The Sanctions and Anti-Money Laundering Act 2018: Foundations

Written By Liam Hemmings

Introduction

This is the first of four posts on the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). This post covers SAMLA's foundations; the second covers the sanctions available under it; the third covers enforcement; and the fourth covers parliamentary scrutiny and its anti-money laundering provisions.

I hope that together these posts will provide a useful guide to the principal functions of SAMLA and how it interacts with other legislation. I have tried to cover those areas that are most likely to come up in practice. That said inevitably I will have missed something that some readers may think of vital importance. 

Below is a summary of all four posts (if you are short on time or have better things to do with it).

Summary

  • SAMLA provides the enabling framework for the UK's sanctions regime. As such it is the rulebook upon which sanctions are based and not a sanctions regime itself; this is a crucial point. Sanctions are implemented by regulations made under SAMLA and set out the specifics such as the countries, goods, trades, activities, and industries targeted by them. Sanctions regulations must however, conform to the requirements laid down in SAMLA. This point is important not least because sanctions are capable of and have been challenged, particularly on human rights grounds by individuals who have been subjected to targeted sanctions.

  • SAMLA does not do its work alone. It reaches into and relies on existing legislation to do much of the heavy lifting, some examples being: the Immigration Act 1971 (travel bans), the Policing and Crime Act 2017 (financial sanctions penalties), the Customs and Excise Management Act 1979 (some trade sanctions).

  • Seven types of sanctions that can be used under SAMLA: financial, trade, shipping, aircraft, immigration, director disqualification and UN-related.

  • Three categories of sanctions recur throughout SAMLA. They are not the only ones, but they are used so often that they are worthy of note: designated persons, persons connected with a prescribed country, and a prescribed description of persons connected with a prescribed country. Within each of these are the sub-targets - as it were - of prescribed descriptions and countries. Understanding these unlocks an understanding of SAMLA's substantive provisions by focussing on not only its methods but on those it intends to affect.

  • The asset freeze is the most severe financial sanction. Wider financial sanctions and a separate commercial-arrangements restriction sit alongside and provide the basis for a comprehensive regime of targeted financial sanctions. 

  • Designation for sanctions purposes can be by name or by description, each with a standard and an urgent procedure. Both routes lead to full "designated person" status.

  • Trade sanctions cover goods, technology, land, services, military-related activity, and cultural property.

  • Shipping sanctions catch ships two ways: automatically, as "disqualified ships," or individually, as ministerially "specified ships".

  • Director disqualification and immigration sanctions work differently from the rest: rather than SAMLA borrowing enforcement machinery, it activates existing, free-standing mechanisms in other Acts.

  • Enforcement is fragmented. Financial sanctions are mainly dealt with through the Policing and Crime Act 2017 (borrowed, pre-dating SAMLA); trade, aircraft, and shipping penalties run through Trade Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024. Criminal sentencing caps differ: 7 years for financial sanctions, 10 years for everything else (SAMLA).

  • The Economic Crime (Transparency and Enforcement) Act 2022 stripped out (amongst other things) several parliamentary reporting duties, a change defended as necessary for speed but criticised for reducing scrutiny.

  • Part 2 of SAMLA deals with anti-money laundering and counter terrorism financing, which to an extent share the same underlying goal as sanctions: protecting the financial system from abuse but using separate mechanisms and bodies.

SAMLA: THE FOUNDATIONS

Background

UK sanctions have their origins in regimes developed by the UN in the late 1990s, as part of what would later become the war on terror. The UK implemented UN sanctions by orders made under the United Nations Act 1946. Subsequently, the EU started to develop its own sanctions regimes, which the UK, as a member state, implemented through EU regulations.

Brexit meant the UK could no longer use EU regulations to implement sanctions; therefore, replacement legislation was needed. This is where SAMLA comes in: it creates the statutory framework that underpins 'UK Autonomous Sanctions Regulations', a term that is often used to describe those sanctions made since Brexit. SAMLA is also the legislative basis for the implementation of UN and other international sanctions, although these are not the focus of this note.

SAMLA and Other Legislation

SAMLA rarely operates alone: it reaches into other legislation to do much of its work, for example, the Immigration Act 1971 ("IA 1971") to give effect to travel bans; the Company Directors Disqualification Act 1986 ("CDDA") to disqualify sanctioned persons from acting as directors; the Customs and Excise Management Act 1979 ("CEMA") to enforce cross-border trade sanctions; and the Policing and Crime Act 2017 ("PCA") to impose civil and criminal penalties for breaches of financial sanctions. SAMLA's own consequential amendments extend this pattern, bringing sanctions offences within the scope of deferred prosecution agreements under the Crime and Courts Act 2013 ("CCA") and serious crime prevention orders under the Serious Crime Act 2007 ("SCA"), respectively. The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 ("TASSCER"), made under SAMLA, supplies a dedicated civil enforcement and information-gathering framework for trade, aircraft, and shipping sanctions, something that had, until its enactment, been notably absent.

