action against the Putin regime. The predicted government response has been to ratchet up Russian sanctions and since the invasion on 24th February there have been six separate treasury notices designating a wide-range of individuals and corporations associated with the Putin regime - culminating yesterday in Roman Abramaovich and Oleg Deripaska joining other oligarch luminaries such as Alisher Usmanov. The notices also encompass wide-ranging measures against Russian industries in shipping, aviation and banking sectors.

No doubt more sanctions are to come and perhaps in anticipation of this and the need to enforce them, the government has sped through the Economic Crime Bill that had been first introduced in 2018 in light of criticisms over the effectiveness of the measures imposed in the Sanctions and Anti-Money Laundering Act 2018 (SAML). Currently the bill is on its 3rd reading in the Lords and Royal Assent is imminent.

The bill focuses on 3 main areas: registration of the true beneficial ownership of property, measures to bolster and supplement Unexplained Wealth Orders in light of previous government setbacks on failed applications and a streamlining of the sanctions regime currently in place.

With regard to the UWO’s the key takeaways are:

- For property that has been held via offshore or trust structures, once the Bill is enacted, UWOs can be issued to any of a corporate respondent’s ‘responsible officers’, including its directors, board members, managers and trustees.

- The Bill proposes limiting the costs that enforcement authorities are required to pay as a result of a failed UWO application. As with Asset Freezing Orders under the POCA regime in order for a successful respondent to obtain a costs order against the applicant authorities they must demonstrate unreasonable, dishonest or improper behaviour.

- The authorities are given much longer to investigate material received in response to an unexplained wealth order before discharging the interim freezing order over the assets in question (from 60 to 186 days).

In respect of sanctions, the main point to note is that civil penalties arsing from sanctions breaches can now be imposed by the Treasury on a strict liability test (whereas previously the person or entity dealing with the asset had to be shown to have had knowledge or reasonable cause to suspect the property derived from a designated person or entity). However, the test in respect of criminal liability remains as before. Also, where OFSI doesn’t wish to impose a civil penalty, it can still publicise the person or entity for any breaches that are said to have occurred.

Perhaps of interest to lawyers will be the proposal allowing Ministers to impose Sanctions Regulations without having to report any detailed reasons for doing so to Parliament. This duty to report is currently imposed under section 2 of the SAML Act 2018 but would be removed in its entirety once the bill passes through Parliament. Sanctions regulations can therefore be drawn up with little or no scrutiny.

Finally, in respect of the register of beneficial interests, any overseas entity owning property in the UK must register with Companies House and identify its beneficial owners. Civil and criminal penalties could result for failure to do so and the obligation applies retrospectively to any property bought after 1999.

The circularity of geopolitics tends to enhance the consequences of one’s actions and this can be seen in recent developments in Vienna surrounding the renewed JCPOA talks with Iran. There have been very positive rumours over the last few weeks that Washington is to come to an agreement with Teheran over its re-entering the JCPOA following the Trump-inspired ignominious departure. Now though, Russia is threatening to pull out as a signatory unless its demand is met for any trade with Iran to be exempt from sanctions.

For those Iranians in the UK and abroad, the extraterritoriality of the US secondary sanctions has meant that transferring money in and out of Iran has been complicated and expensive and no doubt they were welcoming the optimistic news from Vienna. Whether the Russian stance has a decisive impact on the talks is unclear (presumably the agreement could simply continue or a new one be drawn up without Russia as a signatory) but any significant impediments from Russia would in my view only serve to isolate Russia further in the international community and push its current allies Iran and China further to the western camp.

Given the above, for those affected by sanctions the coming weeks are crucial and could determine the situation for the next few years.

JAMES MULLION

11th March 2022

 

 

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