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New financial crime legislation signals convergence of sanctions regime and ESG

19 July 2021

Recent developments in respect of the UK sanctions regime demonstrate the government's commitment to high standards in the fight against financial crime. The UK government is taking active measures to discharge its social responsibilities by bringing about multiple prosecutions under new legislation.

Over the last 12 months, we have seen wider use of anti-financial crime legislation arising from the Global Magnitsky Act (Magnitsky), named after Russian Lawyer, Sergei Magnitsky, who uncovered large scale tax fraud in a UK firm, run by a US-born financier. Magnitsky himself was imprisoned for his alleged part in the findings that he uncovered and was imprisoned by Russian authorities. Sadly, he died in jail due to mistreatment, before his case could be heard. This led to global condemnation of the human rights abuses that had transpired. 

In the UK, Magnitsky led to the introduction of the UK's Sanctions and Anti-Money Laundering Act (SAMLA), introduced in 2018 and subsequently, the SAMLA has led to two further pieces of UK legislation: 

i. the Global Human Rights Sanctions Regulations 2020 (GHR), and; 
ii. the Global Anti-Corruption sanctions regime (GAC)

The first piece of Sanctions legislation focuses on human rights violations and the second on corruption activities. These pieces of legislation signal the UK's intent to crack down on human rights abuses and corruption and are part of a wider commitment by the government to ensure ESG (Environmental, Social, Governance) principles are at the heart of British business and government.

The GHR regime targets individuals and entities accused of serious human rights violations and has seen similar iterations of the regime adopted by numerous countries, including Australia, Canada and the European Union (EU). While some have adopted their own versions of Magnitsky legislation, all have signed a mutual cooperation agreement to prosecute under their respective powers.  The GHR sanctions regime is intended to target individuals, entities and bodies – including state and non-state actors – responsible for, involved in, or associated with serious human rights violations and abuses worldwide, no matter where they occurred. The UK commenced its first 50 prosecutions under the GHR sanctions regulations in July 2020 with more pending.  

In April this year, the UK confirmed its first prosecutions under its new GAC regime, with sanctions imposed on 22 people from four nations, each accused of serious corruption and intentions to channel money through the UK. The GAC regime gives the UK unprecedented power to stop corrupt actors profiting from the UK economy and exploiting British citizens. The result is that, for the first time, the UK has imposed asset freezes and travel bans against the individuals concerned. Foreign secretary Dominic Raab commented that he intends to hold the corrupt to account anywhere on the planet and to stop them from "using the UK as a haven for dirty money". 

Reinforcing the changes stemming from the SAMLA, the UK's Office of Financial Sanctions Implementation (OFSI) published a revised version of its Monetary Penalties for Breaches of Financial Sanctions Guidance (Guidance), effective from 1st April  2021.The majority of the additions and changes focus on the case assessment and penalty calculation processes, while reflecting some of the lessons learned through penalties imposed since OFSI's inception. It is widely acknowledge that the revised Guidance indicates a stronger enforcement stance from OFSI, which converges with the UK sanctions regulations and regime described above. 

What action is required?

On UK shores at least, these developments will quickly become pertinent to Firms and Financial Institutions, as they are expected to ensure that their sanctions screening and detection methodologies are able to incorporate this wider sanctions legislation. Firms will also need to revisit Role Profiles and Statements of Responsibilities for those who perform anti-financial crime prevention rules associated with the FCA's Senior Managers & Certification Regime (SMCR) to incorporate these latest sanctions development and ensure that they can demonstrate regulatory compliance with the evolving requirements and that the firm's culture promotes social awareness of potential human rights abuses and corruption. 

For advice or assistance about the new UK or global sanctions requirements, or indeed any aspect of financial crime prevention and the SMCR, please contact us.

What is the true cost of financial crime to your business?
DWF conducted a survey of 300 financial crime decision makers in the UK to address the big question for firms. Read the latest insight and look out for our report launching next week.
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