UK authorities will struggle to prosecute companies for sanctions violations without the capacity to hold them accountable for not stopping the illegal actions of their employees.
London sanctions lawyers are in consensus that the UK’s new sanctions law – the Sanctions and Anti-Money Laundering Act 2018 – makes it very difficult for UK authorities to bring criminal cases against companies. Many say that the solution to the problem could come from mirroring how the UK prosecutes bribery.
“It is very unlikely that corporates will be prosecuted for sanctions violations under the current regime, barring some exceptional situation,” said Jason Hungerford at Mayer Brown in London. “A failure to prevent sanctions violations offence – balanced by a Bribery act-style ‘adequate procedures’ defence – would make the UK sanctions regime a more effective policy tool,” he added.
Under the UK Bribery Act, companies can face punishment for failing to prevent bribery unless they prove that appropriate systems were in place. Without a similar provision, UK sanctions enforcers must clear the high bar of proving the complicity of the directing mind and will of a company before prosecuting it.
Copying the tools available to authorities to prosecute bribery and tax evasion into UK sanctions law would also create a pressure point that encourages companies to cooperate with either the Office of Financial Sanctions Implementation (OFSI) or the National Crime Agency (NCA) in the hope of being offered a deferred prosecution agreement (DPA) in lieu of criminal charges.
“At the minute you’ve got a DPA as a way out of criminal prosecution [for sanctions violations] but what you haven’t got is that piece in the middle that says ‘here’s the increased risk of criminal prosecution that should be driving you towards engagement in the DPA process’,” Tristan Grimmer at Baker McKenzie in London said.
“Unless there’s a feeling that the tools are in place for there to be an adverse outcome by way of criminal prosecution then people will sit on their hands,” Grimmer added.
Both OFSI, which is able to levy civil penalties against companies, and the NCA, which is responsible for criminal cases, can offer DPAs for breaches of the UK’s sanctions legislation. However, there is currently no guidance on what the agencies will require of a company before a settlement offer is put on the table.
The UK Financial Conduct Authority (FCA) can also punish the entities it regulates for not possessing adequate systems and controls needed to prevent sanctions breaches. However, the last time the FCA did this was in 2010 when it fined Royal Bank of Scotland £5.6 million.
Roger Matthews, at Dentons in London, told GIR that companies at risk of violating sanctions are often not in the financial sector, and therefore not under the FCA’s purview, which he says may create “a more obvious case for some measure requiring those involved in international trade to adopt adequate procedures”.
There has been growing support for adopting a failure to prevent economic crime offence, which would cover money laundering, false accounting, and fraud. Both the House of Lords UK Bribery Act committee and the House of Commons Treasury Committee have thrown their weight behind expanding the UK’s failure to prevent arsenal in the past month. In 2017, the UK introduced the offence for tax evasion under the Criminal Finances Act.
Maya Lester, at Brick Court Chambers in London, told GIR that the calls for extending punishments to corporates that fail to stop the illegal actions of employees are growing louder in the UK and she “can’t see any reason why [such an offence] wouldn’t be a good idea in the sanctions field as well”.
However, some lawyers have advocated for persisting with the current, untested sanctions legislation before altering it. “For a failure to prevent offence, what you need is an individual who has committed an offence and a company that hasn’t prevented it, but in the sanctions space we’ve barely even convicted individuals yet,” said Susannah Cogman at Herbert Smith Freehills in London.
Cogman told GIR that possible shortcomings in UK law are not to blame for the absence of prosecutions of corporates for sanctions violations. “The fact that there haven’t been many prosecutions for sanctions violations seems to be down more to a historic lack of prioritisation and resources rather than the legal framework,” she said.
Anna Bradshaw, at Peters & Peters in London, said that she would prefer to see the introduction of a legal obligation requiring companies to maintain certain risk-based internal policies, as opposed to a “negative approach by which you are left exposed to potential failure to prevent liability if you fail to adopt adequate procedures”.
OFSI was given powers to pursue civil penalties against companies in 2017 and to date has issued one punishment – a £5,000 fine handed to UK private lender Raphaels Bank on 25 February over a £200 transfer. The diminutive size of the penalty struck most lawyers as a strange, given that many expected a stronger opening statement from the agency.
There should be more action from OFSI in 2019 – the agency says it is targeting several breaches that total approximately £1.35 billion – but lawyers say that the UK may require more muscular enforcement to create a vigorous sanctions regime.
“Civil enforcement helps somewhat, but nothing like a credible threat of criminal prosecution,” said Hungerford.