The UK's Global Anti-Corruption Sanctions: key points to note

Introduction

On Monday 26 April 2021, the UK Foreign Secretary announced a new global anti-corruption sanctions regime in a bid to combat serious international corruption. In this briefing, we consider the key points for companies. 

The new anti-corruption regime authorises asset freezes and travel bans

The Global Anti-Corruption Sanctions Regulations 2021 (the "Anti-Corruption Sanctions") authorise asset freezes and travel bans for individuals, companies or organisations believed to have been involved in serious corruption.¹ The primary legislation underpinning the Anti-Corruption Sanctions is the Sanctions and Anti-Money Laundering Act 2018.

In a written statement to Parliament, the Foreign Secretary stated that the Anti-Corruption Sanctions would "ensure that the UK is not a safe haven for those involved in serious corruption, including those who profit from it."² On the same day, the Foreign Secretary announced the names of 22 individuals who had been newly added to the UK's list of sanctioned persons, including 14 Russian nationals accused of allegedly conspiring in the £166 million scheme uncovered by Sergei Magnitsky.³  Ajay, Atul and Rajesh Gupta, and their associate Salim Essa, were also designated for their alleged involvement in a high profile corruption case in South Africa, as were other individuals from South Sudan and Latin America.

Since leaving the EU, the UK has sought to widen the scope of its unilateral sanctions powers, implementing new regimes targeting human rights, cyber activity and now corruption; the EU has acted against corruption under its financial sanctions regimes targeted at specific countries in the past, but has not yet given itself standalone powers to act against corruption. This expansion of powers by the UK Government seems to offer a means of allowing the UK to act against corruption beyond the jurisdictional scope of the Bribery Act 2010 ("Bribery Act") , without needing to impose sanctions on a specific country, with the diplomatic and political fallout that that would bring. These new "thematic" sanctions regimes not only allow the UK the flexibility to target sanctions surgically at wrongdoers, but also avoid prospective legal challenges resulting from the stretching of "traditional" financial sanctions into new areas. 

That said, as these new "thematic" regimes largely follow the procedures and techniques used in "traditional" financial sanctions, the main issue for business will remain the additions to lists of counterparties that should be screened, and some fine-tuning of contractual restrictions to extend coverage to these new areas.

What constitutes corruption?

Under the Anti-Corruption Sanctions, corruption is defined as either:

(a) bribery; or

(b) the misappropriation of property.

The definition of bribery provided in the legislation mirrors that set out in the Bribery Act but requires the involvement of a foreign public official⁴ for any potential designation under the Anti-Corruption Sanctions. Private corruption (which is also criminalised under the Bribery Act) does not suffice for the purposes of the Anti-Corruption Sanctions.

Misappropriation of property is defined in the legislation as a situation where a foreign public official has been entrusted with property, or has a role in the grant or allocation of property, by virtue of their position, and improperly diverts, grants or allocates that property for the benefit of the official, or for the benefit of another person. Property can include anything of value, including contracts or licences or concessions.

Broadly, a designation may be made where there are:

(a) reasonable grounds to suspect that an individual or organisation is — or has been — involved in serious corruption, or is controlled by, acting for, or otherwise associated with, an individual or organisation who has been so involved; and

(b) the designation of that individual or organisation is appropriate in the circumstances, including the effects on the designated person.

What constitutes serious corruption? 

The legislation is silent on the question of what constitutes serious corruption for the purposes of the Anti-Corruption Sanctions. The accompanying Government guidance⁵ (the "Guidance") provides little more clarity in this regard, although it does suggest that the Government's policy in relation to potential designations will be influenced by the long-term outcomes in the UK's Anti-Corruption Strategy, such that the Government is likely to have particular regard to incidents of serious corruption that:

(a) enable or fuel national and international security threats;

(b) are linked to terrorism, serious and organised crime or instability overseas, particularly in fragile and conflict-affected states;

(c) undermine development and poverty reduction and the achievement of the Sustainable Development Goals;

(d) impede international trade and investment or undermine growth, including that which impacts directly on UK business;

(e) undermine a country's democratic governance, the rule of law and human rights;

(f) weaken vital public institutions including international organisations; or

(g) exacerbate inequality or deprive citizens of vital public resources, including natural resources.

