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Financial Sanctions Update: UK Sanctions Policy targets corruption

On 26 April 2021, the UK Foreign Secretary announced the coming into force of the Global Anti-Corruption Sanctions Regulations 2021, which provide a mechanism for the freezing of funds and economic resources of certain persons, entities or bodies involved in serious corruption.

The regulations are made under the Sanctions and Anti-Money Laundering Act 2018, and sit alongside the Global Human Rights regime introduced in July 2020.

The Foreign Secretary’s statement to the House placed significant emphasis on enhancing the UK’s anti-corruption profile as “a global leader in tackling corruption and illicit finance.” The initial scope of the listings he announced was remarkably unambitious however, and relates to only six instances of alleged serious corruption. Of the 22 designated persons, 14 are said to be involved in the same Russian tax fraud.

It is an open question whether the Regulations will have greater use as a tool of foreign policy or financial regulation, but the potential application of these regulations is very far reaching indeed.

This long reach stems from the way in which the Regulations define serious corruption. Serious corruption is defined as conduct relating to a foreign public official of two possible kinds; “bribery”, and conduct termed “misappropriation of property”.

Conduct constituting bribery broadly follows the familiar legal contours of the Bribery Act 2010.

The concept of “misappropriate of property”, however, is entirely novel. It refers to the fiduciary obligation of a foreign official not to improperly divert, grant or allocate property with which they have been entrusted, to themselves or another.

The designation of persons “involved” in serious corruption is not confined to the foreign official themselves. A person may be designated where they are directly involved in serious corruption, or considered to be associated with those who are. The designation criteria include persons responsible for the investigation or prosecution of serious corruption who intentionally or recklessly fail to fulfil their responsibilities as well as those who profit from or launder the proceeds of corruption.

The scope of the term “involved person” extends to entities controlled by an involved person and Regulation 7 provides for the threshold of corporate control, as well as a condition that it is reasonable to expect the controlled person to act in accordance with the wishes of the principal – no doubt a fruitful source of dispute for legal advisors in the years to come.

The evidential test for designation is very low. By Regulation 6, persons may be designated as involved in serious corruption merely on the basis of “reasonable grounds to suspect”.

Ultimately, it is hard to resist the conclusion that the Regulations are a continuation of a broader policy of financial regulation which places the cost and legal liability for policing dirty money on the private sector rather than the state.

This burden will inevitably fall upon financial services professionals and their advisors. Beyond the parameters of designation, the regulatory framework, derived from the 2020 Global Human Rights Regulations, will be familiar to many advisors. As well as prohibitions on making funds or economic resources available to designated persons, the regulations create obligations of compulsory disclosure of information that may be sought by the Treasury, with criminal sanctions for non-compliance.

The breadth of conduct encompassed by the inclusion of misappropriation of property in addition to bribery gives UK Sanctions enforcement greater capacity to influence inbound investment.  Alongside the Global Human Rights Sanctions Regulations, the Treasury and the FCDO now have the tools to achieve a robust Sanctions policy at home and abroad. It is to be hoped they use them wisely.

Our status as a global financial centre makes us an attractive location for investment – and we are proud of that. We welcome it. But it also makes us a honeypot, a lightning rod for corrupt actors who seek to launder their dirty money through British banks or through businesses. Dominic Raab, Foreign Secretary