FINANCIAL SANCTIONS: FREQUENTLY ASKED QUESTIONS

Transcription

1 HM TREASURY FINANCIAL SANCTIONS: FREQUENTLY ASKED QUESTIONS (FAQs) August P age

2 Contents 1 INTRODUCTION A note on publication arrangements UK Financial Sanctions a guide for beginners The Sanctions and Illicit Finance Team (SIF) Who is responsible for sanctions policy in the UK Who is responsible for administration of financial sanctions in the UK? Who is responsible for trade sanctions in the UK? What is the role of the Financial Conduct Authority (FCA)? How can I contact HM Treasury about financial sanctions? What is the Treasury s response time to enquiries? How do I keep up to date with financial sanctions in the UK? Financial Sanctions the basics Why does the UK apply financial sanctions? What are financial sanctions? How do I know which financial sanctions are in force in the UK? What about other countries financial sanctions that may apply to me? Financial sanctions asset freezing and other measures What do financial sanctions measures involve? What does an asset freeze do? What are funds and economic resources? Are frozen funds confiscated by HM Treasury? Can somebody make funds available to a designated person? Can somebody make financial services available to a designated person? Can somebody make economic resources available to a designated person? Can somebody make funds available for the benefit of a designated person? Can somebody make financial services available for the benefit of a designated person? When is it prohibited to make an economic resource available for the benefit of a designated person? What is a significant financial benefit? Can licensed funds be spent on anything? Where can I find advice on indirectly making funds available to a designated person where funds are made available to an entity owned or controlled by a designated person? How do sanctions affect me? P age

3 6.1 How do sanctions affect me if I am a designated person? I have commercial dealings with a designated person I am a private individual or charity I am a student from a country against which financial sanctions are in force What does freezing assets mean for a bank that holds funds? I am a lawyer acting for a designated person. Do I have to freeze their funds in my client account? Compliance and the Law What sanctions law applies in the UK? Are United Nations Security Council Resolutions and European Union Regulations directly applicable in UK law? Who must comply with financial sanctions in place in the UK? Do financial sanctions apply to the subsidiaries of UK companies outside the UK? What reporting requirements exist for relevant institutions? What powers does HM Treasury have to request information? What onward disclosure is allowed? What are the consequences for failure to comply with information requests? Is it an offence to make funds available to a target of financial sanctions legislation? Circumvention of sanctions What are the penalties for committing an offence under financial sanctions legislation? I have carried out a transaction that is subject to financial sanctions; what should I do? What if I did not know I was breaching a prohibition? Sanctions targets designated persons What is a designated person? Should the assets of other persons who are owned or controlled by a designated person be frozen? How can I tell if a company is owned or controlled by a designated person? What is the Consolidated List of Targets? What is the relevance of the AKA s on the Consolidated List? Is HM Treasury s Consolidated List of targets the same as that published by the European Union or the United States Treasury s Office of Foreign Assets Control (OFAC)? Where can I find the Consolidated List? What formats is the Consolidated List available in? How do I know what has changed when the Consolidated List is updated? How often is the Consolidated List updated? P age

4 8.11 How soon should a business implement changes to the Consolidated List? Why can t I access up-to-date lists or notices? Does the European Union maintain its own consolidated list of targets? Does HM Treasury have a web-based Consolidated List search engine? Challenging a designation decision How do I challenge my listing if I am listed by the UK? How do I apply to be removed or delisted from the United Nations Al-Qaida and Taliban list or other UN sanctions listing? How do I apply to be removed or delisted from an EU sanctions listing? Licences and exemptions What is an exemption? What is a licence? What types of licences are available? What activities might a licence cover? What is a basic expense of an individual? How do I apply for a licence? How long does it take to obtain a Treasury licence? Do I have to pay HM Treasury for a licence? Who can apply for a licence? Where can I find out more about the general licences in force? What should I do with any licence issued to me? Can I check that a licence is valid? When can a licence be changed? What do I do with a licence that concerns a delisted person? What can I do if a licence application is refused? Iran authorising and notifying transfers Financial sanctions the regimes How many regimes are in force? Where do I find details of the financial sanctions regimes in force in the UK? Sanctions business policies and procedures What policies and procedures do I need to put in place? What software do I need to buy? What should I tell a customer whose account is frozen? Do I need to make reports to the Treasury? P age

