Following Brexit, the UK is no longer bound by the EU’s sanctions regulations. Accordingly, the UK Government enacted the Sanctions and Anti-Money Laundering Act 2018, which confers wide-ranging powers to implement new sanctions. On 26 April 2021, the Foreign Secretary Dominic Raab announced the UK’s first sanctions specifically targeting corruption, being the Global Anti-Corruption Sanctions Regulations 2021 (the “Regulations”). The Regulations were created to complement existing laws relating to the UK’s Global Human Rights sanctions regime, which was established in July 2020 and has resulted in the UK imposing sanctions on 78 individuals and entities involved in ‘serious human rights violations’, including against Chinese persons for the first time since 1989.
According to the UK Government, over 2% of global GDP is lost to corruption every year, and corruption increases the cost of doing business for individual companies by as much as 10%. To tackle this, and pursuant to the Regulations, the UK Government has so far imposed asset freezes and travel bans on 22 persons across multiple jurisdictions (including Russia, South Africa, South Sudan, and Latin America) where it has ‘reasonable grounds’ to suspect that they have been involved in ‘serious corruption’. It is believed that in developing this regime, the UK is attempting not only to outpace the EU in proactively addressing global crises, but also to build its diplomatic relations with other allies, with the US Secretary of State commenting that the regime complemented US initiatives and formed part of a US and UK partnership.
‘Corruption’ for the purposes of the Regulations includes bribery and the misappropriation of property, with the definition of bribery, in turn, mirroring that contained in the Bribery Act 2010, save that the Regulations require the involvement of a foreign public official, thus excluding private corruption. The Regulations define ‘involvement’ in serious corruption widely, to include persons who, amongst other things: (i) are responsible for or facilitate serious corruption; (ii) profit from serious corruption (financially or in other respects); (iii) conceal or facilitate concealment of serious corruption; (iv) make funds or resources available to individuals or entities targeted by the Regulations; and/or (v) fail to freeze the assets of individuals or entities targeted by the Regulations. Indirect involvement, such as where an entity is owned or controlled directly or indirectly by a person who is or has been involved in serious corruption, is also covered.
Importantly, the prohibitions and requirements imposed by the Regulations have extraterritorial effect, applying both within the UK and to the conduct of all UK persons wherever they are situated. Therefore, an overseas branch of a UK company falls within the scope of the Regulations and will be prohibited from carrying out business with a sanctioned person, even if that business is conducted outside the UK. Additional reporting obligations are imposed on relevant firms, including law firms and firms authorised by the FCA. Unless benefiting from specified exemptions or a license issued by the Treasury, it is a criminal offence to breach the Regulations, with potential penalties of up to seven years imprisonment and/or an unlimited fine.
The longer-term impact of the Regulations on business is not yet clear. Nor is it known how the Office of Financial Sanctions Implementation (“OFSI”) will approach enforcement action. Whilst it has only imposed a handful of penalties since its creation in 2016, it appears that OFSI is now prepared to take strict action where deemed necessary, with its largest fine of £20.4 million being announced in 2020 against Standard Chartered Bank for breaching restrictions applicable to the Ukrainian sanctions regime. OFSI also issued new guidance which took effect on 1 April 2021 and which suggested that it was set to deal with breaches in a tougher manner.
As more corruption scandals attract global attention, the Government will be ever more pressurised to target further individuals and entities, leading to added compliance-related risks – both financial and reputational – for UK businesses transacting, operating and investing in higher-risk jurisdictions. Businesses wishing to ensure that they comply fully with the new regime should consult their advisers regarding a review of their business activities, as well as updating their policies and procedures and reviewing relevant KYC processes, particularly diligence and screening processes.