Of those mentioned above, the PCA sits somewhat awkwardly. Unlike other legislation SAMLA reaches into, the PCA is not simply an existing statute SAMLA uses. It predated SAMLA by a year and put in place a fully functioning enforcement and information framework for financial sanctions. Rather than replacing that framework, SAMLA amended the PCA, with the result that financial sanctions today are still, in substance, enforced under a regime that was designed with an earlier, EU-based sanctions system in mind. By contrast, TASSCER was made under SAMLA and does for trade, aircraft, and shipping sanctions, something close to what the PCA does for financial sanctions.

The result, when it comes to two of the most fundamentally important categories of sanctions, is a study in contrasts: the financial sanctions framework in the PCA is borrowed machinery, older than SAMLA and adapted to suit, while TASSCER is native to SAMLA, coming into being only once the need for it became apparent. What this shows is that SAMLA did not build a single, unified sanctions framework out of whole cloth. Instead, it assembled one, borrowing here, building new provisions there, to produce a system that, although fragmented in its parts, nonetheless functions coherently in practice.

Relevant Departments and Agencies

Throughout these notes, I make references to government departments and agencies with responsibilities for sanctions. The list below sets out the principal departments, offices or agencies and their areas of responsibility.

  • Overall responsibility for sanctions, policy and development

    • Foreign, Commonwealth and Development Office ("FCDO").

  • Financial Sanctions

    • HM Treasury ("HMT").

    • Office of Financial Sanctions Implementation ("OFSI").

  • Trade Sanctions

    • Department for Business, Innovation, Science and Trade ("BIST").

    • Office of Trade Sanctions Implementation ("OTSI").

    • His Majesty's Revenue and Customs ("HMRC").

  • Transport Sanctions

    • Department for Transport ("DfT").

  • Immigration Sanctions

    • The Home Office ("UKHO").

  • Director Disqualification Sanctions

    • The Insolvency Service ("UKIS").

  • Criminal Offences related to sanctions

    • National Crime Agency ("NCA").

    • Serious Fraud Office ("SFO").

    • HMRC.

SAMLA in Detail

Structure

SAMLA has three main parts, supported by three schedules.

Part 1 provides the statutory basis and powers to create sanctions regulations, the types of sanctions and purposes for which they can be made, and various powers of review. Part 1 is the primary focus of this note. 

Part 2 provides powers to create anti-money laundering and counter-terrorist financing ("AML/CTF") regulations. I look at Part 2 separately, and in considerably less detail, at the end of this note.

Part 3 is the supporting part, setting out things like detailed definitions of terms used in Parts 1 and 2. I do not deal with this separately, but I will cross-reference it as necessary as I go along.

The three Schedules provide provisions that amplify trade sanctions and AML/CTF, and necessary amendments to other legislation affected by SAMLA.

The Power to Make Sanctions (s.1(1))

Section 1(1) confers on Ministers the general power to make sanctions regulations. This is the core sanctions function of SAMLA. Section 49(1) creates a similar power to make AML/CTF regulations.

Purposes for which Sanctions can be made (s.1(2))

Sanctions regulations may only be made for particular purposes. The purposes which are of relevance to this note are set out in s.1(2)(a)–(i), and are:

  • The prevention of terrorism. 

  • Furthering the interests of national security. 

  • Acting in the interests of international peace and security. 

  • Promoting the resolution of armed conflicts. 

  • Providing accountability for gross violations of human rights and promoting compliance with human rights law. 

  • Promoting compliance with humanitarian law. 

  • Preventing the spread of weapons of mass destruction. 

  • Promoting respect for democracy, the rule of law, and good governance. 

  • Furthering a foreign policy objective. 

The remaining purposes are to implement UN and other international obligations. 

Under s.1(3), any regulations created pursuant to SAMLA must set out the purpose or purposes for which they are made. This is not an exercise in posturing or abstraction: a court may be asked to consider whether an action, taken pursuant to a sanctions regime, was done in accordance with the stated purposes of the sanctions.