5 12.5 I have policies and procedures in place for anti-money laundering (AML) reasons are they relevant or sufficient? Target matches and name matches What is the difference between a name match and a target match? What are the reporting requirements for target matches? How often do I need to scan my customer database for possible target matches? Should an institution always contact HM Treasury if it has found a name match or a possible target match? Can I assume a UK-regulated financial services firm is not a designated person? Other advice and guidance Is any other financial sanctions guidance available? The Financial Conduct Authority The Joint Money Laundering Steering Group [JMLSG] Lloyds Insurance Market The Law Society HM Revenue and Customs [HMRC] The Gambling Commission The Royal Institute of Chartered Surveyors ANNEX A. Glossary of definitions ANNEX B. Further Guidance for designated persons under Terrorism / Al Qaida regimes Can I be paid interest on my bank account/savings? Can someone pay a cheque, or transfer funds, into my frozen account? Can I take out insurance? Can I invest my funds? Can I have a debit card? Can I have a pre-paid card? Can someone give/lend me money? Can someone give my spouse/partner money? Can someone buy me a drink/meal? Can I accept a gift? Can someone lend me something? Can I borrow a Pay As You Go Oyster card from a friend? Can someone pay my bill? Can I take employment? P age

6 17 ANNEX C: trade sector advice GENERAL COMMERCIAL ISSUES Can I make payments to a designated person? A designated person owes my business money. Can I write off the debt? A designated person owes my business money. Do I need a licence to pursue the debt? I ve got a garnishee Order nisi/absolute against a designated person. Can the Treasury provide me with details of frozen accounts? Is a licence required to exercise a right of set off? Do financial sanctions mean I cannot trade with persons or entities in countries subject to financial sanctions? How can sanctions affect my ability to export goods? I want to sell humanitarian goods, medicines etc to a country subject to financial sanctions. Will financial sanctions affect that? BANKING I have a designated person as a customer what should I do? Do I need a licence to close a frozen account and transfer any balance to the customer? Can I apply interest to an overdrawn, loan or mortgage frozen account? Are financial institutions expected to know if a credit received for a frozen account relates to a prior contract? What obligation is there on the bank to investigate the source of credits to frozen accounts? Can firms lend money or provide credit to a designated person? Can I apply interest to frozen accounts? I am a bank. Can I credit funds transferred to the account of a designated person? Can I credit funds received from a designated person to their frozen account? INSURANCE What is the general effect of sanctions on insurance businesses? What should an insurer do if an existing customer becomes a designated person after the inception of cover? What is the position if a policy holder names a designated person as a beneficiary? As an insurer I may not know the identity of every beneficiary of the cover I provide, because the business is managed under a delegated authority or bordereau arrangement. What should I do? As an insurer, I may only receive partial information from third parties. What should I do? 54 6 P age

7 I provide pensions or other products to an employer, and may not know who the relevant employees are. What should I do? I am a reinsurer. What do sanctions mean for me? I am an insurance agent or broker. What do sanctions mean for me? The Syrian and Iranian insurance bans refers to compulsory or third party insurance. What does the term compulsory mean in this regard? Motor insurance Does a firm providing a complimentary vehicle or temporary hire car in relation to a motor vehicle insurance policy to a designated person require a licence? LEGAL SERVICES We are a firm of solicitors acting for a designated person. Do we need a licence? Do solicitors acting for a designated person who is funded by legal aid or by other third parties require a licence to deal with those funds? P age

8 1 INTRODUCTION These FAQs have been produced to help businesses and others understand both the UN/EUmandated country sanctions regimes and the domestic terrorism measures that apply in the UK. These FAQs do not supersede or replace the legal requirements, and do not constitute legal advice. If you are NOT familiar with UK financial sanctions you will find it helpful to read the summary in Part 2 as an introduction to the issues. These FAQs should be read in conjunction with the relevant sanctions specific legislation that applies in each sanctions regime, and which is available via the list of current sanctions regimes at: These FAQs are structured as follows; Part 2 a guide for beginners provides a high level summary Part 3 explains the role of the Sanctions and Illicit Finance team at HM Treasury Part 4explains the basic provisions Part 5 deals with asset freezing and other measures Part 6 asks about sanctions may affect you? Part 7 deals with compliance and the law Part 8 deals with sanctions targets or designated persons Part 9 explains how to challenge a designation decision Part 10 deals with licences and exemption Part 11 explains about the financial sanctions regimes Part 12 discusses the policies and procedures businesses might need Part 13 discusses target matches and name matches Part 14 deals with advice and guidance from other sources. In addition, Part 15 includes a short glossary, Part 16 offers further advice specifically for persons designated under the Terrorism and Al Qaida regimes, and Part 17 includes advice on general commercial questions and points for the banking, insurance and legal sectors. These FAQs deal with financial sanctions, such as asset freezing measures. They do not cover other sanctions measures such as export restrictions or travel bans. Nor do they cover the financial measures associated with export and import restrictions, such as prohibitions on the provision of financing or financial assistance connected with prohibited transactions. COUNTRY SANCTIONS. Country sanctions refers to the various country-specific financial sanctions regimes that apply in the UK under a UN or EU mandate. These target institutions or people in, or linked to, specific countries. 8 P age

