3Sanctions
Use of sanctions against individuals from autocracies
27.Sanctions are an essential tool in supporting the rules-based international system and the defence of the UK’s national interests. The UK, in partnership with the EU, has played a leading role in international efforts to sanction terrorist groups, rogue regimes and individuals connected with those regimes. Examples have included individuals and organisations involved in human rights abuses, illegal arms trade and extraterritorial attacks such as the Salisbury chemical attack in 2018. However, as we noted in our June 2019 report, Fragmented and incoherent: the UK’s sanctions policy, leaving the EU will bring about a seismic shift in how the UK adopts, imposes and implements economic and financial sanctions, with about two thirds of its current sanctions regimes deriving from the EU.46 The Sanctions and Anti-Money Laundering Act 2018 (SAMLA) sets out the post-Brexit framework for UK sanctions policy.47
28.Since SAMLA48 received Royal Assent in May 2018, we have repeatedly asked Government Ministers and officials whether the UK has the power to make and implement its own sanctions on individuals accused of human rights violations—known as ‘Magnitsky powers’, in reference to the United States’ 2016 Global Magnitsky Act—while it is still a member of the EU. Our June 2019 report on UK sanctions policy after Brexit set out the unclear and contradictory answers we had received from FCO Ministers and officials, and it called on the Government to resolve this question as soon as possible by agreeing on a clear legal position regarding the UK’s ability to adopt and implement Magnitsky sanctions while still an EU member and during any possible post-Brexit implementation period.49
29.In September, the FCO confirmed in its response to our June report that using the Magnitsky-style powers is legally possible.50 The Government, however, has not acted yet to resolve the matter. We asked the Parliamentary Under Secretary of State (Minister for Asia and the Pacific) Heather Wheeler MP in October what the Department’s plans were for establishing sanctions under SAMLA, and what criteria would be used to determine which individuals should be subject to sanctions. These might, for example, be individual Chinese officials involved in the perpetration of human rights abuses in Xinjiang or Hong Kong. Ms Wheeler said that the announcement of a new Statutory Instrument (SI) was “imminent” and would cover the criteria and the possibility to “include names.”51
30.After considerable delay, the FCO has now established that it is legally possible for the UK unilaterally to impose sanctions on individuals and organisations while still a member of the European Union. However, the Minister was not able to tell us how the FCO plans to use these so-called ‘Magnitsky powers’, the criteria on which individuals will be selected for sanctions, or the date on which the FCO would lay the relevant Statutory Instrument before Parliament—a process which will now be further delayed by the 2019 General Election. The FCO has been far too slow to make use of this important foreign-policy tool in countering the abuse of human rights by countries such as China and Russia, and more broadly in support of the rules-based international system.
31.In its response to this report, the FCO should explain why it has not yet used Magnitsky-style sanctions in response to ongoing repression by the state authorities in Hong Kong and Xinjiang, what plans it has to do so, and how far these plans have progressed. It should also state how it is seeking to coordinate with the EU when designing and imposing sanctions on individuals and organisations connected to autocratic regimes. The FCO should further set out in the Statutory Instrument to be laid before Parliament the criteria for determining which individuals and organisations should be subject to UK Government sanctions.
32.During our inquiry, we heard about the potential power of sanctions in curbing the egregious actions of autocracies, and of individuals and organisations connected with them. For example, Dr Pete Duncan, Associate Professor of Russian Politics and Society at UCL, highlighted the effectiveness of sanctions imposed by the UK and its international partners on Russian targets following the annexation of Crimea in 2014.52 He argued that the overall impact of these sanctions had led to a decline in the Russian economy which has had, in turn, a negative effect on Putin’s domestic approval ratings.53 Some witnesses called for the UK to be more robust in its approach when implementing its independent regime. Russian dissident businessman Aleksey Shmatko told us that sanctions lists should be expanded to include the relatives, business partners and other associates of Russian officials.54 The Sentry—an investigative and policy team that follows “dirty money” linked with conflicts in Africa—stated that the UK should go further in its efforts to use sanctions to “encourage the resolution of political crises and armed conflicts”, by “developing new sanctions targeting leaders, their support networks, and the companies that they own or control.”55
33.The Sentry also pointed to the importance of cross-government collaboration on sanctions, stating that “UK foreign policy must also work alongside other Whitehall departments to ensure that sanctions are not only imposed, but effectively implemented … ”.56 This echoes the evidence we took during our previous inquiry on the future of UK sanctions policy. In our report, we concluded that there was room for improvement in relation to cooperation between departments, which should in turn support the development of a more coherent overall strategy on sanctions.57 The Government said in its response to that report that it would only “consider the Committee’s recommendation to create an SRO [Senior Responsible Owner] role within the FCO to be accountable for sanctions policy and implementation” on the basis that there are already SROs providing oversight of sanctions policy.58 We reiterate our recommendation that the Government appoint a Senior Responsible Official with personal accountability to the National Security Council for devising and implementing sanctions policy. This is a necessary step to ensure the cross-departmental coherence, and greater effectiveness, of the UK’s sanctions policy.
