On 26 April 2021, the United Kingdom introduced new unilateral sanctions against 22 individuals accused of involvement in significant corruption cases in Russia, South Africa, South Sudan and throughout Latin America. The Global Anti-Corruption Sanctions Regulations 2021 (the “Anti-Corruption Regulations”), made pursuant to the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) (our full briefing on SAMLA is available here), are specifically tailored to address issues of bribery and corruption and are intended to sit alongside the Global Human Rights sanctions regime (“Human Rights Sanctions”) which was introduced in July 2020 to address human rights abuses (our full briefing on this regime is available here). In this briefing we provide an overview of the context to, and restrictions imposed by, the Anti-Corruption Regulations, as well as practical next steps for clients.
In this briefing we provide an overview of the context to, and restrictions imposed by, the Anti-Corruption Regulations, as well as practical next steps for clients.
Introduction of new Global Anti-Corruption sanctions regime
The Anti-Corruption Regulations came into force with immediate effect on 26 April and introduce a broad range of measures against 22 individuals namely:
- 14 Russian nationals involved in an alleged tax fraud investigated by lawyer Sergei Magnitsky (these individuals are separate to those designated under the Human Rights Sanctions in relation the mistreatment and death of Mr Magnitsky);
- Three Gupta brothers and an associate allegedly involved in serious corruption in South Africa;
- A Sudanese businessman allegedly involved in the misappropriation of state assets in Sudan; and
- Several individuals allegedly involved in serious corruption related to drug trafficking in Latin America.
The Anti-Corruption Regulations replace the Misappropriation (Sanctions) (EU Exit) Regulations 2020 (“Misappropriation Regulations”), which were laid before Parliament in December 2020 and replaced three country-specific EU regimes (in respect of Egypt, Ukraine and Tunisia) although no individuals were ever designated under the Misappropriation Regulations.
Scope of the Anti-Corruption Regulations and designation
The Anti-Corruption Regulations impose an asset freeze, prohibiting UK persons from dealing with funds or economic resources owned, held or controlled by a designated person, or directly or indirectly making funds or economic resources available to or for the benefit of a designated person. Essentially, the asset freeze prohibits almost all transactions involving a designated person (or entities owned or controlled by such a person), save for limited exemptions and licensing grounds. Designated persons are now also prohibited from entering the UK.
The nature of the asset freeze imposed under the Anti-Corruption Regulations does not differ materially from the existing asset freezes in force in the UK in relation to the various national and other thematic sanctions regimes currently in force in terms of the activities that it prohibits (and therefore does not differ from the scope of EU asset freezes). In addition, the mechanics of the Anti-Corruption Regulations, including designation and licensing, do not differ from those in the Misappropriation Regulations or other existing sanctions regimes.
However, the potential scope of the application of the Anti-Corruption Regulations is wide, and is significantly broader than that of the Misappropriation Regulations. The Anti-Corruption Regulations provide that an individual or entity may be designated if there are reasonable grounds to suspect that the person is or has been involved in bribery or the misappropriation of property, or is owned or controlled by such a person, acting on their behalf or is associated with such a person.
The definition of ‘bribery’ for the purposes of the Anti-Corruption Regulations maps largely onto the conduct prohibited by the Bribery Act 2002. However, the definition of the term ‘misappropriation of property’ significantly increases the scope of relevant conduct which may result in designation so as to include instances in which a public official with a fiduciary duty (ie a person who has been entrusted with property or has a role in the grant or allocation of the property by virtue of their position) improperly diverts, grants or allocates that property. The designation of individuals involved in bribery or the misappropriation of property is not limited to the foreign public official themselves but may also be applied to anyone who is an “involved person”. The definition of an “involved person” is far-reaching and includes:
- a person who is responsible for or has engaged in the relevant activities;
- a person who facilitates or provides support for serious corruption;
- a person who benefits financially or otherwise from serious corruption (who does not necessarily have to be the person directly involved in the relevant activities);
- a person who conceals or disguises serious corruption or its proceeds, or facilitates such conduct; and
- a person who transfers or converts, or facilitations the transfer or conversion of the proceeds of serious corruption (which could potentially include financial institutions and banks).