9 TERRORIST ASSET FREEZING. The UK operates certain terrorism linked financial sanctions, under UNSCR 1373 (2001) (terrorism) and UNSCR 1988 (2011) (Al-Qaida). The policy objective of the terrorist asset freezing measures is to impose those controls that are necessary to protect against terrorist finance risks. MEANING OF PERSON IN THESE FAQ S. In these FAQ s we use the term person to refer to a legal or natural persons, that is to say individual people or entities of any sort. 1.1 A note on publication arrangements It is our intention to review these FAQs on a six monthly basis, and to publish revised versions where necessary. August 2013 Financial Sanctions, HM Treasury 9 P age

10 2 UK Financial Sanctions a guide for beginners This is a very high level summary of how financial sanctions work in the UK, and is designed to serve as a starting point, before users go the main body of these FAQs. This section provides a brief introduction to UK Financial Sanctions. You should read this section first if you are not familiar with UK financial sanctions. Like other advanced economies, the UK operates a range of financial sanctions. These may follow action at the United Nations, European or domestic (UK) level, because of human rights abuses or other violations of international norms of behaviour, or to minimise the risk of terrorism within the UK. Financial sanctions effect designated person individuals or entities. Those designated persons ( sanctions targets ) are listed in the Consolidated List published on the Gov.UK website. Financial sanctions invariably include asset freezing measures these mean that funds are frozen by the bank or other institutions involved. Unless licensed by the Treasury a designated person can neither access those funds (ie spend them or pay them away) nor can they be paid or given funds or economic resources. In some cases (domestic terrorism designations and dealing with Syria and Iran) there are additional restrictions on providing designated persons with financial services or insurance. If a person (whether a designated person or not) needs a licence for example to make or receive a payment that is blocked by UK financial sanctions - they should write to HM Treasury setting out the facts. A series of forms is available to help licence applicants provide the necessary information. Businesses should have policies and procedures to ensure that they comply with their obligations under sanctions. Where a business carries out checks it may find that it has a customer with a name (or other details) identical or similar to those of a designated person. Where this is the case the business needs to decide as far as possible whether their customer is actually the designated person or not. If the business decides their customer is a designated person they should freeze the funds (but not send them to HM Treasury) and report the full facts to HM Treasury using this address: financialsanctions@hmtreasury.gsi.gov.uk If, after examination of all the information they may already have, OR can acquire through additional enquiries, business remains unsure whether a person is designated they should report all the facts to HM Treasury. HM Treasury operates telephone and enquiry services, but you should study the relevant law and the full body of theses FAQs before submitting an enquiry. 10 P age

11 3 The Sanctions and Illicit Finance Team (SIF) 3.1 Who is responsible for sanctions policy in the UK The Foreign and Commonwealth Office (FCO) is responsible for overall policy on international sanctions including the scope and content of international sanction regimes. There is a general explanation of sanctions and embargoes here: Who is responsible for administration of financial sanctions in the UK? HM Treasury is the competent authority for the purposes of administering financial sanctions in force in the UK. This means it administers the UK, EU and UN regimes that require the freezing of funds and economic resources that belong to or which are owned, held or controlled by persons who are subject to asset freezes, and also administers restrictions on transfers of funds and on the provision of certain financial services. HM Treasury is therefore responsible for: the implementation and administration of international (i.e. UN and EU) financial sanctions in effect in the UK; domestic designations under the Terrorist Asset-Freezing etc. Act 2010; licensing exemptions to financial sanctions; and issuing authorisations in respect of other financial restrictions. The Treasury produces a range of financial sanctions related material for businesses and others, including these FAQs. That material is available via the Gov.uk website here: Who is responsible for trade sanctions in the UK? The Department for Business, Innovation and Skills is the UK department responsible for trade sanctions, such as bans on weapon exports. For an overview of export controls see: What is the role of the Financial Conduct Authority (FCA)? The FCA regulates the financial services industry in the UK. Its aim is to protect consumers, ensure the industry remains stable and to promote healthy competition between financial services providers. The FCA has rule-making, investigative and enforcement powers that are used to protect and regulate the financial services industry. 11 P age

