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18 Mar 2022

Key changes to UK sanctions regime - The Economic Crime (Transparency and Enforcement) Act 2022

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On 15 March 2022, the Economic Crime (Transparency and Enforcement) Act (the "ECA") received Royal Assent after being fast-tracked through Parliament in response to the war in Ukraine. 

The ECA is split into three parts:

Part 3 is split into two chapters: 

  • Chapter 1 contains amendments to the imposition of monetary penalties under the Policing and Crime Act 2017 ("PCA").
  • Chapter 2 contains amendments to the UK's sanctions framework under the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA").

Key changes to the PCA - Monetary Penalties

  • HM Treasury implements, administers, enforces and supervises financial sanctions in the UK through the Office of Financial Sanctions Implementation ("OFSI").Since April 2017, OFSI has had the power under the PCA to impose monetary (civil) penalties for a breach of financial sanctions of 50% of the total breach or up to £1 million (whichever is the greater).In order for OFSI to impose monetary penalties, it has to be satisfied on the balance of probabilities that a person or body knew or had reasonable cause to suspect that they had breached financial sanctions. The ECA removes this requirement, creating a 'strict civil liability'.
  • OFSI will also have the ability to publicly 'name and shame' those that have breached financial sanctions even when OFSI has decided that a monetary penalty is not appropriate.
  • Currently, a Government Minister is required to personally review financial penalties if requested by the person or body that OFSI intends to penalise. The ECA will allow the Minister to delegate this responsibility, streamlining the process.
  • These amendments are not yet in force and will take effect on a date to be announced. We understand the intention may be for these provisions to come into force in around three months' time.

Key changes to SAMLA – Sanctions Regulations

  • The amendments to SAMLA are intended to expedite the imposition of sanctions and reduce the resources required to react quickly to developments.
  • The UK may now adopt autonomous sanctions (i.e. other than in compliance with a UN or other international obligation) where it is appropriate to do so for a particular purpose set out in SAMLA. There is no longer any requirement for the Government to consider whether there are good reasons to pursue that purpose or whether the imposition of sanctions is a reasonable course of action for that purpose.
  • The requirement for a designation to be "appropriate", which is often a question of proportionality, has also been removed.
  • A new urgent designation procedure has been adopted to enable the UK to designate individuals and entities (by name or description) if they have been designated by the USA, the EU, Australia or Canada (and potentially other countries in future) under a similar sanctions regime and the relevant Government Minister considers that it is in the public interest to use the urgent procedure. Any such designation can only last for a maximum of 112 days at which point it will cease to have effect unless the Minister certifies that there are reasonable grounds to suspect that the person meets the criteria for designation under the UK sanctions regime.
  • The Government has also been given the flexibility of designating by description (e.g. groups or bodies of individuals) even where it is practicable to identify and designate the relevant persons by name.
  • Perhaps acknowledging the impact of the measures introduced, the ECA also limits the power of the court to award damages to those challenging designation to cases of bad faith (rather than negligence) and by giving the UK the power to place a cap on any damages awarded (no such cap has yet been proposed). These limitations will not apply to proceedings commenced before 4 March 2022.

Comment

The amendments in Part 3 of the ECA enable the Government to follow a more streamlined, efficient process with increased and wider-reaching powers. The war in Ukraine, and the extraordinary speed of the sanctions response (and its rapid expansion), has meant that the ECA has been adopted quickly, with just two weeks between the first reading and Royal Assent (SAMLA itself took seven months to go through the same process). The understandable desire for swiftness may expose the Government to claims by those targeted; and the Government appears to expect this.  The same day the ECA received Royal Assent, the UK used the new urgent procedure to designate more than 350 Russian individuals and entities. That no doubt saved already stretched resources within the Civil Service, but the clock has started ticking on reviewing each of those designations to ensure they can be maintained under the standard procedure. 

In the meantime, the changes due to take place to the monetary penalty regime will likely lead not only to more 'results' for OFSI (only one of six monetary penalties imposed over almost five years has been for more than £150,000) but to UK businesses adopting an even more risk adverse approach, fearful of inadvertently tripping up in the face of the sanctions against Russia that have rapidly expanded to an enormous scale and complexity in the last few weeks.

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