UK Economic Crimes Act swiftly came into force – bringing major reforms to UK sanctions regime | Hogan Lovells

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Overview of the Act

The law is divided into three main areas:

  • Registration of foreign entities – creation of a register of foreign entities and their beneficial owners;

  • UWO reforms – protect enforcement agencies from legal costs by increasing the threshold for costs orders to be made against enforcement authorities; and

  • Reforms to various aspects of the UK sanctions regime.

While great attention has been paid to the provisions of the law creating a register of foreign entities and their beneficial owners, it is the sanctions reforms that are the most striking. These are discussed below.

Strict criterion of responsibility in the event of non-compliance with sanctions

Section 146(1) of the Policing and Crime Act 2017 (the “APC”) confers on Her Majesty’s Treasury the power to impose a monetary penalty on a person if satisfied on a balance of probabilities that (a) the person has breached a prohibition imposed by the financial penalties legislation and ( (b) the person knew, or had reasonable grounds to suspect, that the person had breached the prohibition.

The law removes the knowledge or reasonable cause requirement and, in its place, inserts as Article 146(1A) CPA: “To determine, for the purposes of subsection (1), whether a person has breached a prohibition or has evaded an obligation imposed by or under financial sanctions legislation, any requirement imposed by or under such legislation that the person knew, suspected or believed a matter shall be disregarded.

The introduction of a strict liability test creates a significantly lower threshold for the OFSI to impose civil monetary penalties for breaches of UK sanctions and has the potential to have a significant impact on the way businesses and individuals address compliance.

New ’emergency procedure’ to streamline sanctions designation powers

Section 58 of the Act amends the Sanctions and Anti-Money Laundering Act 2018 (the “SAML Law”) to introduce a new “urgent procedure” for designation when the “standard procedure” criterion (person concerned) is not fulfilled.

Section 11 of the SAML Act grants a competent Minister the right to designate persons by name where the Minister has (a) reasonable grounds to suspect that the person is an implicated person and (b) considers that the designation of this person is appropriate.

The law maintains the person involved requirement (now called condition A) but removes the adequacy requirement and introduces as another reason for designation: under the urgent procedurea minister may designate a person by name when condition A is not met but conditions B and C are met.

State B requires that a relevant provision (defined in Section 11(2F) of the SAML Act as a provision that the Minister considers matches or is similar to, or is made for a similar goal the type of penalty or penalties in the regulations) applies to the person under the law of US, EU, Australia, Canada or any other country specified.

C-State demands that the Minister “consider it to be in public interest make designations according to the emergency procedure”.

A designation under conditions B and C will lapse after 56 days (from the day after the designation) unless the Minister certifies, within the 56-day period, that condition A is satisfied or that conditions B and C continue to be fulfilled. Section 11(2C) of the SAML Act provides that this 56-day period may only be renewed once, and will then expire at the end of the second 56-day period, unless the Minister certifies (in the second deadline) that condition A is met. .

This effectively grants the government the ability to mirror the sanctions designations of close allies and represents a significant streamlining of the government’s ability to designate people by name. This should help ensure a more coordinated approach to sanctions designations between the UK, US, EU and other allies.

Foreign Minister Liz Truss announced the first use of these new designation powers on the same day, with 345 Russian individuals and 5 Russian entities designated for an asset freeze (and travel ban) in a series of “historic” sanctions.

Powers of Name and Shame for the OFSI

In addition, the law relaxes the threshold for the OFSI to report violations of financial sanctions.

The Act amends the Policing and Crime Act 2017 (the “APC”) to insert a new article 149, paragraph 3, which provides that the Treasury may “issue reports at such intervals as it deems appropriate” where a pecuniary penalty has not been imposed under sections 146 or 148 of the LPC but the Treasury is nevertheless satisfied, on a balance of probabilities, that “a person has breached a prohibition or failed to comply with an obligation imposed by or under financial sanctions legislation”.

If used by the OFSI, it could significantly increase the risks of reputational damage to entities not sanctioned under Sections 146 or 148 of the CPA where the OFSI is nevertheless satisfied that the entity has breached the penalty rules.

Next steps

Today’s round of new sanctions means the UK has now designated over 1,000 individuals and entities in response to the Russian invasion of Ukraine. The impact of lowering the sanctions liability threshold will likely be felt across many sectors, although it remains to be seen how the Treasury will use its expanded reporting powers and what effect this will have on regulatory compliance. British on sanctions. The simplified procedure for designating sanctions via the emergency procedure has already been used to designate a significant number of Russian individuals and entities and should be used more as the government coordinates further measures with its allies.

The Home Secretary has promised that a second “follow-up” bill “with additional measures” is being drafted to “prevent the abuse of limited partnerships” and give the government “new powers to seize criminals’ crypto assets”. We will follow up with a full summary of the new measures once further information is released by the UK government and OFSI.

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