12 The FCA s Handbook of Rules and Guidance requires, among other things, that banks establish and maintain effective systems and controls to prevent the risk that they might be used to further financial crime, including sanctions violations. 3.5 How can I contact HM Treasury about financial sanctions? Enquiries concerning financial sanctions should be sent in electronic form to: financialsanctions@hmtreasury.gsi.gov.uk Enquiries can be submitted by post to: Financial Sanctions Sanctions & Illicit Finance HM Treasury 1 Horse Guards Road London SW1A 2HQ We prefer to receive written enquiries in electronic form (for example as an or a PDF of a letter sent in an ), because that is how we manage and record enquiries. It is not necessary to send a paper copy of a letter sent electronically. Alternatively, if you have an enquiry about UK financial sanctions, you can call the Treasury Financial Sanctions helpline on Please note HM Treasury is unable to offer assistance with complex enquiries over the telephone. We encourage all of those making enquiries, but especially those most familiar with these regimes such as lawyers and compliance staff in financial institutions, to considered the relevant legislation and guidance on the Treasury s website and form and set out their own view on the issue in their enquiries. 3.6 What is the Treasury s response time to enquiries? HM Treasury aims to respond to general enquiries within two weeks of receipt, prioritising urgent correspondence as appropriate. However, at times due to large volumes of correspondence it is not possible to respond within this timeframe. At such times, the Treasury will send an interim reply to inform you of the status of your enquiry within two weeks of receipt of your original enquiry. You are strongly encouraged to look at the Treasury s website, including this document to see if this provides the answer to your enquiry before submitting questions to the Treasury. Please note that whilst the Treasury is willing to assist with enquiries, it does not provide legal advice and its views are not determinative of questions of law. It is recommended, where necessary, that independent legal advice is sought. 12 P age

13 3.7 How do I keep up to date with financial sanctions in the UK? HM Treasury operates a free subscription service which allows subscribers to receive updates whenever there are changes to financial sanctions effective in the UK. You can find out how to subscribe at 13 P age

14 4 Financial Sanctions the basics 4.1 Why does the UK apply financial sanctions? The UK Government will apply financial sanctions either as part of international or European moves to bring pressure to bear on target groups or regimes (for example because of measures adopted by the United Nations) or to meet domestic policy objectives. The UK has an international law obligation to implement UN sanctions. In practice the EU implements UN regimes by means of a directly effective EU Regulation which immediately forms part of the UK s law upon its adoption. The UK enforces those measures by means of domestic regulations which impose criminal penalties for breaches of the EU Regulation. Sanctions are normally used by the international community for one or more of the following reasons: To encourage a change in the behaviour of a target country or regime; To apply pressure on a target country or regime to comply with set objectives; As an enforcement tool when international peace and security has been threatened and diplomatic efforts have failed; To prevent and suppress the financing of terrorists and terrorist acts. 4.2 What are financial sanctions? Financial sanctions are normally one element of a package of measures used to achieve one or more of the above objectives. Current financial sanctions measures typically take the form of targeted asset freezes on individuals or entities. Under Chapter VII of the United Nations (UN) Charter, the UN Security Council can take enforcement measures to maintain or restore international peace and security. Such measures range from financial sanctions to international military action. Article 41 of the UN Charter allows the Security Council to decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures. The range of sanctions can vary from comprehensive financial and trade sanctions to more targeted measures such as arms embargoes, travel bans, financial or diplomatic restrictions. In the modern (post-world War 2) era, targeted sanctions are the norm. In addition, the European Union applies sanctions in pursuit of the specific objectives of the Common Foreign and Security Policy (CFSP) as set out in the Treaty of the European Union. Sanctions in the CFSP framework include the interruption or reduction of financial relations with third countries and restrictions against specific individuals or entities. They also include the interruption or reduction of diplomatic relations, restrictions on admission and other measures not affecting financial relations with third countries. Restrictive measures are applied by the EU either in implementation of sanctions adopted by the UN Security Council in accordance with Chapter VII of the UN Charter or autonomously within the framework of the CFSP. 14 P age

15 Finally the UK may apply domestic financial restriction measures. In practice it does this to respond to certain terrorism threats. 4.3 How do I know which financial sanctions are in force in the UK? The Treasury publishes material on the gov.uk website about all of the current financial sanctions regimes that are in force in the UK see: Under the individual entries for each country or regime there are details about the regime, crucial documents such as key UN and EU measures, UK legislation, Treasury notices, and a list of persons covered by the regime. You can keep in touch with the main changes to the UK sanctions regime by subscribing to the Treasury s Financial Sanctions subscription facility see paragraph What about other countries financial sanctions that may apply to me? You may be affected by foreign sanctions, which are sanctions operated by other countries, for example because of the ownership of your business by a foreign corporation, or because of where or how you carry on your business. In addition, the nature of much international trade finance means financial institutions encounter other financial sanctions regimes. HM Treasury cannot advise you on compliance with foreign sanctions. 15 P age

