In preparation for the end of the Brexit transition period at 11pm on 31 December 2020, the Misappropriation (Sanctions) (EU Exit) Regulations 2020 (the Regulations) were introduced under the Sanctions and Anti-Money Laundering Act 2018. The Regulations will come into effect at the end of the transition period and have application across the UK.
Currently there are three separate EU sanctions regimes concerning Tunisia, Egypt and the Ukraine. The Regulations will replace these separate regimes in a legislative step intended to represent a move to a single thematic regime enabling designations to be made in respect of misappropriation of State funds from any country outside the UK.
The UK Government has emphasized that the strategy behind the Regulations is consistent with UK policy to deter misappropriation of State funds and is aligned with the UK Government's Anti-corruption Strategy 2017-2022.
There are two principal kinds of prohibition in the Regulations: those relating to financial sanctions and those relating to immigration sanctions. These restrictions consist of an asset freeze (ensuring a designated person’s funds and economic resources are not dealt with, and ensuring that funds and economic resources are not made available to or for the benefit of a designated person, directly or indirectly) and a travel ban.
These restrictions can only be imposed where there are reasonable grounds to suspect that the person is, or has been, "involved" in the misappropriation of State funds from a country outside the United Kingdom (or is a person associated with someone involved in misappropriation) and that designation is appropriate having regard to the purposes of the Regulations and the likely significant effects of the designation on that person.
The definition of an "involved person" under Regulation 6 is wide ranging and has the potential to capture the employer of a bad actor, and directors of a company involved in any misappropriation. A person, individual or a company may be considered to be involved in misappropriation in a number of circumstances, including where they profit financially or obtain any other benefit.
The risk of being subject to asset freezes should be of particular concern to those companies operating in jurisdictions and sectors where there is a higher risk of misappropriation of state funds. The oil and gas sector is an example of a high risk sector. Such sectors should maintain heightened sanctions screening and due diligence of business partners and should update their existing sanctions procedures to take account of the new UK sanctions regime.
The Regulations are accompanied by two statutory reports published under the Sanctions Act, on the purpose of the Regulations and the criminal offences it contains. An explanatory memorandum has also been published.
In accordance with section 43 of the Sanctions Act, the Government will also publish guidance on the Regulations. This guidance will be available on gov.uk before the Regulations come into force.