On February 10, 2016, a draft of the Policing and Crime Bill 2015-16 (“the Bill”) was introduced to the UK House of Commons and given its First Reading. The Bill is a lengthy document covering a wide variety of issues, including financial sanctions, which are contained within Part 8.
Alongside the Bill, the UK government also published a factsheet on financial sanctions, which explains that as
[f]inancial sanctions are an important foreign policy and national security tool … new legislation is required in order to bring consistency to penalties across all the financial sanctions regimes, ensure that penalties for breached of financial sanctions have a sufficient deterrent effect, and provide the enforcement community with a broader and more flexible array of powers.
This is because the enforcement measures currently available for a breach of financial sanctions are limited to criminal prosecution or an administrative warning letter. The Bill, as drafted, would introduce a new monetary penalty regime for breaches of financial sanctions.
Furthermore, it is notable that under Sections 89 and 90 of the Bill, sentences for sanctions violations (including new offences), would be increased on summary conviction from six months to 12 months, and on conviction on indictment from two years to seven years.
The Bill as currently drafted would also give the new Office of Financial Sanctions Implementation (“OFSI”) – a new office of HM Treasury proposed in the Summer Budget 2015 by Chancellor George Osborne and set to become operational in April 2016 – the power to administer new civil penalties where prosecution is not in the public interest. Under Section 91 of the Bill, HM Treasury/OFSI would be granted the right to impose a monetary penalty of up to £1 million or 50% of the estimated value of funds or resources involved in a prohibited transaction, in cases where it was satisfied on the balance of probabilities that:
- the person has breached a prohibition, or failed to comply with an obligation, that is imposed by or under financial sanctions legislation; and
- the person knew, or had reasonable cause to suspect, that the person was in breach of the prohibition or (as the case may be) had failed to comply with the obligation.
Before HM Treasury/OFSI decides to impose a monetary penalty on an individual under Section 91, it would be required to inform the individual of its intention to do so, providing an explanation for the grounds on which it is imposing the penalty, specifying the amount of the penalty, and explaining that the individual is entitled to make representations. If HM Treasury/OFSI decides to impose a monetary penalty following its consideration of the individual’s representations, then the individual would be entitled to request a review of the decision by a UK Minister personally in the first instance, and then by the UK courts through judicial review. HM Treasury would also be required to publish details about the imposition of any monetary penalties.
Furthermore, under Sections 97 to 100 of the Bill, HM Treasury would be given the power to implement new international financial sanctions imposed by the United Nations (“UN”) on a temporary basis, pending the adoption of the necessary legislation by the EU. Currently, UN sanctions only take effect in the UK once implemented through a directly-applicable European Union (“EU”) regulation; a process that usually takes an average of four weeks. The government’s factsheet states that “[t]his delay means there is the possibility of asset flight (whereby assets are removed from the UK before the sanctions are imposed) which could put the UK in breach of its international obligations”. Any such UN sanctions implemented by HM Treasury on a temporary basis would initially last for 30 days, with the ability to extend to 60 days if required. The temporary arrangements would lapse and be replace by the EU legislation as soon as it was made.
The proposed measures set out in the Bill would also harmonise the existing criminal penalties available in sanctions cases, so that the same penalties would be available to the courts for breaches of EU regulations as are currently available for breaches of the 2010 Terrorist Asset Freezing etc. Act. Section 95 of the Bill would amend Schedule 17 of the Crime and Courts Act 2013, so as to allow for financial sanctions to be an offence for which a Deferred Prosecution Agreement may be entered into. Similarly, Section 96 of the Bill would amend Schedule 1 to the Serious Crime Act 2007 to allow for financial sanctions to be an offence for which a Serious Crime Prevention Order can be imposed.
The Bill’s sanctions-related provisions would mark a significant intensification of potential penalties for sanctions violations, and could set the United Kingdom on a path towards U.S.-style sanctions enforcement. Under the U.S. International Emergency Economic Powers Act, under which most U.S. sanctions regimes are promulgated, civil violations are punishable by penalties of up to $250,000 per violation or twice the value of the transaction at issue, and criminal violations are punishable by penalties of up to $1 million per violation and/or imprisonment up to twenty years.
Moving forward, the next stage of consideration of the Bill will be debate by UK Members of Parliament in the Second Reading in the House of Commons, which is set for March 7, 2016. Then there would be further steps in the House of Commons and House of Lords, before the Bill is sent to the Queen for Royal Assent.