Update on UK Sanctions, Anti-Money Laundering and Brexit

Under the Brexit process, the UK has already been busy putting in place its own legislation in a number of areas, which it specifically did in May 2018 to be able to deal post-Brexit as regards both sanctions and money laundering under the UK's Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018). The main provisions of SAMLA 2018 will come into force in 2019, probably around the time the UK is formally expected to leave the EU. Under this newly legislated regime, the UK has already adopted its own particular approach in some respects; for example sanctions (in the form of an asset freeze) may be adopted on individuals by description rather than by specific name.

The purpose of SAMLA 2018 is to ensure that once the UK has left the EU that it can continue to impose, update and lift sanctions provided for by the United Nations (UN) and pursuant to other international obligations, and effectively detect and prevent money laundering and terrorist financing (including by implementing internationally recognized standards).

Under SAMLA 2018, UK government ministers will have the power to make (separate) sanctions regulations as follows:

• To comply with a UN or other international regulation; or
• To achieve one of a number of so-called defined “discretionary purposes” including preventing terrorism, promoting national and international peace and security, and responding to gross human rights violations.

Where a UK government minister seeks to introduce sanctions regulations for a discretionary purpose, they must be satisfied that:

• The purpose of the measure is one permitted under SAMLA 2018;
• There are good reasons to pursue that purpose; and
• The imposition of sanctions is a reasonable course of action for achieving that purpose.

This power will enable the UK to continue to comply with its evolving international obligations and to use sanctions to meet challenging foreign policy and national security objectives post-Brexit. The different types of sanctions that can be imposed are set out and explained in SAMLA 2018 and cover financial, immigration, trade, aircraft, shipping and other sanctions. In territorial terms, SAMLA 2018 will be enforceable against those within the UK and also UK individuals abroad.

UK government ministers also have powers under SAMLA 2018 to make further separate legislation (in the form of so-called Regulations) for the purposes of enabling or facilitating the detection, investigation or prevention of money laundering and terrorist financing. These wide-ranging powers will allow a minister to make, amend and repeal secondary legislation to anti-money laundering and counter-terrorist financing post-Brexit to ensure that the UK can continue to comply with standards set by the inter-governmental body The Financial Action Task Force and deal with emerging risks relating to money laundering and terrorist financing.

SAMLA 2018 certainly allows for more flexibility to impose sanctions and may see the UK diverging from the EU's approach to sanctions. On the same theme, it will also remain to be seen as to how the EU deals with sanctions post-Brexit, i.e., whether the EU chooses any differences in approach to dealing with sanctions — it is widely acknowledged that that the UK has contributed significantly in the past in EU sanctions matters such as with intelligence-gathering on sanctioned individuals.

The EU 5^th Anti-Money Laundering Directive

The Fifth Anti-Money Laundering Directive (AMLD5) was adopted by the EU Council on May 14, 2018 and came into force on July 9, 2018. EU Member States must implement it into national law by Jan. 10, 2020.

AMLD5 introduces significant changes to the EU's anti-money laundering and counter-terrorist financing regime. More specifically, AMLD5 makes various changes to the EU's Fourth Anti-Money Laundering Directive. In sum, key changes include:

• The so-called crypto market, for example, all platforms that offer the exchange of a virtual currency like Bitcoin will fall under the scope of AMLD5;
• Access to information on beneficial ownership is broadened and transparency in the ownership of companies and trusts has been upgraded; and,
• Enhanced due diligence on transactions involving high-risk third countries will need to be made.

The UK government has confirmed that it will implement AMLD5 before it leaves the EU. It has said that it will transpose the new rules into law as the January 2020 adoption deadline falls within the post-Brexit implementation period that was agreed in principle between UK and EU earlier this year. More specifically the UK Government has said the following:

“The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 already require all express trusts (including those administered from outside the UK) which generate a UK tax consequence — such as when property held within the trust is purchased or sold – to register details of their beneficial ownership with HMRC. Information on this register is accessible to UK law enforcement. All such trusts, and all UK express trusts, are also required to maintain written, accurate and up-to-date records of their beneficial ownership and make these available to UK law enforcement upon request. The Fifth EU Anti-Money Laundering Directive (5AMLD) will expand the scope of the existing registration requirement to include all express trusts, and non-EU trusts which acquire real estate within the EU, with persons with a legitimate interest in information on the register having a right of access to it. The transposition deadline for this Directive will be in January 2020. As this falls within the Implementation Period on which the UK and EU reached agreement earlier this year, the UK will transpose this Directive. This will further strengthen the ability of UK law enforcement to access information on the beneficial ownership of trusts with a connection to the UK.”

Conclusion: Moving Forward

The upshot regarding SAMLA 2018 is that organizations will need to have compliance processes, procedures and policies in place to be able to deal with sanctions in the UK post-Brexit. This will include policies to try to identify clients falling with a given description, which may prove challenging. They will also still need to manage the EU process — there may well be situations where both UK and EU sanctions apply, e.g., where UK nationals or UK entities are operating in the EU.

Cybersecurity will also be practically impacted, including with regard to preparation for compliance with 5AMLD, which will in effect require the introduction of cybersecurity measures, such as regards technical requirements that will need to be introduced or adapted and tested, for example concerning access controls.

Accordingly, an organization's respective cybersecurity, anti-money laundering and sanction teams will need to work together.

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André Bywater and Jonathan Armstrong are commercial lawyers with Cordery in London, UK, where they focus on regulatory compliance, processes and investigations. Reach them at [email protected] and [email protected], respectively.