Regulation  

Trying to end the illicit laundromat cycle

Trying to end the illicit laundromat cycle

Economic sanctions law is a product of foreign policy aims and strategies: restricting business opportunities and investment flows in order to further geopolitical objectives. 

As shown by several enforcement cases in recent years, such as Societe Generale in 2018 and Standard Chartered Bank in April 2020, breaching those sanctions can bring significant monetary and reputational harm for any financial institution or professional adviser involved. 

Until recently, the main programmes for compliance officers and relevant senior managers in companies regulated by the Financial Conduct Authority to worry about were those imposed by the EU, the UN Security Council and the US. 

In early July 2020, however, the British government announced the Global Human Rights Sanctions Regulations 2020, brought under the Sanctions and Anti-Money Laundering Act 2018.

Key points

  • The UK government has announced human rights sanctions, in the spirit of the US Magnitsky act
  • British governments have struggled to make much headway with economic crime regulations
  • Lawyers would like proper enforcement of economic crime laws

The Sanctions and Anti-Money Laundering Act itself is the statute that empowers the government, upon completion of the Brexit transition period, to impose its own sanctions programme. 

Some analysts have suggested that the regulations are something of a precursor to how the UK will use the Sanctions and Anti-Money Laundering Act for a more robust approach to sanctions than was possible within the EU. 

That will, of course, remain to be seen over the coming months and years, especially when set against countervailing pressures such as making ‘global Britain’ attractive to foreign investment, recovering from the Covid-19 economic shock, and ongoing institutional issues such as opaque corporate registries and under-resourced criminal enforcement.

The regulations

The new regulations are largely the result of a lengthy campaign in the name of the late Sergei Magnitsky.

The subsequent Magnitsky initiative lobbied countries to introduce targeted – as opposed to country-wide – economic sanctions, to penalise the people who perpetrate gross abuses of human rights. 

The regulations’ purpose is to target those involved in violating an individual’s:

  • Right to life;
  • Right to live free of torture or cruel, inhumane or degrading treatment; or
  • Right to be free from slavery or compulsory labour.

Significantly, the regulations also allow the targeting, or ‘designation’, of any person who provides financial services or funds to any such abuser of human rights. 

Similarly, those who “profit financially or obtain any other benefit from” such abusive activity (including, for example, forced labour camps manufacturing certain components) would also risk designation under the regulations.

Breaching financial sanctions is a criminal offence; conviction for one of the principal offences could result in seven years’ imprisonment and/or a monetary fine.

These are headline-grabbing developments, especially for those who do business in, or advise clients from, high-risk markets. 

Most of us will, of course, welcome any action that deters future gross abuses of human rights, and many will hope to see substantive cases follow in due course. 

However, therein lies the rub: successive British governments have struggled to make meaningful progress in the economic crime field. While recent years saw positive measures such as the creation of the National Economic Crime Centre, the introduction of unexplained wealth orders through the Criminal Finances Act 2017, and some enforcement cases by the Office of Financial Sanctions Implementation, the UK remains a global centre for money laundering, and a haven for kleptocrats from around the world.