16 5 Financial sanctions asset freezing and other measures 5.1 What do financial sanctions measures involve? Financial sanctions invariably include an asset freezing regime. Asset freezes comprise two elements: A prohibition on dealing with the funds or economic resources belonging to or owned, held or controlled by a designated person, and A prohibition on making funds or economic resources available, directly or indirectly, to, or for the benefit of, a designated person. Certain financial sanctions may also involve: A prohibitions on providing or performing other financial services (see, for example, the Terrorism Asset-Freezing etc Act 2010, which prohibits the provision of unlicensed financial services such as insurance to designated persons ), or A prohibition on the provision of insurance or reinsurance to certain Governments or public bodies, or those acting on their behalf. (See the Syrian and Iranian (proliferation) regimes for details). 5.2 What does an asset freeze do? An asset freeze prevents anyone dealing with funds or economic resources which belong to, or which are owned, held or controlled by, a designated person. Deal with, in relation to funds, (see the glossary for definition of funds ), includes to move, transfer, alter, use, allow access to, or deal with in any way that would result in any change in the funds volume, amount, location, ownership, possession, character, destination, or any other change that would enable the funds to be used. This also includes the management of securities (shares, bonds, etc) and other assets. Deal with, in relation to economic resources, (see the glossary for definition of economic resources ) means exchange, or use in exchange, for funds, goods or services. It is not prohibited for a designated person to use the economic resource for normal use within the law (e.g. using their car to do the shopping) but a designated person could not sell or use the resource to generate funds (e.g. by selling the car or using it for a taxi or courier business) without a licence from the Treasury (see Section 10). 5.3 What are funds and economic resources? We define these more fully in the glossary (see section 15). Funds refers to financial assets and benefits of every kind, including for example, cash, cheques, money orders and other payment instruments as well as deposits, securities and other financial assets. Economic resources means assets of every kind. 5.4 Are frozen funds confiscated by HM Treasury? Frozen funds are NOT confiscated, sequestered or otherwise held by HM Treasury. 16 P age

17 This means that HM Treasury cannot pay the liabilities of a designated person using frozen funds (although it may be possible for certain liabilities to be met out of frozen funds, if a licensing ground is available). A freeze just means the funds must stay where they are and cannot be dealt with unless under licence. 5.5 Can somebody make funds available to a designated person? No - it is a criminal offence to knowingly or with reasonable cause to suspect make funds available, directly or indirectly, to a designated person. Making funds indirectly available to a designated person would involve the funds being routed via a third party. So, for example, it would be a criminal offence to give funds to a designated person s friend knowing or suspecting that some or all of the funds will be given to the designated person. However, the Treasury can issue a licence exempting certain transactions from the restrictions of the asset freeze. If an appropriate licence has been issued by the Treasury, then the funds can be made available as set out in that licence. Gifts, loans, or any other transactions that give designated persons the control of funds will be prohibited without a licence from the Treasury. Gifts, in this context, can include (but are not limited to) seasonal gifts and birthday presents to designated persons, where the gift would come within the definition of funds (or, in certain circumstances, an economic resource - see below at 5.7). A gift voucher would be classed as funds in this context. If the designated person is owed some money, both parties would need to be included in a Treasury licence for the debt to be settled. For example, if the designated person is a landlord, both they and their tenant would need to be covered by a licence for rent payments to be made the designated person to receive the funds and to make any payments out that they need to make, and the tenant to make funds available to the designated person. 5.6 Can somebody make financial services available to a designated person? Under the Terrorist Asset-Freezing etc Act 2010, there is a prohibition on making financial services available to a designated person. There are some general licences for certain categories of insurance (see but it is otherwise prohibited for anyone to make financial services (e.g. banking, insurance or investment services) available to a person designated under the Terrorist Aasset- Freezing etc. Act 2010 without a licence. This restriction on providing financial services is not included in legislation covering people designated under other regimes. However, other prohibitions may be engaged in the provision of financial services. For example it is not prohibited to provide banking or insurance services to a designated person (subject to the prohibitions on insurance or reinsurance under the Syria and Iran (proliferation) regimes), but any funds should be frozen by the financial services provider and only released to the designated individual in accordance with a licence from the Treasury. Similarly, the provision of investment services will be prohibited under the prohibition on dealing with a designated person s funds as this would result in a change in the funds volume, amount, location, or character. 17 P age