Rooting out ‘dirty money’ in the UK economy
34.As we stated in our May 2018 report Moscow’s Gold: Russian corruption in the UK, money laundering is a foreign policy issue: it allows those who would do harm to the UK to hide their wealth and obscure their sources of financial support.59 Our June 2019 report on the future of UK sanctions policy further explored the implications of the Government’s currently fragmented approach. One case study was the listing of the energy firm En+ Group, which, at the time of its initial public offering (IPO) on the London Stock Exchange in November 2017, was controlled by Kremlin associate Oleg Deripaska.60 We concluded that:
Although the involvement of an individual such as Oleg Deripaska may have raised red flags at the FCO and elsewhere, there was evidently no mechanism for those concerns to be conveyed, and no requirement for the Financial Conduct Authority to consult national security experts.61
35.Witnesses to this inquiry have also pointed to the importance of disrupting the flow of ‘dirty money’ as a means of countering the influence of autocracies in the UK. The Henry Jackson Society, for example, suggested that the UK should apply tougher anti-money-laundering legislation to root out corrupt money from the economy.62 This includes the expansion of ‘Unexplained Wealth Orders’ (UWO), established under the Criminal Finances Act 2017, which require foreign wealthy individuals to explain how they made their wealth or risk having their assets in the UK seized.63 In October 2017, a joint investigative journalism project by Novaya Gazeta (a Russian investigative newspaper) and the Organized Crime and Corruption Reporting Project (OCCRP—a global non-profit media organisation founded in the US) reported that $24 billion of unexplained wealth belonging to Vladimir Putin’s inner circle was often hidden in Western Europe.64
36.The Government has previously told us, in its response to our June 2019 report Fragmented and incoherent: the UK’s sanctions policy, that it was exploring the possibility of blocking stock exchange listings on the London Stock Exchange on national security grounds, potentially through changes to the legislative framework.65 It has also considered, at our recommendation, what role the National Security Council and its secretariat should play in the use of this power, and how best to formalise links between the Government departments responsible for sanctions and arms-length bodies including the Financial Conduct Authority, which is ultimately responsible for overseeing listings in the UK. The evidence we have taken during this inquiry on the ways in which autocracies can establish a foothold in the UK economy has only underscored the need for urgent Government action in this regard. We recommend that the Government acts with much greater urgency in establishing a power to block listings in the UK on national security grounds—a potentially crucial tool in limiting the influence and reach of autocracies in the UK. We expect the Government to update our successor Committee on its progress no later than May 2020.
46 Foreign and Commonwealth Office (FSP0015), para 12; Foreign Affairs Committee, Seventeenth Report of Session 2017−19, Fragmented and incoherent: the UK’s sanctions policy, para 2
47 Sanctions and Anti-Money Laundering Act 2018. The legislation states that the appropriate Minister may “make sanctions regulations” under SAMLA if it would: further the prevention of terrorism; be in the interests of national security; be in the interests of international peace and security; further foreign policy objectives; promote the resolution of armed conflicts or the protection of civilians in conflict zones; provide accountability for or be a deterrent to gross violations of human rights; promote compliance with international humanitarian law; contribute to multilateral efforts to prevent the spread and use of weapons and materials of mass destruction; or promote respect for democracy, the rule of law and good governance. In relation to money laundering, the legislation states that the appropriate Minister may “by regulations make provision for”: enabling or facilitating the detection or investigation of money laundering, or preventing money laundering; enabling or facilitating the detection or investigation of terrorist financing, or preventing terrorist financing; or the implementation of Standards published by the Financial Action Task Force from time to time relating to combating threats to the integrity of the international financial system.
48 The Sanctions and Anti-Money Laundering Act 2018
49 Foreign Affairs Committee, Seventeenth Report of Session 2017−19, Fragmented and incoherent: the UK’s sanctions policy, paras 11−18
50 23rd Special Report: Fragmented and incoherent: the UK’s sanctions policy: Government Response to the Committee’s Seventeenth Report
53 Ibid
56 Ibid
57 Foreign Affairs Committee, Seventeenth Report of Session 2017−19, Fragmented and incoherent: the UK’s sanctions policy, para 28
58 Foreign Affairs Committee, Twenty-third Special Report of Session 2017−19, Fragmented and incoherent: the UK’s sanctions policy: Government Response to the Committee’s Seventeenth Report, para 8
59 Foreign Affairs Committee, Eighth Report of Session 2017−19, Moscow’s Gold: Russian corruption in the UK, para 45
60 The Treasury Select Committee also explored the listing of En+ on the London Stock Exchange (LSE) in its report on Economic Crime.
61 Foreign Affairs Committee, Seventeenth Report of Session 2017−19, Fragmented and incoherent: the UK’s sanctions policy, para 40
63 Ibid
64 Putin and the proxies https://www.occrp.org/en/putinandtheproxies/
65 Foreign Affairs Committee, Twenty-third Special Report of Session 2017−19, Fragmented and incoherent: the UK’s sanctions policy: Government Response to the Committee’s Seventeenth Report, paras 11−12
Published: 5 November 2019