MPs call for sanctions loopholes to be closed to cut down on corruption

In a report into Russian corruption in the UK, the Foreign Affairs Committee welcomed the progress of the Sanctions and Money-Laundering Bill 2018 through parliament, but said the government’s approach to sanctions should broaden.

The committee said the government needed to crack down on the use of London’s financial markets as a way of escaping sanctions. It suggested the UK should work with the EU and US to prohibit the purchase of bonds in which a sanctioned entity has acted as book runner.

The report said the involvement of sanctioned banks in flotations of Russian companies on the London stock exchange, while not breaching any rules, should be investigated and any gaps closed.

While welcoming the recent announcement that British Overseas Territories (BOTs) will be required to introduce publicly accessible registers of those with significant control over companies, the committee said the government should assist BOTs to establish the registers as soon as possible. It also said the government needed to accelerate the introduction of legislation to establish a register of ownership for overseas companies that own property in the UK.

The committee said the government should work with the EU – both before and after Brexit – to identify and sanction individuals connected to hostile regimes. It also welcomed the government’s promise to publish a list of individuals sanctioned because of human rights violations, in addition to the existing list of those subject to financial sanctions.

The report said “ad hoc” reactions to hostile behaviour by Russia had led to a “disjointed approach” by the UK government.

Recent sanctions against Russia, Russian entities and individuals were imposed by the US, EU and individual states following Russia's annexation of the Crimean peninsula. The sanctions include measures to limit access to EU capital markets for Russian state-owned financial institutions, an embargo on arms trading, an export ban on 'dual use' goods for military use, and restrictions on the use of certain technologies, in particular by the oil sector.

Whilst the UK is a member of the EU it must adhere to minimum standards on imposing sanctions, although it also has the freedom to implement additional sanctions. In August last year the UK published the Sanctions Bill to enable it to continue enforcing sanctions after Brexit.

In April 2018 the US extended its sanctions against Russian individuals and companies, with a particular impact on the oil and gas sector.

Separately the UK Treasury’s Office for Financial Sanctions Implementation has introduced a new form to help individuals and organisations comply with their UK financial sanctions reporting obligations. The new form clarifies those obligations, giving more detail on the information required, and aims to provide a template for reporting not only a suspected breach but also to report a suspected designated person or information on frozen assets.

The issuing of the form follows the publication by OSFI of general guidance on financial sanctions and guidance targeted at the charity and export and import sectors.