Out-Law Guide | 28 Jul 2020 | 4:16 pm | 3 min. read
The 2020 Global Human Rights Sanctions Regulations came into force on 6 July 2020. The regulations give the UK government the power to designated persons – whether state or non-state actors – who are or have been involved in serious violations of human rights. The regulations are the first sanctions measures introduced by the UK unilaterally, separate to sanctions imposed by the UK.
Sanctions used to be a niche area of compliance that only banks and financial firms paid regard to. In recent years, the US and EU have been applying sanctions more often, and often in a way that is targeted to specific sectors and business industries in countries which are the subject of sanctions. This means that sanctions compliance and screening is increasingly important for all businesses.
The UK government has signalled that more persons will be designated and other sanctions regimes implemented. Organisations should ensure their sanctions and Know Your Customer (KYC) and Know Your Business Partner (KYBP) policies and screening methodologies are updated for this development.
It is also important to note that the UK continues to implement EU sanctions. Screening against the UK and EU consolidated sanctions list therefore remains important.
A designation has the effect of freezing the funds and assets of the designated person and of any company owned or controlled by them. Funds, assets and services from which a designated person may derive funds must not be provided to the designated person.
Under the regulations, an entity is owned or controlled by a designated person if that person holds, whether directly or indirectly, more than 50% of the shares or voting rights in the entity or can appoint or remove a majority of the board of directors of it; or it is reasonable in the circumstances to expect that the designated person would be able to ensure that the company's affairs are conducted in accordance with the designated person's wishes.
The UK government has signalled that more persons will be designated and other sanctions regimes implemented. Organisations should ensure their sanctions and KYC and KYBP policies and screening methodologies are updated for this development.
The sanctions have initially targeted 49 persons from Myanmar, Russia, Saudi Arabia and North Korea. Further designations are likely to follow. In addition, the UK's consolidated list of designated persons contains thousands of designated persons and entities who have been sanctioned under other UK anti-terrorism laws and pursuant to UN and EU sanctions.
It is a criminal offence for a person, firm or company to deal with funds or economic resources owned, held or controlled by a designated person, or to make funds or economic resources available to a designated person, if they know, or have reasonable cause to suspect, that they are dealing with a designated person.
'Reasonable cause to suspect' is an objective test. This means that a criminal offence is committed if a business transacts with a designated person in circumstances where reasonable enquiries would have identified the person or company as being designated.
If a company commits an offence of transacting with a designated person, the regulations provide that a director or senior manager also commits an offence if they knowingly agreed to or turned a blind eye to a breach, or where the company's breach is attributable to their neglect.
KYC and KYBP due diligence and screening against sanctions lists is therefore important, particularly when transacting with persons or businesses from countries which are the targets of sanctions.
The UK Treasury, through the Office of Financial Sanctions Implementation (OFSI), can grant licences allowing engagement with designated persons in certain limited circumstances. These include meeting the basic needs of the designated person and dependent family members; funding the taking of legal advice; and enabling the designated person to satisfy an obligation or debt that arose prior to the designation.
There are also exceptions to the asset freezes to enable financial institutions to credit interest or earnings to frozen account; and to credit sums to a frozen account of a designated person if those sums were due prior to the designation.
The regulations impose strict reporting obligations on certain entities in the financial and other relevant sectors, and carry criminal liability for non-compliance.
Relevant firms include:
These are required to notify OFSI if, in the course of carrying on business, they know, or have reasonable cause to suspect, that a person is a designated person or that any person has committed an offence under the regulations.
04 Aug 2017