Types of Sanctions (s.1(5))

Somewhat tautologically, for the purposes of SAMLA, sanctions regulations are regulations that impose any one or more of the types of sanctions listed in s.1(5) sub-ss (a)–(f):

  • Financial. 

  • Director disqualification. 

  • Immigration. 

  • Trade. 

  •  Aircraft. 

  •  Shipping. 

  •  UN-related. 

Each of these sanctions is expanded upon in its own section of SAMLA. Some, such as financial and trade sanctions, are further broken down into distinct sub-categories. Below, I consider each type in turn, though slightly out of the order used in SAMLA, to focus first on those with the greatest practical impact. Again, I do not consider UN-related sanctions in any detail in this note.

Territorial Reach (s.21)

Jumping out of the strict order of SAMLA, section 21 confirms that the prohibitions or requirements in any regulations made under SAMLA can be imposed upon:

  • Any person in the UK (including in territorial waters). 

  • Any UK person (either a UK national or an entity such as a company) anywhere in the world. 

  • UK persons or bodies incorporated in the Channel Islands, Isle of Man, or any British Overseas Territory, if extended by way of an Order in Council. 

When it comes to UK nationals, regulations made under SAMLA will likely have total reach. This is something that UK nationals, whether working in trades or industries such as shipping and oil and gas, or in offshore financial centres, need to keep in mind: they will not be protected from the reach of sanctions just because they are abroad.

Designated Persons (ss.9–13)

We now move into the methods used to target sanctions. Designated persons is the term used in SAMLA for those who have been specifically identified by the government to be made the subject of sanctions. Or more properly put, under SAMLA section 9(2)(a) designated persons means those persons who have been designated under a power contained in regulations. When referring to persons this includes not only individuals but also legal persons, such as companies, organisations, associations or combinations of persons (s.9(5)). The importance of designated persons will become plain when I look at asset freezes, a particularly severe sanction that applies to designated persons alone. Such is the importance of the designated persons provisions of SAMLA that I deal with them in a separate note.

Designated persons fall into two categories, which is a consequence of s.10(2) that authorises the power to designate to be exercised either by:

  • Designating a person by name. 

  • Providing that persons of a specified description are designated persons.  

Designation by name (s.11)

SAMLA Section 11 governs the procedure for designating a person by name. Under the standard procedure, regulations must prohibit a Minister from designating a person by name except where "Condition A" is met, namely, that the Minister has reasonable grounds to suspect that person is an "involved person" (s.11(2), (2A)). Under s.11(3), the regulations must define that an involved person is someone who is or has been involved in a "specified activity," or who, without necessarily being directly involved themselves, is: owned or controlled, directly or indirectly, by someone who is or has been involved; acting on behalf of, or at the direction of, such a person; or a member of, or associated with, such a person. The definition, in other words, extends deliberately beyond the person involved in the specified activity, to catch those connected to them through ownership, control, agency, or association.

Sections 11(4) and (5) expand upon the meaning of a specified activity. Firstly, an activity may not be specified in the regulations unless the Minister considers that specifying the activity is appropriate, having regard to the purpose(s) of the regulations (as per s.1(3) I referred to earlier). Secondly, the regulations may make provision as to what it means for a person to be involved in that activity.

The question of the purpose of the regulations is important as it will be one of the factors taken into account by a court when assessing if measures taken against an individual are proportionate. I leave that point here for now and will pick it up in greater detail when I consider the designation of persons in detail in a later note. 

Sections 11(4) and (5) are used routinely in sanctions regulations made under SAMLA. Regulation 6 of the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855) (the "Russian Regulations") being a good example. A specified activity in those regulations is "destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine" (regulation 6(2)(a)). Regulation 6(3) then sets out what counts as being involved in that activity, by listing several heads of conduct: being responsible for, engaging in, supporting, or promoting a destabilising policy or action; providing financial services or making available funds, economic resources, goods, or technology that could contribute to destabilisation; providing such services to a person who falls within one of those categories; obstructing the work of international organisations in Ukraine; conducting business with separatist entities in the Donbas; and trading in non-government-controlled Ukrainian territory.

SAMLA section 11(6) performs an equivalent function to that in s.11(4) and (5) for other defined terms such as what it means to be "owned or controlled directly or indirectly by" another person, or "associated with" another person. As with specified activity itself, none of these terms is fixed by SAMLA; each is given content by the individual sanctions regulation.

An urgent designation procedure was inserted by the Economic Crime (Transparency and Enforcement) Act 2022 ("ECTEA"), that allows the Minister to designate a person without first confirming that Condition A has been met, provided the person has already been made subject to a corresponding or similar measure by the US, the EU, Australia, or Canada (s.11(2B), (2D)). This reflects a deliberate policy choice, following criticism that the UK's allies were able to move faster against Russia in the initial stages of the invasion of Ukraine.

