New sanction rules mean companies need to keep watch

New laws have expand­ed the government’s remit for asset freezes, and firms will have to be care­ful who they do busi­ness with

Newly beefed up pow­ers for the for­eign sec­re­tary to impose sanc­tions on indi­vid­u­als and enti­ties over involve­ment in seri­ous cor­rup­tion rep­re­sents progress in the UK’s fight against glob­al klep­to­crats who stash assets in Britain.

Until the intro­duc­tion of the Magnitsky sanc­tions law, the UK typ­i­cal­ly imposed asset freezes as part of a range of mea­sures tar­get­ing par­tic­u­lar coun­tries in line with a for­eign pol­i­cy objec­tive. Before Brexit, this was usu­al­ly done pur­suant to EU legislation.

Thus, when the EU and UK imposed an asset freeze on President Assad of Syria in 2011, it was done as part of a wider sanc­tions pro­gramme against Syria in response to the vio­lent sup­pres­sion of protests which marked the begin­ning of the civ­il war.

Last year the UK estab­lished a new mech­a­nism for asset freezes to be imposed in response to human rights abus­es. Importantly, these mea­sures — which are known as Magnitsky sanc­tions after the lawyer who was tor­tured and killed in 2009 at the hands of the Russian state — need not be anchored in any coun­try-spe­cif­ic sanc­tions regime. This enabled the des­ig­na­tion of indi­vid­u­als from a num­ber of coun­tries — includ­ing Saudi Arabia and the Gambia — against which the UK main­tains no over­ar­ch­ing sanc­tions regime.

Now the gov­ern­ment has the pow­er to impose these free-stand­ing asset freezes for cor­rup­tion as well as human rights abuse. Similar pow­ers already exist­ed in the US and Canada; by con­trast, the EU’s Magnitsky regime is still con­fined to human rights abuses.

The UK des­ig­nat­ed 22 indi­vid­u­als when intro­duc­ing the leg­is­la­tion last month. Although the major­i­ty are Russians, sev­er­al are from coun­tries not sub­ject to UK sanc­tions, such as South Africa and Honduras.

At first blush the pow­ers may be thought to have lim­it­ed impact on busi­ness­es. After all, the imme­di­ate prac­ti­cal con­se­quence is the addi­tion of a num­ber of names to a list of sanc­tions tar­gets that a com­pa­ny with screen­ing sys­tems will already be checking.

However, busi­ness­es with links to polit­i­cal­ly exposed peo­ple will want to tread even more care­ful­ly in the future. Companies with oper­a­tions in sanc­tioned coun­tries are already used to think­ing about the pos­si­bil­i­ty of sanc­tions dis­rupt­ing their activ­i­ties. Now, though, no mat­ter where a com­pa­ny is doing busi­ness, if a local busi­ness part­ner or coun­ter­par­ty is linked to a polit­i­cal­ly exposed per­son — such as being whol­ly or part­ly owned by one — and if that indi­vid­ual has a record of cor­rup­tion, the risk of the UK impos­ing sanc­tions means that the com­pa­ny will be need to have done its due dili­gence properly.

Rob Dalling is a part­ner at the London office of US law firm Jenner & Block

The Times by Rob Dalling

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