The current UK sanctions enforcement regime is a complicated web reflecting the requirements of UN Security Council Regulations, EU Regulations, and UK Primary and Secondary Legislation. Penalties for breaches of sanctions are generally set out in the various statutory instruments that implement particular sanctions.
The UK Government, through the Policing and Crime Bill that is set for its second reading in the House of Commons today, has proposed a number of provisions in respect of financial sanctions in an attempt to untangle part of this web, to give authorities greater enforcement powers, and the courts tougher sentencing powers. According to the related Factsheet, the Government believes its proposed legislation is required “in order to bring consistency to penalties across all the financial sanctions regimes, ensure that penalties for breaches of financial sanctions have a sufficient deterrent effect, and provide the enforcement community with a broader and more flexible array of powers.”
As the Bill enters its second reading, it provides for:
1. The power for courts to impose a sentence of up to 7 years imprisonment for breaches of sanctions in cases of a conviction on indictment. This would be a significant change given that the maximum custodial sentence is currently two years.
2. A number of alternative enforcement tools including:
(i) A monetary penalties regime to be administered though the new Office of Financial Sanctions Implementation (OFSI), which was unveiled in the 2015 Summer Budget speech and will sit within HM Treasury.
OFSI is set to be operational by next month and is specifically tasked with ensuring sanctions are properly enforced by HM Treasury. While it is too early to judge what impact OFSI will have, it is in itself a mark that the UK Government desires a more potent sanctions enforcement regime.
The new monetary penalties proposed by the Bill would kick in where OFSI can find on a balance of probabilities that a company or individual has breached a prohibition, and that they knew or had reasonable cause to suspect that they had breached the prohibition. OFSI would have latitude to determine the amount of any penalty with some limitations – in cases where the breach relates to particular funds or economic resources and it is possible to estimate the value of the funds or economic resources, the permitted maximum would be the greater of £1M, or 50% of the estimated value of the funds and resources. In other cases, the permitted maximum of any fine would be £1M.
(ii) Deferred Prosecution Agreements (DPAs). The law providing for DPAs would be extended to include breaches of EU and UN sanctions, and particular counter terrorism laws.
(iii) Serious Crime Prevention Orders (SCPOs). The law providing for SCPOs would be extended to include breaches of EU and UN sanctions, and particular counter terrorism laws. SCPOs are civil orders to prevent or deter serious crime and can enforce wide-ranging restrictions, including restrictions on conducting specific types of business.
3. An appeal and review procedure that would be available for persons to make representation in response to OFSI’s proposed enforcement actions, and if necessary to seek review of any final decision to impose a penalty.
4. Power to allow the UK to rush implementation of UN sanctions before the adoption of the necessary legislation by the EU. HM Treasury would be able to implement any UN sanction initially for 30 days, and then for a further 30 days before any action at an EU level.
It remains to be seen whether the Bill receives support from Parliament as it continues through the legislative process. However with the imminent arrival of OFSI, and the prospects of both a tougher enforcement regime and the UK being able to impose UN sanctions ahead of the rest of Europe, it is now as good a time as ever for firms operating in the UK to get their sanctions compliance house in order.