On 31 January 2017, the Home Office announced that the Policing and Crime Bill had received Royal Assent. It will now come into force as the Policing and Crime Act 2017 (the “Act”). As mentioned in our April 2016 and December 2016 briefings, the Act provides for changes to the UK’s enforcement of financial sanctions, in particular through the creation of civil monetary penalties for breaches of financial sanctions, to be applied by the Office of Financial Sanctions Implementation (“OFSI”) within HM Treasury.
The financial sanctions-related provisions of the Act (which are contained in Part 8) were not subject to significant amendment during the Parliamentary process. The key changes to the UK’s financial sanctions regime are summarised in this briefing.
1. Monetary penalty regime.
OFSI now has the power to impose a monetary penalty on an individual or entity if it is satisfied, on the balance of probabilities, that the person concerned has (a) breached a prohibition, or failed to comply with an obligation, imposed under financial sanctions legislation, and (b) knew or had reasonable cause to suspect that this was the case. OFSI has discretion to determine the amount of the penalty up to a maximum of the higher of £1,000,000 or 50% of the estimated value of the funds or resources that were subject to the breach. The term “financial sanctions”, as used in the Act, applies to a wide range of asset freezing and investment-related measures, but does not include trade sanctions.The target of the penalty has the right to make representations to OFSI and may then appeal to a Minister for their case to be reviewed. If, following his or her review, the Minister upholds the penalty, the affected person has a right to appeal to the Upper Tribunal.Section 149 of the Act provides that HM Treasury must issue guidance as to: (a) the circumstances in which it may consider it appropriate to impose a monetary penalty; and (b) how it will determine the amount of the penalty. This section also requires HM Treasury to publish reports about the imposition of monetary penalties.OFSI’s consultation on the initial draft of the guidance to be issued under section 149 closed on 26 January 2017. OFSI are currently considering the feedback received during this consultation and it is anticipated that a further, presumably final, version of the guidance will be published before the relevant provisions come into force.
2. Increase in criminal penalties for breach of financial sanctions.
Section 144 of the Act increases the maximum penalty to be imposed for breach of financial sanctions from two to seven years’ imprisonment on indictment. The Act also increases the maximum penalties applicable to certain other offences under the Anti-Terrorism Crime and Security Act 2011 and the Counter Terrorism Act 2008.
3. Additional criminal enforcement options.
By virtue of sections 150 and 151 of the Act, breaches of financial sanctions have been added to the list of offences in respect of which Deferred Prosecution Agreements may be entered into, and Serious Crime Prevention Orders made, further broadening the enforcement options available in the UK.
4. Implementation of UN financial sanctions: temporary regulations.
In response to perceived delays by the EU in implementing UN-mandated asset freezes, the Act provides for temporary secondary legislation to implement such measures in the UK. The relevant temporary statutory instruments will last until the sooner of the point at which the EU’s implementation of the relevant UN sanctions becomes effective, or a maximum of 60 days following its adoption.
The above provisions will come into force on a day to be appointed in a statutory instrument to be published by HM Treasury. Although these changes relate to the way in which the UK will enforce financial sanctions, there have been no changes to the substance of the sanctions restrictions currently applicable in the UK.
For further information on the other (non-sanctions related) changes introduced by the Act, please see the Home Office’s summary.
Companies should continue to monitor the position and review the final version of the OFSI guidance referred to above, once this is published. More generally, UK companies should remain alive to the UK’s increased focus on financial sanctions compliance and ensure that they have in place appropriate internal policies and procedures to ensure compliance with financial sanctions. Although OFSI have indicated that they will continue to deal with some breaches by issuing warning letters (see for example the memorandum on the Act’s compliance with the European Convention on Human Rights), it is expected that OFSI will seek to make use of these new powers and to impose financial penalties in appropriate cases, and to continue to refer the most serious suspected breaches for criminal investigation and prosecution.