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Paving The Way For A Harmonised Financial Sanctions Regime

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  • Competition, EU and Trade - Competition e-briefings


The first reading of the Policing and Crime Bill 2016 (the “Bill”) (see here) took place at the House of Commons on 10 February 2016. The Bill sets out reforms to the current financial sanctions regime – these can be broadly categorised into three areas:

1. Harmonising penalties for breaches of financial sanctions;

2. Introducing temporary regulations for the prompt implementation of UN resolutions; and

3. Introducing alternative enforcement tools such as Deferred Prosecution Agreements, Serious Crime Prevention Orders and monetary penalties.

Harmonising criminal penalties:

Trade sanctions in the UK are administered by the Department of Business and Skills (“BIS”), whereas financial sanctions are administered and implemented by HM Treasury.

At present, there is a patchwork of legislation that sets out the penalties that can be imposed for breaches of sanctions. Breaches of trade sanctions, for instance, carry a maximum prison sentence of ten years’ imprisonment on conviction on indictment. Breaches of domestic terrorist asset freezes can attract a seven-year prison sentence on conviction on indictment. Conversely, breaches of financial sanctions imposed under section 2(2) of the European Communities Act 1972 (“ECA1972”) are limited to a maximum penalty punishable with imprisonment of two years upon conviction on indictment and three months upon summary conviction.

Clauses 89 and 90 of the Bill propose to amend the ECA1972 with the effect of enhancing the maximum penalties for custodial sentences to seven years for conviction on indictment and six months (twelve months in Scotland) on summary conviction.

The amendment would align the maximum custodial sentence for breaches of financial sanctions with the offences established under the Terrorist Asset-Freezing etc. Act 2010.

Bridging the delay in implementing UN financial sanctions:

UN financial sanctions are implemented into EU law through directly applicable EU Regulations. According to the UK Government, the average time to implement UN resolutions in 2015 was 4.2 weeks. The Financial Action Task Force (“FATF”)[1] has indicated that international best practice would be to implement such resolutions within 48 hours to avoid asset flight (i.e., the removal of assets before the sanctions are imposed).

Clauses 97 and 98 of the Bill confer powers on HM Treasury to introduce temporary regulations to bridge this delay. These regulations would be valid for a limited time period only (i.e., a maximum of 30 days initially, which can be extended to 60 days). As soon as an EU Regulation were to published in order to implement the UN financial sanctions, the temporary regulations would cease to be valid.

Introducing Alternative Enforcement Tools:

The Bill also introduces alternative enforcement tools, making provisions for Deferred Prosecution Agreements, Serious Crime Prevention Orders and monetary penalties for financial sanctions breaches.

Deferred Prosecution Agreements:

Deferred Prosecution Agreements (“DPAs”) are judicial agreements that apply in England and Wales only and are entered into between a corporate body and a prosecutor. Subject to conditions, it suspends a prosecution for a specified time period. These conditions could include payment of financial penalties, compliance with certain measures imposed on the corporate body or payment of compensation to victims. The prosecutor may resume the prosecution where the conditions are not satisfied.

Clause 95 of the Bill amends Part 2 of Schedule 17 to the Crime and Courts Act 2013 to allow for DPAs to be entered into for financial sanctions breaches.

Serious Crime Prevention Orders:

Serious Crime Prevention Orders (“SCPOs”) are civil orders used to prevent or restrict a person’s or organisation’s involvement in serious crime by imposing conditions on that person or organisation. The conditions are not pecuniary, but may consist of targeted prohibitions, restriction or requirements. Breach of an SCPO is a criminal offence, punishable by a maximum custodial sentence of five years. Furthermore, a breach may also result in forfeiture of property and the closing down of a company.

The Bill amends Schedule 1 to the Serious Crime Act 2007 to include financial sanctions breaches in the list of offences for which an SCPO may be imposed.

Currently, there are regulators that supervise the behaviour of certain types of companies, such as the Financial Conduct Authority (“FCA”), for instance, overseeing the behaviour of financial institutions. The Government considers that extending SCPOs to breaches of financial sanctions will ensure compliance in sectors that do not have such regulatory supervision.

Monetary penalties:

HM Revenue and Customs have the power to impose compound penalties on those who commit an export control offence in cases where it is not in the public interest to prosecute, but a warning letter would not have sufficient impact to change behaviour. At present, there is no equivalent enforcement tool available to HM Treasury.

Clauses 91 to 94 of the Bill introduce a new monetary regime that provides an alternative to criminal prosecution. The creation of the Office of Financial Sanctions Implementation (“OFSI”) was announced by the Chancellor in the Summer Budget 2015. OFSI will be responsible for administering the monetary penalties and will sit within HM Treasury. The Bill provides for a maximum penalty of the greater of £1 million or 50% of the total value of the breach. Details of penalties that are imposed will be made public and this is aimed to act as a deterrent against non-compliance.

HM Treasury will consult later in 2016 on the specific processes for imposing penalties and the levels of penalty that should be imposed in a given situation. Details of the approach to be taken will be published prior to the power being used.


Even though the Bill is in its infancy, and there is a long way to go before it becomes law, it represents an important step towards a harmonised financial sanctions regime both within the UK and at an international level. The Bill adopts structures and tools that are already used in other countries such as implementing a monetary penalty regime (currently used in four G7 countries – the US, Germany, France and Italy) and creating OFSI to administer financial sanctions (comparable to the US Treasury Office of Foreign Assets Control).

In the Summer Budget 2015, it was announced that OFSI would provide a “high quality service” to the private sector, working closely with law enforcement to help ensure that financial sanctions are properly understood, implemented and enforced. We anticipate that OFSI will become an important resource for businesses in terms of raising greater awareness and understanding of the rules and regulations that they are required to comply with.

It remains to be seen how the civil and criminal actions will be enforced, especially in cases that could attract both criminal and civil enforcement actions. While it seems unlikely that HM Treasury will seek to impose financial penalties in the same way as the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury, the array of proposed tools and powers will certainly provide OFSI with a platform to detect infringements and pursue enforcement actions in a way that we have not previously seen in the UK.

Next Steps:

The date of the Second Reading is 7 March 2016 and this will provide the first opportunity for MPs to debate the main principles of the Bill.

[1] The FATF is an inter-governmental policy-making body established in 1989 by the Ministers of its Member jurisdictions.  Its objectives include setting standards and promoting effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system.

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