The prime minister says the United Kingdom will not extend the Brexit transition period. The UK is leaving transition on 31 December 2020, with or without a deal. London lawyers have questioned whether intelligence sharing has become a political bargaining chip in ongoing negotiations. The City of London is asking whether Brexit risks making the UK’s money laundering fight harder. If we don’t share information with our neighbours, it will be more difficult to detect and prosecute financial crime.
Intelligence sharing by law enforcement across borders is just one aspect of the immediate choice facing the UK in tackling financial crime. More fundamentally, the UK must now decide whether to follow the US approach to financial sanctions, stick with the European Union’s priorities, or go it alone.
The Sanctions and Anti-Money Laundering Act 2018 is the vehicle which the UK must use to plot its future course in sanctions and anti-money laundering.
Without the anti-money laundering act, the UK would have no mechanism for keeping pace with fast-changing events. The Brexit debate did not dwell on the implications for sanctions and anti-money laundering regimes in the UK. Nevertheless, the UK had come to depend on the EU as providing the mechanisms for imposing sanctions, and for providing the conduit for international standards in anti-money laundering to be brought into UK law.
An early clue as to how the anti-money laundering act may be used is seen in the detail of the UK’s post- Brexit sanctions against Russia. There are early signs of the UK adopting a subtly different approach from the EU in its treatment of certain Russian- owned entities. The new law includes the Magnitsky amendment, which was a late change, allowing the UK to impose sanctions on those who commit human rights violations.
Further, the prime minister was urged in January 2020 to take unilateral action against Iran in respect of the detention of Nanzanin Zaghari- Ratcliffe. This would be a departure from the EU approach. The EU has been reluctant to implement targeted financial sanctions against Iran In parallel with the Brexit transition debate, the early signs are that the UK may indeed be diverging from its EU neighbours’ approach to sanctions.
Also, in January 2020, the chancellor of the exchequer warned there would be “divergence” from the EU trade rules after Brexit. What exactly he meant was unclear, but there is a new margin of discretion for the UK to depart from the EU approach after Brexit.
Following the anti-money laundering act the UK can now take is own course in all areas of money laundering prevention and punishment.
In the first place, there is now a very wide discretion for the UK to expand its supervised population to include any “relevant business” [which] means business of a kind which entails risks relating to money laundering, terrorist financing or other threats to the integrity of the financial system. This new definition is much broader than the existing scope of UK regulations, which focused more on identifying particular types of entities or people (e.g. a bank, casino, or law firm).
The anti-money laundering act allows future regulations to require the relevant departments of the UK Government “to identify and assess risks relating to money laundering, terrorist financing or other threats to the integrity of the international financial system.” Moreover, the government will be able to, “make provision about factors to be taken into account in the assessment of such risks.” This may go far beyond the high- level approach of reports and guidelines set out so far. There is scope for the UK government to identify countries and regimes it regards as high risk, and a danger that politics may play a part in these assessments.
The UK government could use the anti-money laundering act to extend existing rules to a broader population and/ or to amend any of the current anti-money laundering regulations. This goes far beyond what was necessary to deal with the compliance consequences to the UK of Brexit. It means the UK could decide that the EU is taking too strict an approach. Such a path could hamper the global fight against financial crime. As with information sharing and financial sanctions, international co-operation is key.
Will the UK government do something else, or is it bluffing as part of Brexit transition negotiations? Either way, its use of the new anti-money laundering act will be key.