The Policing and Crime Act 2017 (the “2017 Act“) has introduced measures to strengthen the effectiveness of the UK’s financial sanctions regime. The delay in the implementation of UN sanctions as a result of EU processes is one strand that has been addressed and will be discussed in greater detail below. The 2017 Act also includes provisions targeted at strengthening penalties available to the Office of Financial Sanctions Implementation (“OFSI“) – our blog post on this can be found here.
Sections 152-155 of the 2017 Act aim to reduce delay in the implementation of UN financial sanctions in the UK so that certainty around legal obligations is improved and asset flight is reduced. International standards set down by the Financial Action Task Force suggest that transposition of UN designations should occur within 48 hours and this is the target that OFSI has proposed it wants to achieve, especially in light of new UN designations anticipated in early April.
The 2017 Act contains two aspects to achieve OFSI’s aim:
The Linking Regulations
These allow UN financial sanctions Resolutions to be linked with the corresponding EU financial sanctions Regulations. This has the effect that when a person is designated under the UN financial sanctions regime, if at that time the person is not already included in the list of persons set out in the EU regime, that person is temporarily deemed to be designated under the EU regime as well. This temporary period begins at the time the person is designated under the UN regime and ends either (a) when the person in question is designated under the EU financial sanctions Regulations, or (b) at the end of 30 days after the UN designation occurs (whichever is earlier).
Implementation of Temporary Regulations
These powers allow HM Treasury to temporarily transpose entirely new sanctions regimes into UK law in order to implement UN financial sanctions Resolutions. The temporary period will end either (a) when the EU implements the UN Resolution, or (b) at the end of 30 days after the UN Resolution is adopted (whichever is earlier). There is also an option available to HM Treasury to extend the temporary period up to a further 30 days if the EU has not yet implemented the UN Resolution.
Where HM Treasury exercises its powers under this section, such a new regime may make provision for the freezing of funds or economic resources of the persons designated under the UN regime and for prevention of funds and economic resources being made available to such designated persons. HM Treasury may make exceptions to the prohibitions contained in the temporary regime, including to be able to licence the unfreezing of funds for certain purposes. The temporary regime may include enforcement provisions, such as criminal offences and civil sanctions.
Why is this relevant to businesses?
OFSI’s new powers described above are relevant in informing how businesses should now conduct financial sanctions screening. It is imperative to ensure that any financial sanctions screening tools include UN designated persons data on a timely basis and also not solely EU or UK designated persons as any delay between the UN designating individuals and the EU implementing the UN Resolution could result in a sanctions breach under UK law.
This is particularly relevant as the United Nations and European Union Financial Sanctions (Linking) Regulations 2017/478 came into force on 1 April 2017 and provides for the linking of UN financial sanctions regimes to the relevant EU financial sanctions regimes in respect of a number of countries, including the Democratic People’s Republic of Korea, Iraq and Libya.
Businesses which currently periodically screen client and third party data in their business platforms should therefore also consider whether it is necessary to increase the frequency that such screening takes place. OFSI has stated that the new listings under the regulations above will be disseminated in the same way as currently (i.e. businesses will be informed by HM Treasury within 1 day of the new UN listings being implemented in the UK) and therefore there will be an increased risk that designated persons may not be flagged on time if screening does not happen more regularly