18 5.7 Can somebody make economic resources available to a designated person? For a definition of economic resources, see the GLOSSARY. It is a criminal offence to make economic resources available, directly or indirectly, to a designated person knowing or suspecting that the designated person is likely to exchange them for or use them to generate funds, goods or services. It is not, however, prohibited for someone to make an economic resource available to a designated person for their everyday non-business use, where such use will not result in the designated person generating funds, goods or services. For example, these measures would not prevent someone lending or giving a designated person a bicycle, e.g. for recreation purposes. However, if the person knew or suspected that the designated person would use it to obtain money (e.g. by finding paid employment as a courier or by selling it), this would be prohibited. Note that engaging in any conduct which circumvents the prohibitions of the asset freeze is a criminal offence. Thus if someone gave a designated person a bicycle in good faith for them to use for their own personal use as transport, rather than to generate income, but the designated person then sold the bicycle, the designated person would be committing a criminal offence, even though the person who gave them the bicycle would not be. 5.8 Can somebody make funds available for the benefit of a designated person? It is a criminal offence for a person to knowingly, or with reasonable cause to suspect they are doing so, make funds available to a third party in circumstances where a designated person thereby obtains or is able to obtain a significant financial benefit. The aim of this prohibition is to prevent designated persons having access to significant additional funds because third parties make payments which the designated person would otherwise have to make. It is not intended to prohibit all payments to non-designated third parties which may benefit a designated person, but only those where there is a significant financial benefit. So, for example, where a person settles a debt owed by a designated person to a third party, that person has allowed the designated person to receive a financial benefit (as the designated person no longer has to pay the debt). Whether this benefit is significant or not will depend on the facts of the case, taking account, for example, of the income and assets of the designated person and the size of the debt (see 5.11 below). The definition of financial benefit is broad. It includes, for example, the discharge of a financial obligation (a debt, commitment or liability) for which the designated person is wholly or partly responsible. A designated person would be likely to obtain a significant financial benefit if a third party paid the household bills of a designated person, such as rent or mortgage, utility bills, or met the cost of regular shopping where the designated person would otherwise be meeting or contributing to these, however there is no set threshold at which a financial benefit is considered significant : it will depend on the facts of each case (see 5.11 below). 5.9 Can somebody make financial services available for the benefit of a designated person? Under the Terrorist Asset-Freezing etc Act 2010 (TAFA), there is a prohibition on making financial services available for the benefit of a designated person. Note, however, that the insurance general licence allows insurance providers to provide insurance policies to designated person. The licence can be found here: 18 P age

19 eneral_licence_insurance_provision.pdf. There are no express restrictions on providing financial services for the benefit of persons designated under other sanctions regimes, although, as set out in 5.6 above, other restrictions may well in effect prevent the provision of financial services. It would be prohibited under the Terrorist Asset-Freezing etc Act 2010 for someone to provide financial services to a third party for the benefit of a designated person if that designated person thereby obtains a significant financial benefit. A third party could not, therefore allow a designated person to make transactions through their bank account: this would be a breach of this prohibition and an offence of circumventing the asset freeze. It would also be prohibited for a TAFA-designated person to be a named driver on a car insurance policy without a licence from HM Treasury if he thereby gains a significant financial benefit, e.g. by not having to take out his own insurance When is it prohibited to make an economic resource available for the benefit of a designated person? The prohibition makes it a criminal offence for a person to knowingly, or with reasonable cause to suspect they are doing so, make economic resources available to a third party in circumstances where a designated person obtains or is able to obtain a significant financial benefit. The definition of financial benefit is broad. It includes, for example, the discharge of a financial obligation (a debt, commitment or liability) for which the designated person is wholly or partly responsible. The aim of this prohibition is to prevent designated persons gaining access to additional funds through the provision of economic resources to others. It is not prohibited for someone to make economic resources available for the benefit of a designated person unless the designated person obtains a significant financial benefit. So, for example, if someone lent their car to a member of the designated person s family, for the purpose of driving the designated person as a passenger this would clearly be for the benefit of the designated person. However, this would only be prohibited if the designated person obtained a significant financial benefit from being so driven, e.g. if the designated person no longer had to spend significant funds on public transport/taxis. As set out above, the repayment of a loan or discharge of any other financial obligation on behalf a designated person comes within the definition of financial benefit for this purpose. So if someone gave their car to a third party in settlement of a debt owed to that third party by a designated person this would be prohibited (as the designated person would no longer have to pay the debt and therefore would obtain a significant financial benefit from having the economic resource (the car) made available to the third party on his behalf) What is a significant financial benefit? There is no set threshold at which a financial benefit is considered significant. It will depend on the facts of each case, e.g. the individuals assets and income, past history and activities. In this context, it should be noted that a small amount of money can be significant in terrorist financing terms given the relatively low cost of terrorist attacks. 19 P age

