Documents to download
The Sanctions and Anti-Money Laundering Bill 2017-19 (783 KB, PDF)
The Government announced in the Queen’s Speech of June 2017 that it would repeal the ECA 1972, (ECA 1972) as part of the process of leaving the EU, and that complementary legislation would be introduced to allow a national sanctions policy.
The present Bill fulfils the second of those commitments. It establishes a national sanctions legal framework, and will also provide for updating the national anti-money laundering regime, much of which is also based on international collaboration.
The European Union Withdrawal Bill 2017-19 (‘the Withdrawal Bill’) will copy existing EU-derived sanctions measures into UK law but they will be ‘frozen.’ The present bill allows names to be added and removed to this retained EU law and, most importantly, it provides a legal basis to impose new sanctions regimes.
Most sanctions in the UK originate either in UN Security Council resolutions or with decisions in the EU. The anti-money laundering regime derives largely from standards set by the Financial Action Task Force. Both types of legislation often come to the UK in the form of EU law – EU decisions, directives and regulations – and are implemented with powers contained in the ECA 1972. This act is due to be repealed by the Withdrawal Bill, so a new legal base for imposing sanctions and updating the anti-money laundering regime in line with the recommendations of the FATF is needed. As with sanctions, the Withdrawal Bill will copy existing EU-derived anti-money laundering (AML) legislation into UK law but will not provide Ministers with the powers to implement new AML legislation.
There may be a transitional period during which the UK must continue to implement EU law in sanctions and AML. The transitional period will not, however, be as significant as in some policy areas because the Government has indicated that it aims to continue to coordinate with the EU even after the end of any transition.
Sanctions have become an increasingly important foreign policy tool in recent years.
Traditionally they have involved imposing trade and arms embargoes on specified countries. As it became clear that these sanctions hurt ordinary people but were often ineffective at changing the leadership’s behaviour, new sorts of sanctions have been developed, targeting individuals or companies.
These targeted sanctions have been legally vulnerable, however, with both international and UK courts finding sometimes that sanctions designations have constituted miscarriages of justice or that the legal basis for imposing the sanctions was inadequate. These court decisions mean that getting the legal basis for sanctions right is particularly sensitive.
The UK has often been an influential voice in sanctions policy at the EU and UN levels, leading the move for strong sanctions against Russia over Ukraine and Crimea, for example.
Lists of United Nations sanctions, EU sanctions and UK sanctions are maintained. The UK implements some 34 sanctions regimes, around half of which result from legally-binging Security Council resolutions and half from ‘autonomous’ measures agreed with EU partners.
Like sanctions, AML legislation is more effective if it is designed and implemented through international collaboration. The most important source of these internationally-agreed measures is the Financial Action Task Force (FATF), an inter-governmental body that promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
AML legislation has evolved in response to events, spreading from general criminality to drug enforcement and, lately, terrorist activity. AML legislation has also gradually expanded to include more types of businesses and to impose increased the transparency requirements on transactions.
The UK’s legal and regulatory regime has been based largely on four EU-wide money laundering directives that have been implemented by UK regulations. A fifth money laundering directive has been approved at EU level and is likely to come into force in stages in 2019.
Present legal mechanisms for sanctions
The UN Security Council has the power to mandate member states to impose sanctions; sometimes the UK imposes sanctions that are not mandated by the UN, usually in conjunction with other EU member states.
Both UN-mandated sanctions and those agreed by the EU are usually applied by making Statutory Instruments (SIs or secondary legislation) using powers in the ECA 1972, although there is other primary legislation that empowers Ministers to make sanctions regulations, notably the United Nations Act 1946 and the Terrorist Asset-Freezing etc. Act 2010. Sanctions decisions can be accompanied by Council regulations using Article 215 of the Treaty of the Functioning of the European Union. These are directly applicable, so no SI is necessary.
Most sanctions documents are submitted to the House of Commons European Scrutiny Committee before they are publicly available. In theory, the Government cannot endorse non-UN sanctions in the European Council until they have been approved by the Scrutiny Committee; in practice the committee is often overridden and sanctions are agreed before Scrutiny Committee approval.
Much of UK anti-money laundering law is derived from EU directives, as mentioned above. These are implemented by SI, using powers in the ECA 1972.
The House of Lords EU Committee found in 2017 that the EU mechanisms for imposing targeted sanctions had improved considerably, although there were still legal weaknesses, according to the committee, connected with redress and standard of proof. Another House of Lords Committee heard that an independent sanctions policy could lead to an increase in litigation against the UK, but that it would be an opportunity to improve the licensing system, whereby exemptions are made to sanctions to allow humanitarian work in a sanctioned country, for example.
In 2017, the government launched a public consultation on the proposed new legislation. Opinions were sought on the powers to be included in the Bill, whether terrorist activity should be specified in the Bill as being targeted by sanctions, evidence thresholds, the appeal process, licensing and enforcement. They also consulted on anti-money laundering.
A document setting out the response to the consultation was published in August 2017.
Presentation of the Bill and Second Reading
The Government said that the Bill would replicate existing powers to impose sanctions, but that it would give greater flexibility, allowing the UK to move quickly. Ministers also said that the UK would be free to establish a more effective licensing system, whereby NGOs are allowed to carry out humanitarian work in sanctioned countries, for example, and would be free to provide its own guidance on compliance to stakeholders.
Critics of the Bill said that it was far from a ‘technical’ exercise, that it gave Ministers sweeping powers to legislate by regulation without enough parliamentary scrutiny and that some human rights and other safeguards present in the EU system would be lost.
