S.I. 2008/2668: voluntary memorandum from HM Treasury
Landsbanki Freezing Order 2008 (S.I. 2008/2668)
1.This voluntary memorandum is submitted by HM Treasury
to the Joint Committee on Statutory Instruments in respect of
the Landsbanki Freezing Order 2008 (S.I. 2008/2668) ("the
Order"). Its purpose is to explain how the Treasury has used
the enabling powers in Part 2 of the Anti-terrorism Crime and
Security Act 2001 (c.24) ("the Act") to implement an
effective asset freeze within the scope of those powers.
Circumstances in which the powers may be used
2.The long title of the Act confirms that (as well
as matters mentioned in the short title) the Act is "to provide
for the freezing of assets".
3.Section 4(1) of the Act provides that the Treasury
may make a freezing Order if two conditions are satisfied.
4.Subsection (2) provides the first condition is
that the Treasury reasonably believe that
"(a) action to the detriment of the United
Kingdom's economy (or part of it) has been or is likely to be
taken by a person or persons, or
(b) action constituting a threat to the life
or property of one or more nationals of the United Kingdom or
residents of the United Kingdom has been or is likely to be taken
by a person or persons."
5.The second condition, provided for in subsections
(3) and (4) is that the person (or if persons, each of them) must
be the government of or resident of a country or territory outside
the United Kingdom.
6.The preamble to the Order confirms that limb (a)
of the first condition and the second condition are satisfied.
7.During the passage of the Bill, Part 2 only received
brief mention in the main debates on the Bill, together with Part
1 (terrorist property) and where mentioned, the focus was on its
utility in relation to terrorist financing (the Bill was introduced
in the aftermath of the events of 11th September 2001).
8.However, a fuller explanation of the circumstances
in which it was envisaged that the power may be used was provided
during the Committee debates. In the House of Lords, an opposition
amendment was tabled which would have expressly limited the power
only to the context of terrorism. This was rejected on the basis
that the scope of the power was not limited to terrorism: it extends
also to wartime situations, and other emergencies.
9.In the debate, reference was made to the Emergency
Laws (Re-enactment & Repeals) Act 1964, which is the predecessor
of Part 2 of the Act and is revoked by Part 2. Such provisions
have their origin in the Defence (Armed Forces) Regulations 1939.
10.It can be seen from the manner in which section
4 is worded and the legislative and Parliamentary history of Part
2 of the Act that it is not a power limited to terrorism. It is
an emergency power available when the Treasury reasonably believe
that the conditions in section 4 of the Act are satisfied.
Use of the power in relation to Landsbanki
11.The Order specifies that an asset freeze applies
in relation to Landsbanki Islands hf. ("Landsbanki")
an Icelandic bank with a branch in the UK; to Icelandic financial
Authorities and the Government of Iceland (but only Landsbanki-related
funds are frozen). The freezing of the UK funds of Landsbanki
was deemed necessary because the emergency legislation passed
in Iceland on 7th October 2008 meant that UK creditors' rights
could be prejudiced compared with other creditors. The Icelandic
government had been unable to clarify the position of UK creditors
in the administration process of Landsbanki and there was therefore
a threat to UK economic interests. Landsbanki, through its UK
branch and the "Icesave" deposit line has built up a
substantial level of UK retail and wholesale depositors. The Icelandic
action was likely to have a particularly significant unsettling
effect on consumer confidence at a time of unprecedented disturbance
of the financial sector.
How the enabling powers have been exercised
12.The enabling powers allow for the possibility
of complete economic sanctions against a foreign Government or
residents who fulfill the conditions of section 4 of the Act.
However, the Treasury consider that the power must be exercised
in a proportionate manner as befits the circumstance of a particular
case. In this case, the power to make a freezing order was used
in circumstances where the primary concern was to prohibit the
flow of funds held or controlled by Landsbanki's UK branch out
of the UK and back to Iceland.
13.There are two aspects of the manner in which the
powers have been used on this occasion which it may be useful
to explain further. First, the powers have been used to apply
a freezing order not in relation to all funds but only those funds
which relate to Landsbanki. Secondly, the freezing order has been
drafted in such a way as to ensure that the asset freeze applies
to funds held or controlled by Landsbanki as well as those held
or controlled by third parties.
1. Limitation to funds relating to Landsbanki
14.Section 5(1) of the Act provides as follows:
"(1) A freezing order is an order which
prohibits persons from making funds available to or for the benefit
of a person or persons specified in the order."
15.Paragraph (6) of that section provides that "Funds
are financial assets and economic benefits of any kind" and
paragraph 2 of Schedule 3 makes provision as to the sort of assets
that can be included within the definition of "funds".
