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Money laundering regulation

 

UK counter-terrorism and financial sanctions legislation

 

Contents:

Introduction

UK financial sanctions legislation

Terrorism Act 2000

Anti-terrorism, Crime and Security Act 2001 freezing orders

Terrorist Asset-Freezing etc. Act 2010

Counter-Terrorism Act 2008

Introduction

This page deals with the legislation aimed at preventing the assistance or financing of terrorism. This page does not deal with that part of the legislation which prohibits membership of terrorist organisations and related matters of investigatory powers and criminal justice.

Much of the legislation applies to all individuals and entities. However, the Counter-Terrorism Act directions power applies only to entities in the financial sector

Consolidated List of Financial Sanctions Targets in the UK

HM Treasury maintains HM Treasury’s Consolidated List of Financial Sanctions Targets which contains a list of persons and entities which are subject to UK enforced sanctions under the various legislation referred to below.

UK sanctions legislation

 

The United Nations Act 1946 empowered the UK government, acting by the Privy Council, to apply economic sanctions and other measures to give effect to any decision the UN Security Council in respect of sanctions under UN Charter article 41.

Sanctions are also applied from time to time by the EU Council. The UK government will implement such sanctions by means of a statutory instrument made under the European Communities Act 1972 s. 2(2).

Terrorism Act 2000

The Terrorism Act 2000 (TA) reformed and extends previous counter-terrorist legislation including the Prevention of Terrorism (Temporary Provisions) Act 1989, the Northern Ireland (Emergency Provisions) Act 1996 (c. 22) and sections 1 to 4 of the Criminal Justice (Terrorism and Conspiracy) Act 1998. The TA followed the proposals in the Government’s consultation document Legislation against terrorism (Cm 4178), published in December 1998. The consultation document in turn responded to Lord Lloyd of Berwick’s Inquiry into legislation against terrorism (Cm 3420), published in October 1996.

The previous counter-terrorist legislation was originally designed in response to terrorism connected with the affairs of Northern Ireland and some of its provisions had subsequently been extended to certain categories of international terrorism. It did not apply to any other terrorism connected with UK affairs. Under the Act these restrictions have been lifted, so that counter-terrorist measures are to be applicable to all forms of terrorism: Irish, international, and domestic.

Terrorism Act 2000 offences

The Terrorism Act 2000 (TA 2000) creates various offences penalising the assistance or financing of terrorism. However, the Act has a wider reach in that it created the following particular offences relating to ‘terrorist property’ as defined (see below):

* Money laundering: a person commits an offence if he enters into or becomes concerned in an arrangement which facilitates the retention or control by or on behalf of another person of terrorist property by concealment. It is a defence for a person charged with an offence to prove that he did not know and had no reasonable cause to suspect that the arrangement related to terrorist property. [TA 2000 s.18]

* Disclosure of information: this offence applies where a person believes or suspects that another person has committed an offence under the TA 2000, and bases his belief or suspicion on information which comes to his attention in the course of a trade, profession or business, or in the course of his employment (whether or not in the course of a trade, profession or business).

The offence does not apply if the information came to the person in the course of a business in the ‘regulated sector’ (see below).

The person commits an offence if he does not disclose to a constable as soon as is reasonably practicable his belief or suspicion, and the information on which it is based. It is a defence for a person charged with an offence to prove that he had a reasonable excuse for not making the disclosure.

‘Terrorist property’ means money or other property which is likely to be used for the purposes of terrorism (including any resources of a ‘proscribed organisation’), proceeds of the commission of acts of terrorism, and proceeds of acts carried out for the purposes of terrorism.

‘Terrorism’ is defined in the TA 200 s1 and means the use or threat of action (as defined in TA 2000 s. 1(2) and the use or threat is:

* designed to influence the government or an international governmental organisation or to intimidate the public or a section of the public; and

* made for the purpose of advancing a political, religious, racial or ideological cause.

‘Action’ is within TA s.1(2) if it:

* involves serious violence against a person;

* involves serious damage to property;

* endangers a person's life, other than that of the person committing the action;

* creates a serious risk to the health or safety of the public or a section of it; or

* is designed seriously to interfere with or seriously to disrupt an electronic system.

The use or threat of ‘action’ which involves the use of firearms or explosives is terrorism whether or not designed to influence the government or an international governmental organisation or to intimidate the public.

Proscribed organisations

The Government (via the Home Office) has the power to proscribe terrorist organisations under TA 2000 s.2. It maintains a list of proscribed organisations which is accessible via the GOV.UK website.

Enforcement

Criminal enforcement: a person guilty of an offence under the TA 2000 is liable on conviction on indictment, to imprisonment for a term not exceeding 14 years, to a fine or to both.

