How to Become a Designated Individual Under the Anti-Corruption Regulations
Under the Regulations, persons can be designated where there are reasonable grounds to suspect that an individual or organization is involved in serious corruption or is acting for, controlled by or associated with an individual or organization involved in the same.
Serious corruption isn’t strictly defined by the legislation, but the accompanying Government guidance on the matter states that the term is used with consideration of the long-term goals of the UK’s Anti-Corruption Strategy. Acts that may be considered serious corruption can be defined as:
- Acts that fuel or otherwise enable national and international security threats
- Acts linked to terrorism or organized crime, or international instability
- Acts that undermine the achievement of sustainable development goals, development or poverty reduction
- Acts that impede trade or undermine growth
- Acts that undermine a country’s democratic governance
- Acts that weaken vital public institutions (including international institutions)
- Acts that deprive citizens of vital public resources or exacerbate inequality
The guidance provided also states that the Government will be more likely to make a designation where the corruption is systemic or sophisticated or if the financial value at stake is significant relative to the location in question.
Any person that is actively supporting, concealing, benefitting from or failing to investigate serious corruption is considered an “involved person”, as are any persons transferring, obscuring, or facilitating the transfer of any profit associated with serious corruption. Where a person is involved, all entities owned or controlled by that party may also be at risk of sanction.
Since the new regime was announced, 22 individuals have been designated, including 14 individuals and government officials from Russia involved in a tax fraud scheme, three businessmen from India, and one businessman each from South Africa, Sudan, Guatemala, Nicaragua and Honduras.
The policy paper, which can be viewed on gov.uk, sets out numerous factors that will be taken into account during the designation process, including policy priorities, the scale and nature as well as the impact of the corruption, the status and connections of the involved person, collective international action as well as the interaction with law enforcement agencies, and the risk of reprisal.
Designated persons will be subject to a targeted asset freeze as well as/or a travel ban. The asset freeze will include the freezing of funds and non-monetary economic resources, including property or vehicles. These assets and funds may not be made available to or used for the benefit of a designated person, either directly or indirectly. If a travel ban is instituted, the designated person will be prohibited from traveling either to or via the UK. Any permissions issued to stay in the UK will be rescinded.
Under the Regulations, it is a criminal offense to intentionally participate in any activities knowing that the object or result is to circumvent the requirements and prohibitions imposed or to enable the contravention of the prohibitions. It also prohibits others from handling the funds or resources owned, held or otherwise controlled by a designated person.
What Are the Regulations?
The new Global Anti-Corruption Sanctions Regime closely resembles the approach taken by the United States and Canada in placing sanctions on persons and entities based on allegations of corruption. It marks a significant change in the UK, and companies will need to remain alert when conducting customer due diligence.
Until now, financial institutions could use their own judgment during due diligence as to whether or not allegations of corruption would prohibit them from onboarding a customer or continuing to do business with them. Now, any person on the list (and associates) would face immediate and automatic consequences. Unlike other regimes, the new Regulations target individuals around the globe and designate individuals based purely on allegations, not an actual conviction. The paper states that the UK will pay particular attention to cases where law enforcement in the relevant jurisdiction has been unwilling or otherwise unable to hold involved persons to account for their actions.
It is important to note that the Regulations focus purely on corruption occurring outside of the United Kingdom; involvement with corruption falling within the UK’s jurisdiction will be addressed through national law enforcement measures.
Any breach of the financial prohibitions in the Regulations may be met with a maximum sentence of seven years imprisonment, fines, or both. Obligations are placed on relevant businesses to make a report if they either know or suspect that a person is a designated person or has committed an offense listed under the Regulations. The Regulations do grant the relevant authority the power to request additional information, including the production of documents. Failing to comply with reporting or information gathering requirements carries the possibility of a prison sentence or fine, or both. Directors and relevant company officers may also be held liable for offenses committed by companies they are associated with, including a legal officer who neglected to put sufficient controls in place to prevent corruption from taking place through the company.
While the New Global Anti-Corruption Sanctions Regulations of the UK are still fairly limited in their scope, financial institutions should keep a close eye on this important piece of legislation in order to remain compliant.