The designation criteria also include any person responsible for the investigation or prosecution of serious corruption who intentionally or recklessly fails to fulfil that responsibility, and any person who seeks to interfere with any law enforcement or judicial proceedings related to serious corruption.
Although the UK Government has announced that there are stringent criteria to be met before designation of an individual or organisation under the Anti-Corruption Regulations, the criteria allow for an element of discretion on the part of the Secretary of State. Although the Secretary of State is required under the Anti-Corruption Regulations to provide a statement of reasons for the designation of persons under the Anti-Corruption Regulations, certain information, including whether an individual has been designated, may be withheld in the interests of national security or international relations, in connection to the prevention or detection of serious crimes in the UK or in the interests of justice.
The Anti-Corruption Regulations also contain an obligation for relevant firms to inform HM Treasury as soon as practicable if they know, or have reasonable cause to suspect, that a person is a designated person or has committed an offence under the Anti-Corruption Regulations, and to provide relevant information. Further detail on the scope of these reporting requirements can be found in our previous briefing.
The Anti-Corruption Regulations also grant powers to OFSI to request information and the production of documents from, amongst others, designated persons.
An indication of the UK’s evolving foreign policy position
The Foreign Secretary, Dominic Raab, introduced the Anti-Corruption Regulations as a means of promoting effective governance and the rule of law, as well as preventing the UK from being used as a “safe haven for dirty money”.
These sanctions also represent the outcome of one of the goals set out in UK’s Anti-Corruption Strategy 2017-2022, namely to improve the ability of UK law enforcement agencies and prosecutors to tackle economic crime and to signal that the UK is “acting decisively to tackle offending behaviour” and were identified as a priority in the 2021 Integrated Review of Defence, Development and Foreign Policy. A risk assessment conducted in respect of the Anti-Corruption Regulations considered that the previous tools at the government’s disposal were not sufficiently flexible to allow the UK to act quickly to sanction those involved in serious corruption, and that the new sanctions will allow the UK to demonstrate leadership and ambition whilst working closely with international partners such as the United States and Canada.
The coming into force of the Anti-Corruption Sanctions marks the second time that the UK has introduced autonomous thematic sanctions since the end of the transition period following its departure from the European Union. The introduction of the Sanctions Regulations raised questions as to whether the UK would seek to more closely align its sanctions policy with that of the United States, and the anti-corruption sanctions regime appears to confirm that closer alignment is envisaged. The new sanctions regime expressly references the ability to work closely with the United States and Canada, both of which have similar sanctions regimes targeting corruption, and it is anticipated that approximately 60% of persons designated under the Anti-Corruption Regulations will also be designated under existing regimes by the US and Canada. It is perhaps a sign of co-ordination that the US Department of the Treasury commended the introduction of the regime, noting that it provided opportunities for the US and the UK to take “complementary sanctions actions where appropriate, magnifying the impact of our respective sanctions”, on the same day that the sanctions regime was announced by the Foreign Secretary.
Although it is evident that these sanctions are intended to form a plank of the UK’s “Global Britain” foreign policy strategy, it is not yet clear the extent to which they will be used more broadly or the impact that they will have on tackling corruption in practice.
As with all new designations, companies should check details of the designated persons list against their customers and other counterparties (and their beneficial owners).
More generally, companies should be aware of the potential for UK autonomous sanctions to impose a greater compliance burden, particularly post-Brexit. UK companies that previously screened third parties against the EU’s consolidated list of sanctions will now need to ensure that additional UK-specific names are also captured in screening, since there is no longer a direct overlap between the EU and UK regimes, and will need to ensure that they are screening as against the thematic sanctions as well as geographically-based regimes.
For those companies with a US nexus, there are therefore now three sets of sanctions lists to review, and three overlapping but different sanctions regimes to navigate.