Comment: in view of the definition of ‘terrorist property’, it is important to be aware of the list of proscribed organisations in order to avoid the commission of a TA 200 offence by involvement in dealings with such an organisation. Although it is a defence to the money laundering offence for the accused to prove that he did not know and had no reasonable cause to suspect that the arrangement related to terrorist property, the fact that there is an available list of proscribed organisations may render it difficult to establish the defence simply on the basis that the accused did not know the organisation was proscribed.

Anti-terrorism, Crime and Security Act 2001 freezing orders

The purpose of the Anti-terrorism, Crime and Security Act 2001 (ATCSA 2001) was to ensure the government had the necessary powers to counter the threat of terrorist attacks in the light of the 9/11 terrorist attacks on New York and Washington.

Among many other anti-terrorist measures, the Treasury is empowered to make ‘freezing orders’ whereby persons are prohibited from making funds available to or for the benefit of a person or persons specified in the order. Any such order must apply to all persons in the UK and all persons elsewhere who are nationals of the UK or are legal entities under the law of any part of the UK (ATCSA 2001 s. 5).

The Treasury may make a freezing order if the following two conditions are satisfied (ATCSA 2001 s. 4):

* the Treasury reasonably believe that action to the detriment of the UK's economy (or part of it) has been or is likely to be taken by a person, or action constituting a threat to the life or property of one or more nationals of the UK or residents of the UK has been or is likely to be taken by a person or persons; and

* the person(s) is/are the government of a country or territory outside the UK or a resident of a country or territory outside the UK.

Terrorist Asset-Freezing etc. Act 2010

The purpose of the Terrorist Asset-Freezing etc. Act 2010 (TAFA)  Part 1 is to give effect in the UK to resolution 1373 (2001) adopted by the Security Council of the United Nations on 28th September 2001 (resolution 1373) relating to terrorism and resolution 1452 (2002) adopted on 20th December 2002 (resolution 1452) relating to humanitarian exemptions.

It also provides for enforcement of Regulation (EC) 2580/2001 on specific measures directed at certain persons and entities with a view to combating terrorism (the EC Regulation).

Designated persons [TAFA ss. 1/2]: TAFA applies to funds and economic resources owned or controlled by ‘designated persons’. A ‘designated person’ is either:

* a person ‘designated’ by the Treasury for person for the purposes of TAFA under powers given to the Treasury under certain conditions; or

* a natural or legal person, group or entity included in the list provided for by Article 2(3) of Council Regulation (EC) No 2580/2001 of 27 December 2001 on specific restrictive measures directed against certain persons and entities with a view to combating terrorism.

Council Implementing Regulation (EU) No 125/2014 contains at the time of writing the most recent list of such persons and entities.

This list is in practice included in HM Treasury’s Consolidated List of Financial Sanctions Targets.

TAFA offences: TAFA creates a number offences including:

* Freezing of designated persons’ funds and economic resources: a person must not deal with funds or economic resources owned, held or controlled by a designated person if he knows, or has reasonable cause to suspect, that he is dealing with such funds or economic resources [TAFA s. 11].

* Making funds or financial services available to designated person: a person must not make funds or financial services available (directly or indirectly) to a designated person if he knows, or has reasonable cause to suspect, that he is making the funds or financial services so available. A similar offence applies if funds or services are available to any person for the benefit of a designated person. [TAFA ss. 12/13]

* Making economic resources available to designated person: a person must not make economic resources available (directly or indirectly) to a designated person if he knows, or has reasonable cause to suspect that he is making the economic resources so available, and that the designated person would be likely to exchange the economic resources, or use them in exchange, for funds, goods or services. A similar offence applies if funds or services are available to any person for the benefit of a designated person. [TAFA ss. 14/15]

* Circumventing prohibitions etc.: a person commits an offence who intentionally participates in activities knowing that the object or effect of them is (whether directly or indirectly) to circumvent any of the above prohibitions or to enable or facilitate the contravention of any such prohibition. [TAFA s. 18]

Exceptions and licences: there are certain exceptions to the prohibitions, and the Treasury may licence certain actions [TAFA ss. 16/17]

Enforcement

Criminal enforcement: a person guilty of one of the TAFA offences is liable¬† on conviction on indictment, to imprisonment for a term not exceeding seven years or to a fine or to both. There is provision for Directors’ criminal liability.

Counter-Terrorism Act 2008

 

The Counter-Terrorism Act 2008 CTA 2008) amended the law in relation to terrorism in a number of distinct ways. It includes provisions relating to: the gathering and sharing of information for counter-terrorism and other purposes, including the disclosure of information to and by the intelligence services; post-charge questioning of terrorism suspects; the prosecution of terrorism offences and punishment of convicted terrorists; notification requirements for persons convicted of terrorism-related offences; powers to act against terrorist financing, money laundering and certain other activities; reviews of certain Treasury decisions; inquiries dealing with sensitive information; and various other miscellaneous measures. New powers and offences will be created by the provisions of the Act and existing terrorism legislation will be amended and reformed.

