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Britain Lifts Veil of Financial Secrecy for Overseas Territories

The UK Sanctions and Anti-Money Laundering Act signifies major changes to the UK’s anti-money laundering and sanctions regimes. Britain’s overseas territories, often criticized as tax havens, are now required to establish public registries of beneficial corporate ownership by December 31, 2020. The Act also includes a Magnitsky Amendment, modeled on U.S. law, enabling sanctions against foreign government officials implicated in gross human rights abuses.

 UK AML and sanctions program in time for Brexit

The Sanctions and Anti-Money Laundering Act (“SAMLA”) received Royal Assent on May 23, 2018. It is enabling legislation, necessary to empower the UK government to ensure effective anti-money laundering and counter-terrorist finance measures are in place. It also implements United Nations (“UN”) sanctions, from March 2019 onwards. The UK currently derives its powers in these regards from the European Communities Act of 1972, but this law will be repealed upon the UK’s withdrawal from the European Union. The substantive parts of SAMLA will formally come into force at approximately the same time. SAMLA will empower the Secretary of State or Treasury to promulgate sanctions regulations, including visa bans, for a variety of purposes, including complying with UN and other international obligations, furthering the foreign policy objectives of the UK, and/or protecting civilians in conflict zones.

Commenting on the enactment, then Foreign Secretary Boris Johnson observed: “Thanks to this new law, once we have left the EU, we will have full control of our own sanctions policy again. That will give us the power to impose sanctions, including for human rights abuses. Sanctions are a key foreign policy and national security tool for the UK, and the new legislation will allow the UK to act in line with our own priorities, as well as with our international partners.”

 Parliament forces crackdown on tax havens and Russian impropriety

A bipartisan alliance of Members of Parliament (“MPs”), headed by Conservative MP Andrew Mitchell and Labour MP Margaret Hodge, added an amendment to the legislation forcing greater transparency on the overseas territories. Currently the fourteen territories, including Bermuda, the British Virgin Islands, Cayman Islands, and Turks and Caicos, do not maintain registers particularizing the beneficial owners of assets within their jurisdictions. Critics have claimed this obfuscation enables tax evasion, fraud and corruption, and other forms of criminality. To the same critics, the problem cannot be understated: over half of the companies exposed in the International Consortium of Investigative Journalists’ Panama and Paradise  Papers were registered in the British Virgin Islands alone.

Many have championed measures dictating greater transparency upon corporates in Britain’s overseas territories. First, because it has been estimated that tax havens cost developing countries USD 170 billion in revenue every year and the measures might mean developing countries claiming their fair shares. Second, the poisoning of a former Russian double agent in England in March, discussed in more detail below, pressured the UK government to tackle the web of offshore shell companies used to invest in Britain, including by Russians. Campaign group Global Witness estimates that GBP 68 billion (~USD 88.5 billion) flowed out of Russia via Britain’s overseas territories between 2007 and 2016.

UK joins the Magnitsky sanctions trend

The Magnitsky Amendment to SAMLA will enable the UK government to impose sanctions on individuals implicated in “gross violations of human rights” anywhere in the world, and the National Crime Agency (“NCA”) to seize property obtained through gross human rights abuses. Support for a Magnitsky Amendment grew amongst Conservative and Labour MPs following the Novichok nerve agent attack in Salisbury on former Russian military intelligence officer Sergei Skripal, who acted as a double agent for the UK’s intelligence services during the 1990s and early 2000s

The Trump administration began designating individuals under a similar U.S. law in December 2017.

Additional Considerations

SAMLA is representative of two key trends in the white collar world. First, a global crackdown on bank secrecy is making it harder for corrupt actors to stash the proceeds of crime. Second, countries are increasingly sanctioning individuals, entities, and industries/sectors, rather than commerce with entire countries. The growing thicket of these targeted sanctions increases the need for clients to consult with counsel prior to pursuing international ventures.

The amendments detailed above also do not apply to the British crown dependenciesof the Isle of Man and the Channel Islands of Guernsey and Jersey, because Parliament does not have the right to impose its will on them. Constitutionally separate crown dependencies are self-governing by right rather than by grant, and elect their own legislatures and run their own domestic legislation as a result.

© Copyright 2022 Squire Patton Boggs (US) LLPNational Law Review, Volume VIII, Number 247

About this Author

Richard Gibbon Criminal Defense Attorney Squire Patton Boggs Dubai, United Arab Emirates

Rich Gibbon is a partner in our Government Investigations & White Collar Practice and focuses on white collar criminal defense, regulatory enforcement and internal investigations. He has been based in the Middle East for 11 years and has extensive experience managing crises and counselling boards of directors and senior management across the Middle East and Africa, Levant, Europe, and South Asia through multi-agency, multi-jurisdictional financial crime investigations and enforcement actions. This includes multinational corporates in connection with anticorruption regimes and a...

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Caleb Barker White Collar Criminal Attorney Squire Patton Boggs Washington DC

Caleb Barker represents international and domestic clients in white collar criminal matters, government enforcement actions and internal investigations.

Prior to joining Squire Patton Boggs, Caleb spent a year and a half practicing corporate law with a focus on mergers and acquisitions, corporate governance and SEC compliance. While in law school, Caleb interned at the Department of Justice in the Public Integrity Section. Prior to law school, Caleb worked at the Department of Justice for three years.