Exceptions and licenses policy note issued for UK’s Sanctions and Anti-Money Laundering Bill

The UK government issued a policy note concerning its intended policies regarding licenses and exceptions once the Sanctions and Money Laundering Bill comes into force. There are separate sections for Asset Freezes, Counter Terrorism, Restrictions on financial activities and investment, Restrictions on the export or movement of goods and the provision of services, Restrictions related to transport, Travel Bans, and National Security and Crime.

Mr. Watchlist will republish each section separately. Here, now, the Asset Freezes section:

Asset Freezes

7. We intend to maintain a similar framework to existing licensing grounds, keeping the UK aligned with European partners and reducing the burden on industry that would result from a substantially different framework.

8. We plan to write exceptions into the regulations setting up the sanctions regimes where issues are foreseeable at the time of drafting, such as for the purpose of delivering humanitarian or development aid. We also intend to use general licences for issues that are urgent; that we could not foresee at the time of drafting; or need to be time-limited. For example, where the Government introduces an unrelated financial services policy that would otherwise be hindered by sanctions law and does not contradict the policy intent of the sanctions regime.

Intended approach towards the most commonly used licensing grounds for asset freezes

9. The licensing grounds below are indicative of how the government intends to use licensing powers, but is not exhaustive to ensure the Government can respond to unforeseeable priorities and international obligations. If there is a need for specific grounds in respect of specific situations that arise, and those situations are not anticipated by the regulations relating to a particular regime, we will legislate for them on a case-by-case basis.

(a) Basic needs

10. EU legislation currently enables licences to be issued to authorise funding for the basic needs of designated persons, and includes a “necessity test”. Necessary payments for food, rent or mortgage, medicines, medical treatment, taxes, insurance premiums and public utility charges are covered by this exception. The exception enables us to uphold our obligations under the ECHR by ensuring that designated persons are able to pay for food, medicine, and accommodation, so their basic human rights can be respected. EU sanctions regulations also include a list of payments that can be licensed. These are the same for both individual persons and legal entities.

11. We intend to maintain the necessity test as we think it is the best way to balance the need to respect basic human rights with the purposes of sanctions. We also intend the split individual persons and legal entities into two distinct licencing grounds, as we consider that the basic and essential needs of each are very different. This will provide a firmer basis on which we can set out the parameters of basic needs for entities or businesses in guidance.

(b) Legal fees

12. EU legislation currently enables licences to be issued for the payment of reasonable professional fees or the reimbursement of incurred expenses associated with the provision of legal services. It enables us to uphold our obligations to respect the human rights of designated persons and ensure they have access to justice. We intend to retain this licensing ground

(c) Routine holding and/or maintenance

13. EU legislation currently enables licences to be issued for the payment of fees or service charges for routine holding or maintenance of frozen funds or economic resources, to maintain the value of assets. We will make clear that services provided must be reasonable and not excessive, ensuring value for money. We also propose to include insurance under this licensing ground to ensure assets can be appropriated insured against risk. These are both important to help prevent assets depreciating, which is contrary to the purpose of some regimes, and which is particularly important for misappropriations regimes, where we would want assets to be returned to whom they belong.

(d) Extraordinary expenses

14. EU legislation currently enables licences to be issued for payments by designated persons that cannot be easily anticipated and are not recurring. We anticipate preserving the ability to do so in the future, however, for this licencing ground to apply, the transaction must be both “extraordinary” and an “expense”.

15. This could be used in circumstances where there may be a foreign policy or humanitarian priorities for the UK to which we may want to be able to respond to flexibly, but where no other licensing grounds apply. We want to keep licensing grounds tightly focused to maximise the effectiveness of the asset freeze, so intend to set out parameters to avoid the possibility of this licensing ground becoming a “catch-all”, which is not the intention.

(e) Prior court orders

16. This licensing ground is intended to permit the release of funds or economic resources belonging to a designated person or entity if that person is subject to an arbitral decision, a judicial ruling, or an administrative decision prior to the designation. We recognise the principle that persons who have rights to funds under judgments made in their favour and against designated persons, should not have their ability to access a remedy frustrated by sanctions. This should be balanced against the need to ensure that the asset freeze is effective. At present, the EU law licensing ground only relates to decisions made prior to the designation, and does not take account of ongoing litigation at the time of designation.

17. We propose to ensure that judgments made prior to designation and/or resulting from proceedings in place at the time of designation can be enforced. This is because those persons engaged in litigation at the time of designation have already asserted their rights, at a time when they could reasonably expect to be able to enforce their rights. However, to maintain the integrity of the asset freeze, we do not propose at this time to extend this licensing ground to cover proceedings that are initiated after designation. Persons who commence litigation after designation should be aware that there is an asset freeze in place, and so have no reasonable expectation that they can enforce their rights against frozen funds when they assert their right to start proceedings. We will also clarify in guidance which judgements can be enforced under this licensing ground.

(f) Priorcontracts

18. This licensing ground permits the release of frozen funds or economic resources belonging to designated persons to make payment under a contract or obligation that arose prior to a designation, if specific conditions are met. We propose to continue with this licensing ground.

(g) Humanitarian activities

19. This licensing ground would permit the release of funds or economic resources belonging to designated persons, or the use of funds and economic resources, which is otherwise prohibited by financial sanctions, where it is considered necessary for humanitarian purposes. We would have the ability to grant both individual and general licences and would continue to prioritise applications for humanitarian licences where appropriate.

(h) Diplomatic activities

20. The licensing ground permits funds or economic resources to be released, made available, or paid into the accounts of diplomatic/consular missions or international organisations enjoying immunities in accordance with international law, provided that such funds are intended to be used for their official purposes. We propose to continue to do this where it is necessary. 

Links:

GOV.UK Notice

Policy note on exceptions and licenses

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