20 If there is any doubt, HM Treasury s guidance may be sought although it is ultimately for parties to satisfy themselves as to whether the benefit should be considered significant Can licensed funds be spent on anything? Under the Terrorist Asset-Freezing etc. Act 2010, unless otherwise stipulated in the licence, licensed funds can be used in any lawful way. Under other UN and EU regimes, there are specific exemptions under which licences can be issued. If the licence requested does not fall within one of the exemptions, then the licence cannot be issued by HM Treasury. Before asking HM Treasury to issue a licence under these regimes, you should first look at the UN security Council Resolution or EU Regulation under which the designated person is designated and ascertain whether an exemption applies. All regimes allow for the licensing of payments to meet the basic expenses of designated persons. If in doubt, HM Treasury s advice may be sought Where can I find advice on indirectly making funds available to a designated person where funds are made available to an entity owned or controlled by a designated person? Advice issued by the EU is available at: 20 P age

21 6 How do sanctions affect me? It is your responsibility to comply with financial sanctions. You may want to seek independent legal advice if you consider it necessary. Sanctions might affect you if: You are involved in any sort of financial business with OR making funds or economic resources available to or for the benefit of any of the targets of financial sanctions; You deal with or have any designated persons as customers, suppliers, bankers, financiers or investors. 6.1 How do sanctions affect me if I am a designated person? The effect of financial sanctions on you will depend on the scope of the sanctions measure concerned and your proposed activity. But generally financial sanctions will restrict your ability to make or receive payments, carry out investments or conduct any other dealing with your funds or economic resources. If you are a designated person you will not (without a licence) be able to deal with money, so you cannot take money from your bank account unless you have been provided with a licence. Nor can you use any cash or prepaid, debit or credit cards. If you are designated under the Terrorist Asset-Freezing etc. Act 2010 ( TAFA 2010 ) you should read part 16. You will only be able to access financial services where the provider is licensed. There is more about the supply of insurance to designated persons in paragraphs 17.3 and I have commercial dealings with a designated person. Financial sanctions will restrict your ability to make payments to or deal with funds of a designated person without a licence. It will also restrict the designated person s ability to make payments to you from funds owned, held or controlled by them, without a licence. See also paragraph It is a matter for the commercial judgement of a bank whether it continues to provide banking services to businesses dealing with designated persons etc. 6.3 I am a private individual or charity. Private individuals or charities may find financial sanctions affect certain transactions, such as sending money or economic resources or assets to a designated person or other persons via a designated person, or they may have to comply with reporting or (in the case of Iran) notification or authorisation requirements. Targeted financial sanctions generally include humanitarian exemptions or licensing grounds because they do not seek to interrupt humanitarian payments, or effect humanitarian bodies or agencies, or humanitarian transactions such as the sale or donation of hospital equipment, drugs or medicines etc. This is because targeted financial sanctions are not designed or intended to worsen the position of the poor or patients in need of hospital and medical care, drugs and medicines etc. 21 P age

22 HM Treasury will treat applications for humanitarian licences (for humanitarian fund transfers, payments for drugs and medicines etc) as a priority. HM Treasury reminds businesses that the clear wish of the international community, specifically expressed in sanctions measures with humanitarian provisions, is NOT to prevent the passage of humanitarian funds or goods. Accordingly banks or other financial institutions should feel able to safely undertake humanitarian transactions if they are sensibly managed. Other financial sanctions administrators (such as the US Treasury s Office of Foreign Assets Control, OFAC) publish their own guidance on humanitarian assistance and related exports. See also paragraph about humanitarian transactions. 6.4 I am a student from a country against which financial sanctions are in force. Students may experience difficulties in receiving funds, including sponsorship, from countries where financial sanctions are in force for a range of reasons, such as disruption to employers or government departments that pay support, disruption to their family where they receive support from that source, shortages of funds, or disruption to access to the international banking system, as well as interruption to the operation of designated banks. Not all of those problems (for example shortage of funds, or administrative difficulties) will be as a result of financial sanctions. Sanctions might affect the ability of commercial sponsors or governments to pay students educational or living expenses. HM Treasury will consider licence applications in such cases as a matter of priority. But remember that a licence only permits payments to be lawfully made; a licence does not mandate or require that a payment is made. It is a matter for the commercial judgement of a bank whether it continues to provide banking services to students who are nationals of countries subject to financial sanctions measures. 6.5 What does freezing assets mean for a bank that holds funds? In practical terms, accounts or other funds held must be frozen (or blocked). They can only be dealt with, for example released or paid away by the financial institution (or any other person) that holds them, under the authority of a licence issued by HM Treasury. An asset freeze does not affect the ownership of funds. 6.6 I am a lawyer acting for a designated person. Do I have to freeze their funds in my client account? Yes, funds held must be frozen (or blocked). They can only be dealt with, for example released or paid away by you under the authority of a licence issued by HM Treasury. 22 P age