The House of Lords held the Second Reading debate, a general debate on the Bill, on 1 November. Peers questioned the scope of powers granted to Ministers in the Bill to legislate by Statutory Instrument, particularly about the Henry VIII Clauses that give powers to the Government to change primary legislation by issuing secondary legislation. Some were concerned that Ministers would be enabled to impose sanctions that were disproportionate, others worried that the mechanisms for appealing against designation were insufficient. Powers in the Bill for Ministers to create offences by secondary legislation were also criticised. A former Lord Chief Justice said: “This is a vast, great superstructure of secondary legislation being erected on virtually non-existent primary legislation.”
Several Peers also wanted the Statutory Instruments to receive more parliamentary scrutiny before coming into force.
The licensing process, whereby NGOs can be allowed to carry out humanitarian work that would otherwise be banned, was also raised by several speakers.
Amendments in the Lords
After the general debate in during Second Reading, the Bill went through its Committee Stage, Report Stage and Third Reading, when individual clauses were discussed and amendments proposed, some of which were agreed. Several of the amendments were proposed by the Government, to rectify problems in the Bill that they accepted; some were proposed by opponents of the Bill and made changes that the Government did not welcome.
Lord Ahmad of Wimbledon, Minister at the Foreign and Commonwealth Office, addressed widespread concern about the “unconstrained” the powers in the Bill for Ministers to make secondary legislation. He proposed an amendment to limit Ministers’ ability to make non-UN sanctions regulations only to cases where she or he considers:
- there are good reasons to do so and
- that the imposition of sanctions is a reasonable course of action.
Lord Collins of Highbury, for Labour, proposed an amendment to set out the purposes for which sanctions regulations could be made:
- resolving armed conflict and protecting civilians in conflict zones
- promoting compliance with international humanitarian and human rights law
- preventing the proliferation of weapons of mass destruction
- promoting democracy, human rights, the rule of law and good governance.
This amendment was passed on a division.
During the second day of the Lords Report Stage, a Government amendment clarified references in the Bill to a person named “for the purposes of” a UN Security Council Resolution.
The Government proposed an amendment to Clause 41, providing that a person cannot be liable for a civil monetary penalty through regulations established under Clause 41 when they have already been convicted of a criminal offence under the regulations in relation to the same act or omission.
During Report Stage Government amendments were agreed that made it clear that:
- businesses will be brought within the scope of anti-money laundering/counter-terrorist financing regulation under paragraph 3 of Schedule 2 only where their activities are particularly likely to be used for the purposes of money laundering, terrorist financing or other activities that threaten the integrity of the international financial system
- only businesses of this type can be required to carry out customer due diligence measures under paragraph 4 of the schedule, be supervised for the purposes of paragraph 7, or be registered for the purposes of paragraph 9
- any future criminal offences established under Clause 41 can be created only if regulations provide that such offences have either a mental element necessary for their commission or a defence to it, or both.
During Lords Third Reading, Lord Ahmad of Wimbledon moved an amendment requiring that regulations made under Clause 41 can only make provision which enables or facilitates the detection or investigation of money laundering or terrorist financing. (Peers had been worried that, as drafted, the Bill would give Ministers the power to weaken the AML regime.)
There was much debate in the Lords on the ability of foreign companies or individuals to buy houses and flats in the UK to hide the proceeds of corruption, facilitating the laundering of that money. The UK Government had previously undertaken to force disclosure of who owns that sort of property, publishing a register of beneficial ownership. During Third Reading a Government amendment was agreed that required Ministers to report regularly to Parliament on progress towards establishing a register of beneficial ownership of overseas entities owning property in the UK.
Some peers raised concerns about the power to create new criminal offences. Critics argued that criminal offences should only be created by Parliament. Lord Judge proposed an amendment to remove the power to create offences from Clause 41 (as originally presented to the Lords). The amendment was agreed to on a division. Government amendments were agreed to limit associated powers: removing the power to make provision for unspecified evidentiary matters and setting out the maximum sentences associated with offences that could be created.
The Government promised that would propose amendments in the House of Commons to restrict the power present in the Bill to change the definition of terrorist financing.
Lord Ahmad moved an amendment requiring the Minister to inform the person promptly when they had been designated or had their designation varied or revoked. Another Government amendment required that if a person has made a request to have their designation under sanctions regulations reviewed, (a) the decision on any such request to be made as soon as reasonably practicable after the receipt by the appropriate Minister dealing with the request of the information needed for making the decision, and (b) the person who made the request to be informed of the decision and the reasons for it as soon as reasonably practicable after the decision is made. Sensitive information such as that related to national security can be excluded from the explanation, but the Minister may not give no explanation at all.
A government amendment added the word “procured” to Clause 2, to tighten up the ban on providing financial services to designated persons.
Transition and future coordination
Any transition period after formal withdrawal from the EU may mean that the UK must abide by EU law on sanctions and anti-money laundering, without any say on elaborating it. The Sanctions and Anti-Money Laundering Bill provides powers for the UK Government to implement that law, although it is not yet clear what mechanisms for consultation with the EU and scrutiny ion Parliament may be set up. It seems likely that some such mechanisms will be created, however.
In the future most observers hope that there will be close consultation with the EU on both sanctions and anti-money laundering legislation.
Documents to download
The Sanctions and Anti-Money Laundering Bill 2017-19 (783 KB, PDF)