Once the UK left the EU in December 2020, it could apply various sanctions and restrictions against money laundering and terrorism financing. The Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018), which was passed on May 23, 2018, makes this possible.
Understanding SAMLA 2018
- What are the aims of SAMLA 2018?
- Why does SAMLA 2018 matter?
- How does SAMLA 2018 impact your company?
- What do you need to know about SAMLA 2018?
Sound sanctions systems and controls remain high on the FCA's agenda for financial services firms. This is evident with the release of a notice in October 2023 detailing good practices and areas that could be improved after assessing how these systems and controls operate in some firms.
What are the aims of SAMLA 2018?
Before Brexit, the United Kingdom (UK) implemented regionally the sanctions regimes of the European Union (EU) and the United Nations (UN). This made it simpler for businesses operating in many jurisdictions to verify compliance and keep an eye out for developments in the sanctions regimes in the UK and around Europe.
The Sanctions Act serves as the primary legal foundation for the UK to enact, amend, and end sanctions. SAMLA 2018 serves two objectives:
- Instead of adopting EU or UN models, it makes it possible for the UK to design its own sanctions framework that will allow it to implement its penalties.
- Rather than needing to adopt EU directives, it allows the Financial Action Task Force (FATF) recommendations to be implemented to detect, investigate, and prevent money laundering and terrorist funding.
Why does SAMLA 2018 matter?
In the wake of the Brexit transition period, SAMLA 2018 matters for the following reasons:
- Ability to Impose Sanctions Post-Brexit
After leaving the European Union, the UK needed a mechanism to implement its own sanctions regime. This Act provides the legal framework for the UK to impose, update, and lift sanctions autonomously.
Before this, the UK implemented sanctions as part of the EU. The Act also allows the UK to implement UN sanctions more swiftly.
- AML Regulations
The Act includes measures to fight money laundering. These are essential to prevent criminals from using the UK's financial systems to launder money.
It establishes strict regulations and requirements for financial firms to prevent, detect, and report money laundering. It thus contributes to maintaining the integrity of the UK financial system.
- Transparency in Overseas Territories
One of the more contentious elements of the Act is that it requires the UK's non-national territories, like the British Virgin Islands, to create public registers of their beneficial ownership of companies registered in their jurisdiction by 2023. This is a major step in increasing transparency and combating money laundering and illicit finance.
- Human Rights
The Act also includes provisions allowing the UK to impose sanctions for compliance with international human rights law or respect for human rights. This gives the UK an additional tool to promote and enforce respect for human rights globally.
- Deterrence for Illicit Activities
The Act also sends a strong message to individuals, businesses, and other entities that might seek to engage in illicit activities. It helps to deter actions that may infract international law, threaten international peace and security, or violate human rights.
To make sanctions as effective as possible, it is government policy for UK sanctions measures to be implemented in the British Overseas Territories and Crown Dependencies.
How does SAMLA 2018 impact your company?
SAMLA 2018 is applicable throughout the UK, including Northern Ireland. Conduct by UK citizens is subject to the limitations and obligations in these Regulations.
This applies to anybody inside the UK (including its territorial waters), British nationals living abroad, and organisations formed or incorporated in any region of the UK.
Most businesses need to be aware of the sanctions regime to prevent unintentionally giving services or monies to a designated person or breaking the law in any other way, as well as to meet their reporting duties.
"Designated persons" refers to people, organisations, aircraft, and ships sanctioned. Businesses must modify their current policies, methods, and procedures to account for UK sanctions; due diligence must be adjusted as necessary.
They must also watch the Office of Financial Sanctions Implementation's (OFSI) list of UK sanctions, the combined list of sanctions targets, and financial targets by regime.
The UK has the authority to enact the following:
The Department for International Trade (DIT) administers trade sanctions, such as arms embargo and other trade barriers, as well as financial measures, such as asset freezes.
Transportation sanctions (divided into aircraft and shipping sanctions), which include de-registering or controlling the movement of aircraft and ships, often preventing them from docking in UK ports or landing in UK airports, are administered by the Department for Transport (DfT).
Sanctions are implemented and upheld in the maritime and aviation industries by the Department of Transport. Sanctions related to transportation may include limitations on who may own, register, or operate ships and aeroplanes.
In addition to the detention of ships and aircraft, this can also entail limitations on travel to and from ports, harbours, and airports.
The Department for International Trade (DIT) puts trade sanctions in place. Sanctions against trade may include restrictions on the following:
- the transportation, transfer, purchase, and/or acquisition of products and/or technology
- the delivery or acquisition of services relating to products and technology
- the delivery or acquisition of a variety of other non-financial services.
