A new set of tools
Are targeted sanctions a good tool to tackle international corruption? The UK would appear to think so, having introduced a new set of regulations under its post-Brexit sanctions framework. But what are the reasons for tackling corruption in this way, and what issues does it raise for those having to comply?
There are precedents for using sanctions – including asset freezes and travel bans – against corruption suspects in the EU, while the UK was not only an EU member state but a pioneer in its sanctions policy. When the government of Hosni Mubarak lost power in Egypt in 2011, the new Egyptian government wrote to the UK and others requesting judicial cooperation to freeze assets of individuals it said were responsible for misappropriating public assets. The UK's then foreign minister is on record as saying that as the evidence for such offences would be insufficient for the courts, the use of EU financial sanctions was an appropriate alternative.
Following the UK's decision to leave the EU in 2016, an independent sanctions framework was introduced in the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). Among other things, it enables ministers to introduce sanctions regimes for purposes that they consider will help to 'promote respect for democracy, the rule of law and good governance'. The introduction of the Global Anti-Corruption Sanctions Regulations 2021 earlier this year relied mainly on this provision of SAMLA, but also owes an express debt to Sergey Magnitsky, who died in a Russian prison after investigating corruption there, and inspired similar measures overseas such as the US' Global Magnitsky Act. The rationale is said to be about tackling corruption in circumstances where traditional methods fail, for example where the government in the local jurisdiction fails to act. Other jurisdictions have used sanctions regimes with less defensible motives, such as the Chinese government's measures against barristers and others who had criticised its treatment of the Uyghurs, and Russian sanctions against UK targets, whose stated aim is to retaliate against ours.
The broad reach of the new powers
What do the new regulations do? Primarily, they impose broad prohibitions on UK-incorporated companies and UK nationals (even operating abroad) from dealing with the assets of, or providing economic resources to, 'designated persons' (individuals or corporates). The Foreign Secretary can designate such persons where he considers it appropriate and where he has 'reasonable grounds' to suspect that they are an 'involved person'.
That category includes people who are or have been responsible for, or engaged in, serious corruption, which includes bribery or 'misappropriation of property'. But it also includes people who are or have been involved in such conduct in a broader sense - including dealing with its proceeds, or failing (intentionally or recklessly) to investigate or prosecute it – or who are associated with, or (for corporates) owned or controlled by people who are in those, already broad, categories.
The Foreign Secretary has to give a 'statement of reasons' when imposing a designation, and there are procedures to request a reconsideration, and apply for judicial review of the result of that process. But the regulations clearly entrust a great deal of power to him (and his successors). As an example of how the system works in practice, the first set of designations (said to relate to 'some of the most notorious cases in recent history') included a lawyer who is said to have represented a company in the fraudulent tax rebate that Sergey Magnitsky was investigating. Exactly how far such people will be able to challenge such decisions in practice remains to be seen.
Collateral impacts and risks
Importantly, the nature of financial sanctions is that the prohibitions apply not just to those designated, but to anyone who has economic dealings with them, which places a significant burden on businesses to ensure compliance with sanctions in all jurisdictions that may be relevant. In practice, that burden interacts with others arising from other jurisdictions, as well as the UK's strict Proceeds of Crime Act 2002 (POCA). The latter are of course more likely to come into play where the reason for a person's designation is their suspected involvement in corruption.
Take, for example, the position of a UK bank, whose customer's name returns a 'red flag' on its compliance software as potentially linked to someone designated under anti-corruption regulations. The bank will need to consider whether, by operating the account, it would 'deal with funds... owned, held or controlled by a designated person', having 'reasonable cause to suspect' that this was so. If it did, it would be in breach of the regulations, and potentially face a hefty civil penalty, or even criminal prosecution. Because of the nature of the designation, it must also consider broader questions about whether the funds represent the proceeds of 'criminal conduct' under POCA. And because of its regulated status, it may also have reporting obligations under both sets of laws. It is not surprising that banks in practice tend to 'de-risk' any customers who show even the slightest risk of such links.
Are they worth it?
By way of a sense check, it is worth bearing in mind that most of the people who have been designated so far are unlikely to have assets or business dealings in the UK. The point of the regulations and the designations made under them is not just to tackle the prospect of such people investing or doing business here, but to send a political message, to the governments around the world that decline to act against corruption allegations, and make it harder to pursue any UK aspects here via the more traditional routes of criminal investigation or extradition (or even the easier, and so increasingly preferred, route of civil recovery proceedings under POCA).
That does not mean, however, that introducing such innovative procedures is without any cost. As with the Egyptian example, it is all too easy for political enemies to concoct allegations, and/or for mistakes to be made. A system based on the separation of powers would see a legislature proscribe conduct as criminal, an executive pursue people it believed were guilty of such conduct, and a judiciary decide whether they were guilty and what should be done to them as a result. Sanctions, by their nature, bypass most of that process, and allow designations by politicians that may not be strictly fair – a facility we can see being abused in other countries, like China and Russia, who use their sanctions regimes to retaliate against ours.
The risk, then, is that UK sanctions regulations not only have real-world impacts on businesses and individuals that go beyond what is strictly necessary or useful, but, ironically, their use might eventually undermine the UK's stance on 'democracy, the rule of law and good governance'. When a minister decides to make himself judge, jury, and executioner in 'notorious' cases, we should not be blind to the potential risks this runs if such powers remain unchecked.
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