The UK government imposes financial restrictions on persons and entities as part of its domestic counter-terrorism regime, as well as those persons proscribed by the United Nations and/or European Union.
In our recent survey, 48% of respondents said that they did not check their clients against these sanctions lists.
It is important that such a decision is made as a result of a careful consideration of your firm's risk profile and client demographic, rather than through a lack of understanding of your obligations and the risks posed to your firm.
The legislation
Under The Al Qaida and Taliban (United Nations Measures) Order 2006 and the Terrorism (United Nations Measures) Order 2006, it is a criminal offence for any natural or legal person to:
- deal with the funds of designated persons, or
- make funds and economic resources available, directly or indirectly for the benefit of designated persons.
Under the Terrorism (United Nations Measures) Order 2006, you must not make financial services available, directly or indirectly to or for the benefit of designated persons.
Finally, you must not knowingly and intentionally participate in activities that would directly or indirectly circumvent the financial restrictions or enable, or facilitate the commission of any of the above offences.
Who is on the list?
HM Treasury issues a consolidated list of all persons and entities that are subject to sanctions which are effective in the UK . This list can be obtained from:
http://www.hm-treasury.gov.uk/fin_sanctions_index.htm
The persons and entities included on the list come from a wide range of nationalities and currently reside in a wide range of countries.
There are a number of regimes to which financial sanctions have also been applied::
- Al Qaida and the Taliban
- Belarus
- Burma/Myamar
- Democratic Republic of Congo
- Persons indicted by the International Criminal Tribunal for the former Yugoslavia
- Iran
- North Korea
- Zimbabwe
Assessing your risk profile
When assessing your firm's anti-money laundering risk profile, you should consider your likely exposure to clients on the sanctions lists.
Due to the wide range of persons and entities listed, it is difficult to categorise the clients that may need to be checked simply by their nationality or country of residence .
There are UK nationals on the list, so you may still be at risk even if you only act for local clients.
The regimes list is a useful indicator in assessing risk, but it is only effective where it is apparent in the retainer that a person or entity may have some connection to the relevant regime.
Due to the width of prohibited activities, it is often difficult to exclude types of retainers from the risk assessment.
A good indicator of your present risk will often be your previous experience. As such, if you have never checked any of your clients against the sanctions list, you may find it difficult to properly assess your risk.
Checking individual clients
You should apply a risk based approach to checking your clients against the sanctions lists.
You can check directly against the publicly available list. A number of e-verifiers also incorporate this list into the databases against which they check for identity information.
You should also be able to ascertain whether key beneficial owners, or the intended recipient of funds from a transaction you are undertaking are subject to the restrictions.
Obtaining a licence
You must not proceed with a transaction where a client or the intended recipient of funds from the transaction is identified as a designated person without a licence from the HM Treasury Asset Freezing Unit.
You must:
- suspend the transaction pending the advice from the Asset Freezing Unit,
- contact the Asset Freezing Unit to seek a licence to deal with the funds, and
- consider whether you have a suspicion of money laundering or terrorist financing which requires a report to SOCA.
You must not:
- return funds to the designated person without the approval of the Asset Freezing Unit
The Asset Freezing Unit has the power to grant licences exempting certain transactions from the financial restrictions. Requests are considered on a case-by-case basis, to ensure that there is no risk of funds being diverted to terrorism.
For more information on the Asset Freezing Unit and obtaining a licence see their website: http://www.hm-treasury.gov.uk/fin_sanctions_contact.htm