The Guidance also confirms that in deciding whether to make a designation, the scale, nature and impact of serious corruption are likely to be relevant. In particular, the Government will be more inclined to make a designation where the corruption is systemic, the financial value at stake is significant relative to the location, the conduct is sophisticated, or the corruption involves parties from outside the country in question. 

The reasons provided in support of several of the recent designations under the Anti-Corruption Sanctions appear to reinforce the UK Government's focus on serious corruption which has an impact on political stability overseas, particularly in regions which have experienced conflict in recent years. 

Involvement with serious corruption: a wide definition

The scope of what constitutes involvement with serious corruption under the Anti-Corruption Sanctions is significantly broader than just active engagement in the activity. It includes any person supporting, concealing, benefitting from, or failing to properly investigate serious corruption. Likewise, those disguising, transferring, or even facilitating the transfer of any profit of serious corruption also face designation. 

The Guidance explains that in circumstances where there are a range of persons who could be considered for designation by virtue of their involvement in the serious corruption, the Government is likely to consider which designation(s) would have the greatest impact in preventing or combating serious corruption. In practice, this might involve an examination of the person's seniority within a particular organisation, whether the person has any links to the UK, or any steps taken by the person to report suspicions of corrupt activity to relevant authorities.

Entities owned or controlled by a person involved in serious corruption

One impact of the legislation is that where a person is involved in serious corruption, all those entities owned or controlled by that party are themselves at risk of sanction. A designation on the basis of control only requires an expectation that the person involved in serious corruption would, to a significant degree, have the means to ensure that the controlled party conducted its affairs in accordance with the wishes of the person involved.

A person may also be designated if he or she is a member of, associated with, or acting on behalf of a person who has been involved in serious corruption – a very wide provision.

As with other UK sanctions regimes, if a person is designated as a target of the Anti-Corruption Sanctions, any entity owned or controlled by such person will also be treated as a target of sanctions.  

Exemptions and licensing 

Again, as with other UK sanctions regimes, individuals and organisations in the UK are prohibited from dealing with any funds held by, or making funds available to, a sanctioned party, unless they benefit from specified exemptions or a licence issued by the Treasury. To do so is a criminal offence.

Licences for the purposes of the Anti-Corruption Sanctions must specify the acts authorised and can be issues for a defined or indefinite duration.

Looking forward

The introduction of the Anti-Corruption Sanctions confirms suspicions that the UK's post-Brexit sanctions framework will not mirror either the existing EU or US regime. The new designations display more similarities with US and Canadian sanctions currently in place - including against the majority of the Russian nationals and the South Africans accused of bribery. 

What remains to be seen is the extent to which the UK Government will bolster its new sanctions with enforcement action through the Office of Financial Sanctions Implementation ("OFSI"). In the past four years, OFSI has handed down civil penalties on just four occasions, only two of which exceeded £10,000 in value.⁶ If the UK plans to uphold its recent rhetoric around challenging serious corruption, that must mean an increase in enforcement action, either unilaterally or in tandem with the US.⁷

Authors: Tom Connor Ross Denton and Catherine Lillycrop.

1. https://www.legislation.gov.uk/uksi/2021/488/contents/made.
2. https://questions-statements.parliament.uk/written-statements/detail/2021-04-26/hcws936.
3. https://www.theguardian.com/politics/2021/apr/26/uk-imposes-sanctions-on-russians-anti-corruption-regulations.
4. A foreign public official is an individual from outside of the UK or British overseas territories who (i) holds an executive, legislative, administrative or judicial position; (ii) holds a position in a public agency or public enterprise or in any entity which provides a public service in or on behalf of a relevant country; (iii) otherwise carries out functions of a public nature on behalf of a relevant country; or (iv) carries out functions in or on behalf of an international organisation.
5. https://www.gov.uk/government/publications/global-anti-corruption-sanctions-factors-in-designating-people-involved-in-serious-corruption/global-anti-corruption-sanctions-consideration-of-designations.
6. https://globalinvestigationsreview.com/just-sanctions/anti-corruption/uk-sanctions-regime-carves-out-uneasy-middle-ground-between-us-and-eu.
7. The Guidance sets out the Government's intention to give particular consideration to cases where international partners have adopted, or propose to adopt, sanctions and where action by the UK is likely to increase the effect of the designation in addressing the corruption in question.