16.Article 2 of the Order provides a broad definition
of funds, but article 4(1) provides a limitation, namely to provide
that the prohibitions in the Order apply only in relation to funds
owned held or controlled by Landsbanki or funds relating to Landsbanki
owned held or controlled by the Authorities or Government of Iceland.
17.This provision has the effect of limiting the
scope of the Order so that it applies not to all funds but only
to a particular subset of funds, namely those relating to Landsbanki.
18.Section 14(1) of the Act (Orders: supplementary)
provides for the enabling power to be used flexibly
"(1) Where this Part confers power to make
provision, different provision may be made for different purposes."
19.Additionally, in the context of an enabling power
which inevitably leads to interference with the enjoyment of property
the Treasury consider that the power must be read so as to enable
a more limited approach, i.e. applying to a subset of funds, rather
than applying to all funds.
2. Provision to apply to funds held by Lansbanki
20.The second point meriting consideration is the
nature of the prohibitions, in particular, how the Order applies
the asset freeze to funds held or controlled by Landsbanki, not
just those held or controlled by third parties.
21.In the majority of circumstances where it may
be envisaged the power in Part 2 of the Act being used, the person
specified in the Order is unlikely to have a direct presence in
or direct control of funds in the UK. However, a foreign bank
with a branch in the UK has not only a direct presence in the
UK but also the direct means to control the movement of funds.
In such circumstances, it is doubtful that a prohibition simply
mirroring the language of section 5(1) of the Act would provide
a fully effective asset freeze.
22.For example it is not clear whether a specified
bank would be prohibited from making an internal transfer, nor
is it clear whether the bank would be prohibited from directing
others to make transfers of funds to the benefit of certain customers.
23.Paragraph 3(2)(g) of Schedule 3 to the Act envisages
that when making provision as to the meaning (in relation to funds)
of making available to or for the benefit of a person, an order
may provide that the expression includes "such other acts
as the order may specify".
24.However, rather than adopting this approach, the
Order relies on the section 14 supplementary powers, which provide
"(2) An order under this Part may include
supplementary, incidental, saving or transitional provisions.
(3) Nothing in this Part affects the generality
of subsection (2)."
25.Article 4(2) creates a prohibition as follows:
"A person must not make frozen funds available
to or for the benefit of a specified person."
26.This mirrors section 5(1) of the Act, except that
it only relates to "frozen funds" as outlined above.
27.Article 4(3) creates the following prohibition:
"A person must not make frozen funds available
at the direction or instruction of a specified person."
28.This supplements article 4(2) by addressing the
issue of specified person directing or instructing others transferring
frozen funds, for example, making them available to third parties,
and caters for the possibility of circumstances in which there
is doubt as to whether a transfer could be said to be for the
benefit of the specified person.
29.Article 4(4) creates the following prohibition
"A person must not deal with frozen funds."
30.Paragraph (6) of the article specifies the activities
which constitute dealing with the funds, in effect, any use, movement
or transfer of the funds.
31.Primarily, this provision implements an asset
freeze in relation to funds held or controlled by the specified
person. Article 4(4) is therefore supplementary to 4(2) and is
within the envisaged use of the provisions, namely providing an
effective asset freeze.
32.This provision is drafted in general terms and,
as such, it also applies to third parties. However, in their case,
there are only likely to be a few occasions where article 4(4)
applies and where articles 4(2) and 4(3) do not apply.
33.Whilst the provisions are made under different
enabling powers, the Committee may be interested to note that
the provisions in this Order, in particular in article 4(2) and
4(4) are very similar to those recognised as providing an effective
asset freeze in statutory instruments giving effect to UN and
EC financial sanctions. See, for example, the Iran (Financial
Sanctions) Order 2007 (S.I. 2007/281) made under the United
Nations Act 1946.
34.The Treasury would also like to draw the Committee's
attention to the fact the Treasury has made an amendment Order,
which the Committee is asked to consider together with the Order,
to address some clarificatory and drafting points. The Treasury
would like to thank the adviser to the Committee for kindly bringing
these points to their attention.
20 October 2008
Further correspondence from HM Treasury
We understand that the Joint Committee on Statutory
Instruments is due to consider the above Orders on 22 October
2008. As you know, the House of Commons and the House of Lords
are due to debate the Orders on 27 and 28 October 2008 respectively.
Ordinarily, in the event that the Joint Committee
has questions arising on an instrument, we would expect and welcome
the opportunity to respond before the two Houses consider the
In this case, however, we have submitted a voluntary
memorandum in addition to the usual explanatory memoranda. So,
to enable both Houses to consider the matter as arranged on 27
and 28 October, the Treasury confirms that it does not wish to
be afforded an opportunity to make any further representations.
21 October 2008
2 2 See Lords' Hansard
28 Nov 2001 : Column 353, Lord McIntosh of Haringey. Back