Give Sanctions Regime Proper Teeth To Deal With Dirty Money

Over recent years, several states introduced legislation enabling them to impose targeted sanctions upon individuals involved in human rights violations and corruption, the so-called Magnitsky sanctions. These laws are named after Sergei Magnitsky, a Russian tax advisor. Magnitsky uncovered tax fraud perpetrated on a vast scale, implicating Russian officials. In 2008, he was imprisoned in Russia and later died in jail as a result of the mistreatment suffered there. In response to the events that led to Sergei Magnitsky’s death, U.S. financier, Bill Browder, launched a campaign to ensure that the Russian officials involved would face consequences in the form of sanctions. It was Browder’s campaign which resulted in U.S. Congress passing the Magnitsky Act in 2012. Later, it became the Global Magnitsky Human Rights Accountability Act (with extrajudicial scope). Currently, the number stands at 35 countries with several others working on such provisions at the moment.

While the scope of the Magnitsky laws varies between jurisdictions, they allow for imposing sanctions against those involved in human rights violations and corruption, including freezing orders and travel bans.

The Magnitsky laws became an effective means of justice and accountability, and especially where no other avenues are available or severely limited. However, there are ongoing questions in relation to how to make the best of the sanctions, especially freezing orders, and how the frozen assets could be repurposed and used to do good. While these conversations are ongoing and include important considerations of the rule of law, due process and property rights, among others, British politicians found yet another way to tackle the issue.

On April 27, 2023, Lord Alton of Liverpool, a Cross-bench member of the U.K. House of Lords, tabled an amendment to the Economic Crime and Corporate Transparency Bill to ensure that some assets could be confiscated. Lord Alton’s amendment aims to impose a duty to disclose funds and economic resources and enable asset recovery under the Proceeds of Crime Act where there has been deliberate concealment of assets. As such, the amendment “is designed to give the sanctions regime proper teeth and to deal with dirty money.”

Lord Alton’s amendment would require all designated individuals to declare any assets they control in the U.K. to the Office of Financial Sanctions Implementation (OFSI). Furthermore, they would also be required to provide a list of assets held in the six months prior to designation. According to Lord Alton, “failure to disclose these assets within a specified timeframe would be criminalized as a form of sanctions evasion. As a result, undisclosed assets would be made susceptible to seizure using existing procedures under the Proceeds of Crime Act. These procedures already have safeguards in place for courts to ensure that a person is not arbitrarily deprived of their private property.” As such, the current concerns in relation to repurposing frozen, as are often quoted, whether in relation to the rule of law, due process or property rights, would not apply.

When justifying the need for the amendment, Lord Alton referred to several recent cases of sanctioned individuals who concealed their assets, one way or another, to avoid them being subjected to sanctions. Lord Alton indicated that “the Government have imposed sanctions on nearly 1,500 individuals, including 120 oligarchs with a net worth of over £140 billion. However, to put that in perspective, the OFSI reports that, in total, just £18 billion of assets associated with Russia’s regime have been frozen since the beginning of the war—compare that with the net worth of £140 billion.” He explained that “oligarchs have found increasingly sophisticated ways to weaken our sanctions response: moving assets just before sanctions hit; exploiting loopholes to put assets out of reach; and concealing assets to hinder the enforcement of sanctions.” Among the examples, Lord Alton said that “oligarchs such as Abramovich, for example, were able to bypass the sanctions by handing over their wealth and companies to family members just a few weeks before the sanctions hit. Just before the war began, Abramovich restructured at least $4 billion of his personal wealth and transferred it to his children, who are now the owners of trusts, luxury yachts, private jets and mansions—all out of reach of UK sanctions. (…) Mikhail Fridman’s personal assistant, Nigina Zairova, took control of several entities previously owned by that sanctioned oligarch, including a £65 million mansion in Highgate. She was belatedly sanctioned, but the costs of constantly being one step behind are clear.”

As Lord Alton added, as it stands, “assets are clearly slipping through the cracks of our sanctions regime, but we do not currently have any legislative tools to seize assets that remain concealed. [The amendment] proposes a minor but significant change to our current legislation that would put us on the front foot in pursuing sanctioned assets.” Lord Alton’s amendment was not put to a vote and is to be brought back at a later stage as the Economic Crime and Corporate Transparency Bill moves through the Parliamentary process.

It is noteworthy that in 2022, the European Union introduced a similar duty to disclose sanctioned assets. According to Article 9 of the Council Regulation (E.U.) No 269/2014 of 17 March 2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, listed persons and entities are obliged to disclose to Member States’ competent authorities funds or economic resources belonging to, owned, held or controlled by them which are located within E.U. jurisdiction. Non-compliance with this obligation is to be treated as a breach of E.U. sanctions law, with the consequences including criminal penalties. This new obligation was introduced as a direct response to various sanctions evasion schemes.

The sanctions regime must be given proper teeth to deal with dirty money. The approach taken by the E.U. and proposed in the U.K. are important steps in the right direction to ensure that sanctions can be more effective.