Victoria Gregory considers the implementation of Financial & Trade Sanctions.
Global business is finding itself increasingly entangled in the ever changing and tightening international political landscape. Individuals, groups, entities, companies, industries and States must comply with rules and regulations relating to their trading and financial practices, or risk serious criminal and/ or financial penalties if they fail to do so.
The United Nations Security Council (UNSC) and Council of the European Union (CoEU) create sanctions. Since April 2017 all UNSC and CoEU sanctions automatically become UK domestic law (section 143-145 of the Policing and Crime Act 2017).
Examples of sanctions in action
- UNSC unanimously approved sanctions on North Korea to ban $1bn of exports over the country's sixth and most powerful nuclear test on 3rd September 2017. The ban included the country's textile exports and capping imports of crude oil.
- EU restrictions on supplies of dual-use goods to certain designated Russian companies and sanctions specifically targeting certain Russian financial and credit institutions, deep water oil exploration and production, Arctic oil exploration and production, and shale oil projects.
- EU sanction implementing restrictive measures against Iran, wherein Annex I includes; uranium, plutonium, gas centrifuges etc, listing over 197 pages of items requiring prior authorisation for the sale, supply or export!
Sanctions and Embargoes
The Government describes sanctions and embargoes as political trade restrictions put in place against target countries or individuals with the aim of maintaining or restoring international peace and security. Failure to comply with these sanctions is a criminal offence, and you may very quickly find yourself or your business under investigation if there is any breach of restrictions.
What are sanctions?
1. Threatened penalties for disobeying a rule or law;
2. Steps taken by way of international agreement or standards of conduct by a state which seek to coerce another to conform, typically by a restriction on trade or official sporting participation;
3. A set of conditions designed to enforce compliance and adherence to any rule of conduct.
Sanctions can impact on:
- Financial transactions; such as targeted asset freezing or the prohibition on a particular type of transaction with a specified individual, organisation, bank, country or market; and/ or
- Trade; usually a trade penalty involving a restriction on imports and/ or exports or a complete embargo.
Sanctions can target individuals or groups, companies and other entities (such as terrorist groups), or be against industries linked to a particular state, a vessel or aircraft or even State-wide.
The most common types of measures used include:
- embargoes on exporting or supplying arms and associated technical goods or assistance, training and financing to a specified sector, state or group;
- a ban on exporting or importing equipment that might be used for internal repression;
- financial sanctions on individuals, those in government, government bodies and associated companies, or terrorist groups and individuals associated with those groups;
- travel bans or restrictions and asset freezing on named individuals; and
- bans on imports of raw materials or goods from or to the sanctions target.
Part 8 of the Policing and Crime Act 2017, which came into force in April 2017, imports the United Nations Security Council (UNSC) financial sanctions directly in UK domestic law. The Act has also given new powers to HM Treasury to impose financial penalties for sanction breaches and a new offence of failing to report.
HM Treasury produces quarterly reports to Parliament on its operation of the UK’s asset freezing regime and maintains a list of all financial sanctions imposed in the UK by country, administration or terrorist group.
Financial sanctions are wide ranging and can apply to individuals, entities, and Governments, who may be resident in the UK or abroad. Since 2016 in the UK, the implementation and administration of financial sanctions has been the responsibility of HM Treasury, through the Office of Financial Sanctions Implementation (OFSI). The NCA, SFO and HMRC also have powers to investigate and enforce and enforce sanctions.
Figures released for 2016 show over one hundred suspected breaches reported to OFSI, 95 of which were actual breaches, totaling around £75 million.
“Financial sanctions are a valuable tool against individuals, countries and terrorist groups who threaten UK foreign policy and financial services as well as our national security,” explained Economic Secretary Simon Kirby, speaking when the powers came into force. “This Government won’t tolerate breaches of financial sanctions. We’ll continue to place more emphasis on compliance and we will take tough action against those who deliberately flout the law.”
It is possible, and indeed encouraged by the Government, to self-report and self-disclose any potential, suspected, or actual breaches. This may be seen as the ‘new normal’ similar to that seen under the Bribery and Corruption Act. The OFSI take many factors into account when considering the value of any financial penalty and voluntary reporting may be as a significant mitigating factor. Janes Solicitors will advise you if you are unsure what to do or if you are facing this difficult and often highly sensitive decision.
Trade Sanctions and Embargoes
Businesses wanting to export strategic or controlled goods that are subject to sanction and embargo regimes must acquire a specific licence to do so from the Export Control Joint Unit (ECJU), which is part of the Department for International Trade. Failure to do so is a criminal offence.
The Export Control Organisation (ECO) within the Department for International Trade implements trade sanctions and embargoes.
It is therefore essential that exporting businesses check that their goods can be exported or traded to a particular destination, as missing or incorrect licences can lead to delays, seizures, fines, penalties, and even imprisonment.
Compliance with Sanctions
From April 2017, new measures in the Policing and Crime Act 2017 gave OFSI the power to impose penalties for serious financial sanctions breaches. The penalty powers apply to offences committed after 1 April 2017.
Monetary penalties are a new way of responding to offences and these can be up to £1 million or 50% of the breach, whichever is higher and can be subject to appeal to the Upper Tribunal and/ or Ministerial review.
The UK currently imposes financial sanctions in 27 sanctions regimes.
HM Treasury have issued Guidance on Monetary penalties for breaching financial sanctions and more general Guidance on Financial Sanctions.
It is a criminal offence to breach a financial sanction without an appropriate licence or authorisation from OFSI, and HM Treasury treats all breaches of financial sanctions very seriously and the most serious cases could shortly incur prison sentences of up to seven years.
You will be expected to have carried out verifiable due diligence checks against the UNSC Sanctions List, the EU Council Regulations and the UK Consolidated List for any sanctions that may be in force.
Once listed, the sanction applies to all persons and entities within the territory of the United Kingdom and to all UK Nationals and legal entities established under UK law, including their branches, irrespective of where their activities take place.
The UK organisations responsible for monitoring compliance with sanctions take any potential breaches very seriously, and the consequence for companies that become subject to investigation can be severe. If your organisation is under investigation, or is about to become so, then professional legal advice is essential. Contact Janes Solicitors now.
Sanctions and Anti-Money Laundering Bill: Brexit and EU Law
On 19th October 2017, the UK Government introduced the “Sanctions and Anti-Money Laundering Bill” (the Bill) which went through its second reading in the House of Lords and entered the committee stage of the House of Lords on 21st November 2017. Once complete a report will be produced, in preparation for the Bill’s third reading in the House of Lords.
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 Government has been keen to note that “this legislation is not about creating new policy” but this is certainly one to watch particularly as sections of the Bill may affect companies previously unregulated in these areas.
By Victoria Gregory, 12th January 2018
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Contains public sector information licensed under the Open Government Licence v3.0.