Under CTA s.62 and Sched.7, the UK Treasury has powers to give directions to persons in the financial sector to combat certain ‘Terrorist Financing’ and ‘Money Laundering’ in a country other than an EEA state. These powers apply if:

* the Financial Action Task Force has advised that measures should be taken in relation to the country because of the risk of terrorist financing or money laundering activities being carried on in the country;

* the Treasury reasonably believe that there is a risk that terrorist financing or money laundering activities are being carried on in the country and that this poses a significant risk to the national interests of the United Kingdom;

* the Treasury reasonably believe that the development or production of nuclear, radiological, biological or chemical weapons in the country poses a significant risk to the national interests of the United Kingdom.

Financial sector: a direction under the CTA 2008 s.62 may be given only to a particular person or category of persons operating in the financial sector. This definition of the financial sector is much narrower than the scope of the ‘regulated sector’ which applies to anti-money laundering legislation.

‘Person operating in the financial sector’ means a credit or financial institution which is a United Kingdom person or is acting in the course of a business carried on by it in the United Kingdom. The precise definitions of ‘credit institution’ and ‘financial institution’ for this purpose are set out in the CTA 2008 sched.7.
Certain types of entities are excluded; among these are certain Industrial and Provident Societies, and entities which engage in financial activity on an occasional or very limited basis

Bank Mellat v Her Majesty's Treasury

http://www.bailii.org/uk/cases/UKSC/2013/39.html

Bank Mellat challenged under the CTA s. 63 the Financial Restrictions (Iran) Order 2009 SI 2009/2725 which was made under CTA sched. 7 and directed all persons operating in the financial sector not to enter into or to continue to participate in any transaction or business relationship with Bank Mellat or any of its branches or with a shipping line called IRISL.

The Supreme Court quashed the direction on the grounds that:

(i) the distinction between Bank Mellat and other Iranian banks which was at the heart of the case put to Parliament by ministers was an arbitrary and irrational distinction and that the measure as a whole was disproportionate;

(ii) the Bank received no notice of the Treasury's intention to make the direction, and therefore had no opportunity to make representations.

[Original text of the case report supplied by BAILII gratefully acknowledged. Crown copyright: contains public sector information licensed under the Open Government Licence v2
Legaleze is solely responsible for the above text which is a summary only and the full report should be read.]

Comment

The CTA s.62 power has been used on three occasions to direct the UK financial sector to cease dealings with Iranian entities linked to Iran’s proliferation-sensitive nuclear and/or ballistic missile programmes. The last order made in 2012 was revoked following an EU regulation covering the same ground.

The first order was the subject of a successful appeal to the Supreme Court by Bank Mellat (see above). Bank Mellat also challenged the sanctions imposed by the EU in the Court of Justice of the European Union which quashed the sanctions on grounds that EU governments had failed to provide enough information to support their case that the lender had assisted Iran's nuclear programme. That decision is subject to appeal by EU governments and the appeal is scheduled to be heard on 10/09/2014.

In the meantime, Bank Mellat's European operations are closed while the appeal is being considered. It has been reported that Bank Mellat Bank, Iran's largest private bank, is suing the UK government for £2.4 billion

[Sources: British and Irish Legal Information Institute (BAILII); Court of Justice of the European Union; BBC News 17/02/2014]

What’s new items [go to What’s new? page or archive for more details]:

24/09/2014: EU court accepts Central Bank of Iran suit against EU sanctions

Central Bank of Iran v Council of the European Union
T-262/12 Hearing Date: 18 September 2014

The Central Bank of Iran was listed as a body subject to restrictive measures in Council Regulation (EU) 267/2012 (concerning restrictive measures against Iran) (the Iran Sanctions Regulation) which was adopted, the applicant introduced in order to apply pressure to Iran to end its proliferation-sensitive nuclear activities and the development of nuclear weapon delivery systems (the contested act).

Enforcement

Civil enforcement: an enforcement authority may impose a penalty of such amount as it considers appropriate on a person who fails to comply with a requirement imposed by a direction under the Act. A penalty may not be imposed if the authority is satisfied that the person took all reasonable steps and exercised all due diligence to ensure that the requirement would be complied with. In deciding whether to impose a penalty for failure to comply with a requirement, an enforcement authority must consider whether the person followed any relevant official guidance which was at the time approved by the Treasury. [CTA 2008 s.25/25A]

Criminal enforcement: a person who fails to comply with a requirement imposed by a direction under the CTA 2008 commits an offence and is liable on conviction on indictment, to imprisonment for a term not exceeding two years or a fine or both. There is a due diligence defence. In deciding whether a person has committed an offence, the court must consider whether the person followed any relevant official guidance that was at the time approved by the Treasury.

There is provision for Directors’ criminal liability.

[CTA 2008 s.30/30A]

[Page created: 26/09/2014]

 

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