23 7 Compliance and the Law NOTE: For the details of each specific financial sanctions regime, please refer to the relevant EU Regulation and the UK s enforcing regulations. Legislation is available via the regime-specific publications at: What sanctions law applies in the UK? There is no single over-arching piece of financial sanctions legislation in the UK. With the exception of the domestic Terrorism and Terrorist Financing regime, which is implemented by primary domestic legislation, for every individual financial sanctions regime there are two types of legislative instruments: (1) an EU Regulation which imposes obligations on UK persons to freeze the assets of designated persons, refrain from making funds and economic resources available to them and any other financial prohibitions or restrictions. The EU Regulation will either implement a UN-mandated regime or an autonomous EU regime; and (2) a set of UK regulations made under section 2(2) of the European Communities Act 1972, which enforces the EU Regulation by making it a criminal offence in the UK to breach the EU Regulation s measures. Under the Terrorism and Terrorist Financing regime there is: (1) an EU Regulation, 2580/2001, which gives effect to UN Security Council Resolution 1373(2001), and which imposes specific financial sanctions against certain listed targets; and (2) The Terrorist Asset-Freezing etc. Act 2010 which (a) enforces the asset freezes in respect of the EU-listed targets and (b) provides HM Treasury with powers unilaterally to freeze the funds and economic resources of those suspected or believed to be involved in terrorist activities, and restricts the making available, directly or indirectly, of funds, financial services, and economic resources to, or for the benefit of such persons. 7.2 Are United Nations Security Council Resolutions and European Union Regulations directly applicable in UK law? EU Regulations imposing and/or implementing sanctions are part of Community law and have direct effect in the Member States. EU Regulations either implement UN sanctions regimes or implement autonomous EU regimes. A set of UK Regulations made under section 2(2) of the European Communities Act 1972 is required to introduce criminal penalties for breaches of the EU Regulation into UK law. The EU Regulation implements the sanctions and the UK Regulations enforce them. 23 P age

24 United Nations Security Council Resolutions are not directly applicable in UK law. However, under the United Nations Charter, member states are called upon to give effect to any measures decided upon by the Security Council. The EU implements the 27 Member States UN obligations by adopting an EU Regulation, which gives effect to the UN measures in UK law. A set of UK Regulations is required to introduce criminal penalties for breaches of the EU Regulation. 7.3 Who must comply with financial sanctions in place in the UK? All individuals (irrespective of their nationality) and all legal entities (whether incorporated or established under UK law or under the law of any other jurisdiction) who are within the UK s territory must comply with both EU and UK sanctions regulations that are in force. Any British national or British legal entity established or incorporated under UK law whose activities are conducted outside the UK s territory must also comply with the EU Regulation and the UK Regulations (or TAFA 2010). 7.4 Do financial sanctions apply to the subsidiaries of UK companies outside the UK? The UK Regulations do not apply to subsidiaries operating wholly outside the UK and which are not British legal entities established or incorporated under UK law. If the subsidiary is incorporated under EU law, it will remain subject to the EU Regulation. If it is incorporated under the laws of a non-eu country, is outside the territory of the EU, and does not do business in the EU, it will not be subject to EU sanctions even though its parent company is. 7.5 What reporting requirements exist for relevant institutions? Reporting requirements are covered specifically in the relevant UK country sanctions regulations. The general position is that relevant institutions must inform the Treasury as soon as practicable if it knows, or has reasonable cause to suspect, that a person (i) is a designated person, or (ii) has committed an offence under the licensing, contravention or circumvention provisions of the regulations, and the information or other matter on which the knowledge or suspicion is based came to it in the course of carrying on its business. (A relevant institution means an FCA authorised business, or an equivalent EEA firm, or any form of money service business (foreign exchange bureaux, money transmitter or cheque casher)). 7.6 What powers does HM Treasury have to request information? Information powers are covered specifically in the relevant UK country sanctions regulations. The general position is that HM Treasury may ask any person in or resident in the UK to furnish any information he has or controls, or to produce any document in his possession or control, which they may require for the purpose of ensuring compliance with sanctions law. Any person to whom such a request is made must comply with it within the required time and in the manner specified, subject to the obligations of legal professional privilege. This includes the power to take copies of, or extracts from, any document produced and to request an explanation of the document. 24 P age