HM Treasury administers and enforces financial sanctions through its Office of Financial Sanctions Implementation (OFSI). The UK's OFSI ensures financial sanctions are correctly understood, applied, and enforced.
Financial sanctions can involve limitations on specified individuals, such as freezing their financial assets, and broader limitations on financial services and investments.
Under specific conditions, OFSI can also grant licenses to enable activities that would otherwise be against financial sanctions legislation. To remain compliant and adaptable to any changes, businesses must review all "at risk" related individuals against the UK's financial sanctions list after Brexit.
Additionally, businesses defined in British regulations connected to the Sanctions Act (“UK regulations”), hereafter termed ‘relevant firms,’ must promptly alert OFSI if they become aware or have a grounded suspicion that an individual is a sanctioned entity or has breached financial sanction rules, provided this knowledge arises during their business operations.
This mandate affects relevant firms within the UK or those operating under UK jurisdiction, including their employees.
Upon notifying OFSI, you must provide:
- Details that form the basis of your knowledge or suspicion
- Identifiable information about the individual or sanctioned entity
Should you ascertain or have justified suspicion that a client of your (relevant) firm is a sanctioned entity, it's also necessary to disclose the type and amount of any funds or assets you hold for that client. Relevant firms with specific reporting duties under UK regulations from the Sanctions Act encompass:
- Financial services entities with authorization within Part 4A of the Financial Services and Markets Act 2000 (FSMA 2000).
- Businesses engaged in currency exchange, money transmission, or cheque cashing for customers.
- Statutory or local auditors and sole practitioners thereof.
- Providers of professional services, including accounting, legal or notarial services, tax advice, or particular company or trust services.
- Real estate agents or companies, including sole practitioners.
- Licensed casino operators.
- Those in the trade of items crafted from gold, silver, platinum, palladium, precious stones, or pearls.
- Cryptoasset exchange providers.
- Custodian wallet providers.
Travel restrictions, often known as immigration sanctions, are implemented and enforced by the Home Office. Travel bans will not be permitted to enter or remain in the UK.
Any visa requests they submit to visit the UK, including those made for transit, will be rejected. Any foreign individual currently residing in the UK who is the target of a travel restriction will have their authorisation to remain revoked, and removal procedures will be initiated.
What do you need to know about SAMLA 2018?
Part 1, Chapter 1 of the Act discusses the situations and reasons why the UK may impose sanctions, such as compliance with United Nations obligations, promoting global peace and security, furthering foreign policy, or other reasons for preventing terrorism.
Part 1, Chapter 2 explains the exceptions to sanctions and the licensing system that allows certain activities to continue under specific circumstances despite the imposition of sanctions.
Part 1, Chapter 3 stipulates that sanctions must be reviewed annually and includes provisions for their termination.
Part 1, Chapter 4 outlines the process and penalties for violations of sanctions. Penalties can include imprisonment, fines, or both.
Finally, Part 1, Chapter 5 provides an avenue for individuals or entities to challenge a sanction designation in the UK courts.
Anti-money laundering and terrorist financing are addressed in Part 2 of the Sanctions and Anti-Money Laundering Act. SAMLA 2018's anti-money laundering objectives are to guarantee that the UK continues to identify and stop money laundering and financing of terrorism effectively.
It enables the British Government to demand that those conducting pertinent business take appropriate measures, such as:
- identifying and evaluating risks relating to money laundering, terrorist financing, or other threats to the integrity of the international financial system rather than imposing new obligations.
- putting in place procedures, controls, and policies.
- taking the necessary precautions concerning their clients, like performing identification and source of funding investigations as part of their due diligence.
These controls or procedures could include ensuring that your sanctions screening systems are precisely adjusted and encompass the UK's sanctions requisites. Whether internally developed or outsourced, screening mechanisms are most effective when tailored to the UK sanctions environment and aligned with a firm's risk profile.
Additionally, teams handling sanctions must be sufficiently staffed to prevent delays in responding to sanctions notifications, thus allowing for swift responses to potential sanctions-related risks.
Lastly, the capacity to track and assess the success of sanctions enforcement via management information is crucial, as is the necessity for sanctions reporting to be attuned to the UK's framework.
Although SAMLA offers the UK government unprecedented authority to run its own sanctions regime that, in some ways, goes beyond present practice, it goes further than is necessarily necessary to achieve post-Brexit international compliance.
Maintaining robust defences against financial crimes, such as money laundering and efforts to bypass sanctions, is still an essential priority for the entities the FCA oversees.
Even more, Russia's incursion into Ukraine has intensified the FCA's scrutiny of the sanction-related systems and procedures within companies.
The UK can map its territory by taking swifter and more decisive action to impose sanctions legislation without consulting the other 27 EU members. It will also have more freedom to coordinate its sanctions policies with nations like the US and Canada.
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