The sanctions and anti-money laundering act 2018: What’s new?

Overview

One of the effects of Brexit will be on the UK’s ability to impose and implement sanctions in order to comply with its obligations under the UN Charter and to update its anti-money laundering (“AML”) regime following its withdrawal from the EU in March 2019.

Although the UK will incorporate the existing EU sanctions and AML regime via the European Union (Withdrawal) Bill, the regime will be “frozen” at the date of withdrawal. There existed growing concerns that without a new domestic sanctions framework, the UK will not have the powers to impose, amend or lift sanctions independently from the UN or EU after Brexit.

With this in mind, the House of Lords introduced the Sanctions and Anti-Money Laundering Bill for parliamentary debate last October. Following amendments from both Houses, the final draft was agreed upon on 22 May 2018, with the Bill receiving Royal Assent the following day in the form of the the “Sanctions and Anti-Money Laundering Act 2018” (“the Act”).

The main purpose of the Act is to enable the UK government to (i) continue to implement UN sanctions regimes in order to meet national security and foreign policy objectives; and (ii) keep anti-money laundering and counter-terrorist financing measures up to date, helping to enhance the UK’s domestic security and comply with international standards.

Main characteristics

Although necessary for ensuring the UK continues to comply with its international obligations, the Act has been criticised by some in the legal community. This is due to the extensive use of the so-called “Henry VIII Clauses”.

This means that new legislation confers “unconstrained” powers to make regulations imposing sanctions to “an appropriate Minister”. Under section 41, the Minister will be permitted to make regulations to amend the Act to authorise new types of sanctions in addition to those already specified in sections 3-8.

In practical terms, the Executive will have the authority to legislate by Statutory Instrument and to change primary legislation by issuing secondary legislation, therefore putting Parliamentary Sovereignty at risk.

In the context of the Act, “appropriate Minister” means the Secretary of State and the Treasury. The powers to change primary legislation will arise when the Minister considers it “appropriate” in order to comply with UN or any other international obligations and for purposes which, amongst others, include: (i) furthering the prevention of terrorism; (ii) are in the interests of national security, international peace and security; (iii) promoting the resolution of armed conflicts or the protection of civilians in conflict zones; and (iv) furthering a foreign policy objective.

After the Salisbury attack earlier this year, a “Magnitsky Clause” was also added to the bill. This will allow for sanctions regulations to be made for the purpose of preventing, or respond to, “gross human rights abuse or violations”. This clause, together with broader exception and licensing powers conferred by the Act, were specially welcomed by NGOs and the Third Sector, as they will permit the UK to tackle human rights abuses and make it easier for charities and NGOs to deliver humanitarian aid and resolve conflict in countries that would otherwise be subjected to sanctions.

Financial and compliance implications

According to the Impact Assessment Paper (“the Paper”) produced by the Government, the new legislation has been designed to bring the maximum possible continuity and certainty with the current sanctions and AML regimes without introducing any substantial policy changes which might give rise to additional and significant costs to businesses.

The Paper further suggested that businesses “should not have to radically alter their process and behaviours” and that most of them should already be in compliance with the current legislative requirements. It has been highlighted, however, that businesses are likely to incur, albeit low, ‘familiarisation costs’, which would be focused mainly in updating IT systems or internal processes.

The Government has also indicated that businesses that operate in areas prone to be subjected to sanctions as well as financial institutions will be the most affected groups by the new legislation. The Paper makes clear however that “the level of compliance activity expected will remain the same”.

The way forward

While sections 32, 50, 52-56 and 60-65 of the Act entered into force on 23 May 2018, the remaining sections will only come into force on such day as the Secretary of State shall decide to do so, which is most likely to occur after March 2019.

Until then, we expect the Government to issue further guidance and practical steps to accompany the new legislation to ensure that businesses fully understand what will be required to ensure compliance with the new UK Sanctions and AML framework.

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