The ECTEA amendment gives the government a mechanism to match its allies' designations immediately, rather than waiting to complete its own independent assessment first. However, there is a trade-off, in that a designation made under the urgent procedure lapses after 56 days unless the Minister subsequently certifies that Condition A has, in fact, been met, or that the urgent-procedure conditions continue to apply (s.11(2B)(b)).

Designation by description (s.12)

A person (or persons) designated by description may be subjected to the same consequences of designation, as a person designated by name. Like designation by name there is a standard or urgent designation procedure (s.12(1A)). For now, I deal only with the standard procedure (s.12(2)). SAMLA labels the two conditions that must be met "Condition A" and "Condition C" — the lettering skips "Condition B" deliberately, for reasons explained below:

  • "Condition A": the description in the regulation must be such that a reasonable person would know whether a given person fell within it.

  • "Condition C": the Minister must have reasonable grounds to suspect that, where the description is "members of a particular organisation", the organisation itself is an "involved person"; or, for any other description, that any person falling within it would necessarily be an "involved person."

A "Condition B" used to sit between the two. It required that designation by description could only be used where it was not practicable for the Minister to designate all the persons falling into that category individually by name. This requirement was removed as part of a package of streamlining amendments made to SAMLA by ECTEA, leaving Conditions A and C as the only surviving requirements — hence the gap in the lettering.

Procedural rights of designated Persons

SAMLA builds in a set of procedural safeguards around the designation power in s.11. The starting point is s.10(3), which requires the Minister, "without delay," to take such steps as are reasonably practicable to inform a person that they have been designated, or as the case may be that a designation has been varied or revoked. Section 10(5) makes clear this is not a right to advance notice and there is no requirement to give the person any warning before designation takes effect.  

Under s.23, a designated person has the right to request that the Minister vary or revoke their designation at any time. A subsequent request relating to the same designation is effectively barred unless it raises a significant matter not previously considered — a filter aimed at preventing repeated applications. This right sits alongside a free-standing obligation on the Minister under s.22(3): irrespective of whether the designated person has made a request, to revoke a designation once satisfied that the statutory grounds for it are no longer met. This duty is independent of any request made by the person invoking s.23. However, the obligation to carry out periodic reviews of designations that was in s.24 was removed by ECTEA.

Section 33, which governs the procedure for requests made under s.23 (and other related requests), requires that the requester be notified of both the decision and the reasons for it, as soon as reasonably practicable. Section 33(3) adds an important qualification: the Minister may withhold any part of the reasoning where it is necessary in the interests of national security, the UK's relations with another country, the prevention or detection of crime, or the interests of justice. The qualification permits limited disclosure but is not a basis for refusing to give any reasons at all.

Where a designated person remains dissatisfied, s.38 provides a route to court. It allows an application to the High Court to set aside the decisions on ordinary judicial review principles, with the court able to grant any remedy that would be available on judicial review.

Three Recurring Categories

Often SAMLA will state that a sanction is to be applied to "designated persons, persons connected with a prescribed country or a prescribed description of persons connected with a prescribed country." This same three-category formula appears, worded almost identically, in provisions governing different subject matter, from financial services, to trade in goods, to the operation of a ship, because those three categories are a central method of targeting sanctions. We have dealt with designated persons, but it is worth looking at the rest of the formula.  

"Persons connected with a prescribed country" are not individually designated. This category is automatic: a person falls within it simply by meeting whatever connecting factors the relevant regulation sets out for that country, such as residence, location, incorporation, or domicile. No ministerial decision is required, and no statement of reasons is given, because no individual designation has taken place.

"A prescribed description of persons connected with a prescribed country" combines elements of both: rather than a class defined by its connection to a country alone, it is a class defined by the regulations themselves, by reference to some further description, for example, persons employed in a particular sector of that country's economy, or persons holding a particular office within it.

None of these terms is fixed by SAMLA itself, and this is worth stating clearly, since a reader might otherwise expect to find a single definition to look up. Section 62 defines "prescribed" simply as meaning "specified in the regulations." Hence, individual sanctions regulations supply the substance: which country is prescribed, what connecting factors apply, and what further descriptions, if any, are used.

In my next post I look at the types of sanctions available under SAMLA

Liam Hemmings
Next

UK SANCTIONS AN OVERVIEW (one of a continuing series)