Rahman Ravelli’s Senior Partner Aziz Rahman and Senior Associate Zulfi Meera assess the likelihood of prosecutions for sanctions-related offences.
This summer saw the National Crime Agency (NCA) announce that it had arrested 10 individuals that it suspected of helping what it called “corrupt elites’’ avoid sanctions. The briefing to journalists was a virtual one and the information was given by an NCA official who spoke on condition of anonymity. Nevertheless, the NCA wanted it to be known that it was identifying those it saw as sanctions enablers.
This, as the NCA appeared keen to make clear, was good news. We may, therefore, be at the point where the first UK prosecution for sanctions evasion is just around the corner. This is due, in part, to the aforementioned arrests, but a number of other recent developments have to be factored into the likelihood of sanctions prosecutions. These include the NCA’s setting up of a Combating Kleptocracy Cell (CKC) earlier this year to focus on disrupting and investigating the activities of corrupt elites and their enablers. There was also the Red Alert issued in July 2022 on financial sanctions evasion typologies. This alert, from the NCA’s National Economic Crime Centre (NECC) and the Office of Financial Sanctions Implementation (OFSI), was a clear indicator that the authorities are already aware of the tactics that may be used by those who seek to avoid the impact of sanctions.
The NCA is not the only authority to be sending a strong signal in terms of enforcement action against sanctions evasion. German authorities are also very active in targeting those suspected of circumventing or breaching sanctions imposed by the EU, following Russia’s invasion of Ukraine. On 21 September 2022, several German prosecutors coordinated simultaneous dawn-raids across the country as part of a sanctions evasion investigation targeting a Russian oligarch.
As regards the UK, the legal basis for sanctions enforcement is set out in the relevant UK legislation. The Sanctions and Anti-Money Laundering Act 2018 (SAMLA) provides the main legal basis for the UK imposing and updating sanctions. In addition, the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Russian Regulations”) were introduced to ensure that sanctions relating to Russia are implemented effectively following the UK’s departure from the EU. The Russian Regulations – and the various amendments that have come into force this year after Russia’s invasion of Ukraine – provide for the offences of circumvention, enabling and facilitation in relation to the financial and trade prohibitions set out in the regulations.
With all of this in place, it would be a surprise if we did not see the NCA increasing its enforcement activities in the coming months, as it looks to target a number of enablers that have been used to hide or launder illicit funds. This could mean, to give just some examples, estate agents, auction houses and solicitors coming under close scrutiny.
It will also be interesting to see whether the recent arrests (and any others that follow) lead to greater criminal enforcement in relation to breaches of the sanctions prohibitions set out in the legislation. OFSI, as the authority responsible for implementing the UK’s financial sanctions, should refer a case to law enforcement agencies where there may be an egregious breach of sanctions or if it is clear that someone has been criminally complicit in any such breach. But there may be a temptation for OFSI to dispose of financial sanctions breaches committed after 15 June 2022 by imposing civil monetary penalties on a strict liability basis, through powers introduced via the Economic Crime (Transparency and Enforcement) Act 2022.
That strict liability option may become increasingly attractive now that the government has called for the modelling of up to a 40% reduction in civil service staffing – including within the NCA and Serious Fraud Office – over the next three years. That, at some point, will have an effect on the NCA’s ability to target those that breach sanctions or enable sanctions breaches. The 10 whose arrests have been announced cannot possibly be the only ones who are – or will be – suspected of such wrongdoing. Yet if identifying and prosecuting more such individuals has to be done when the NCA is facing the prospect of losing two fifths of its staff between now and 2025, the agency’s chances of fully tackling the problem of sanctions breaches has to be questioned. Such a cut would see the NCA headcount fall from 5,687 to 3,412 – a drop that would inevitably have some impact on its enforcement objectives and operations.
Despite the mixed messages coming from the government, it has made clear its overall aim of tackling illicit wealth and making the UK a safe place to do business. The NCA and other agencies have shown a recent enthusiasm for sanctions enforcement. Yet it remains to be seen how effective they will be in investigating and subsequently prosecuting those suspected of committing sanctions-related offences.