Circumventing legal certainty? The uncertain scope of the offence of sanctions circumvention

As the West continues to ramp up sanctions against Russia, many companies and their lawyers are confronted with the need to get a steer on the meaning of the term ‘circumvention’, as they navigate tricky sanctions waters. But a clear and unambiguous definition is elusive. Could it be found in the provisions of the UK’s post-Brexit sanctions law? And did a July 2022 ‘Red Alert’ provide further clarity? David Corker is not so sure.

One characteristic of authoritarian regimes is that they enact laws which create criminal offences whose meaning and scope are indeterminate. Unclear laws allow these regimes to use criminal law as a tool to repress. Vagueness permits state agents to choose when and how to enforce their own, possibly shifting interpretation of a criminal offence against enemies.

To take a contemporary example, Iranian women who dare to protest against their country’s hijab law are being imprisoned for committing offences such as inciting anti-government propaganda or encouraging corruption. In China, dissenters are incarcerated for the local offence of provoking trouble. In the days of ‘Empire,’ British governments systematically used the criminal law to stifle indigenous anticolonial movements; the Indian penal code, for example, made it an offence to display disaffection towards the viceroy or his satraps. A sad irony is that many postcolonial governments kept these imperial laws alive, and still resort to them.

The European Convention on Human Rights was devised and promulgated in the aftermath of a terrible war. Two of its principal aims were to prevent what might be called autocratic legalism and to embed the principle of legal certainty. Article 7 of the Convention and the jurisprudence it has engendered establish the legal norm that an offence must be defined by law; a citizen – with the assistance of legal advice and case law – should be able to ascertain what acts and omissions will make them criminally liable.

From this historical perspective we can find our way to what was, until recently, a discreet alcove of our criminal law: financial sanctions. This obscurity is readily explicable: until Brexit, UK sanctions law largely consisted of the implementation of EU directives or UN resolutions via statutory instruments, exciting little controversy. It concerned, to quote Neville Chamberlain, ‘faraway countries of which we know little’. Brexit, but especially the outbreak of war in Ukraine in 2022, has thrown this corpus of our domestic law into sharp relief. For example, it would not otherwise have been the subject of a joint Red Alert published by multiple law enforcement agencies in July 2022.

This article concerns one of the offences created by the Russia (Sanctions) (EU Exit) Regulations 2019 (‘SAMLA’): Regulation 19,1 the circumvention offence. Regulations 11-15 prohibit dealing with and making funds and economic resources available to sanctioned or ‘designated’ persons. Regulation 19 criminalises conduct, the intention of which is to facilitate a circumvention of Regulations 11-15 (as well as 16-18A, but those prohibitions are largely aimed at financial institutions).

SAMLA is an example of legislation by regulation.  During parliamentary passage of the bill that became SAMLA, government ministers presented it as a ‘technical’ bill. It vests far-reaching powers in a minister to rule by regulation. It enables a minister to decide what is appropriate, and to make sanctions regulations – including regulations that create new criminal offences – if they consider that to do so would be appropriate to achieve the UK government’s foreign policy aims. The only constraint placed on this creation of criminal offences by regulation is that, if the minister decides that an offence should be punishable by imprisonment, the period must not exceed ten years. Appropriate is sufficient; exercise of this power need not, for example, be reserved for situations of necessity. There is no evidential threshold, such as reasonable grounds to suspect. A benign ministerial intention is sufficient.

The circumvention offence was, therefore, never considered or debated by Parliament or subjected to any other external scrutiny. The only mention of it in SAMLA is at section 17(4)(a) where the purpose of preventing circumvention of a regulation enables the minister to make regulations that create criminal offences.

Using the classical criminal dichotomy, mens rea and actus reus, Regulation 19 has a clear mens rea: an intention to circumvent what Regulations 11-18A proscribe. This offence is obviously not one of strict liability. Moreover, it cannot be committed through mere recklessness. But the principle of legal certainty also demands a sufficiently clear exposition of the actus reus; otherwise, Orwellian thought crimes might be permissible.

What is circumvention?

Despite its inherent ambiguity and importance, ‘circumvention’ is not defined by the Regulations. Moreover, it has never been defined in any of the UK’s sanctions-related legislation, and so there is no guidance to be found there either. The fact that the legislation is silent as to the meaning of a word that constitutes the gravamen of an offence is unfortunate, but there is the common law to remedy such a deficiency. But again, notwithstanding that a Regulation 19 offence has been a feature of successive cohorts of sanctions regimes for many years, there is no judicial determination of the word. In R v R [2015] EWCA 796, the Court of Appeal declined the opportunity to formulate the meaning of ‘circumvent’ used in the then-extant Russia sanctions regime. Furthermore, the Court dismissed the few European Court of Justice authorities on the point as being of little assistance. This judgment’s significance is that it emphasises that when, eventually, a court has to grapple with ‘circumvent’, it will be an acutely fact-sensitive and context-driven exercise.

The problem with ambiguous yet vital words in a criminal statute is that law enforcement agencies fill the void by taking the law into their own hands. As their primary goal is deterrence, they – unsurprisingly – accord to the offence the widest scope and application while disregarding its limitations. The Red Alert is an example of this. It purports, among many other things, to provide definitive or authoritative guidance as to what the law holds to be circumvention. In reality, it borders on alarmist propaganda.

It defines ‘circumvention’ as including potential circumvention, further obscuring and therefore widening the word and the offence. Presumably this means moving assets in anticipation of being sanctioned. It treats circumvention and evasion as synonyms, with the result that avoidance and evasion become conflated. In order to stoke fears of acting in ways that might amount to circumvention, it refers to surges of investigators targeting the enablers of corrupt elites. Its basic and ominous message, aimed at a wide range of UK-based professional advisors, is: if you do something that might somehow facilitate a designated person to obtain economic resources anywhere in the world, then you are in peril of being a circumventor.

The limitations that this Alert ignores are, firstly, that there must be an intention to circumvent – the mens rea element. That the offence cannot be committed by negligence or suspicion means the comparison drawn by the Alert between it and a money- laundering offence is facile. The latter is far wider than the former. Secondly, the UK sanctions regime does not apply to the conduct of non-UK persons acting wholly outside the UK. It is not an offence which grants our courts a universal jurisdiction. Thirdly, and most importantly, there is no acknowledgement – as there would be in a balanced or impartial publication – that, as there is no accepted definition of circumvention, it is uncertain how a UK criminal court would interpret or construe it. The cases of Bowman v Fels [2005], EWCA 226 and Dare v CPS [2012], EWHC 2074 are good examples of this dynamic. In these cases the courts interpreted the amorphous words of section 328 of the Proceeds of Crime Act 2002, which creates an offence of ‘being concerned in an arrangement’ that ‘facilitates’ money laundering. In both judgments these statutory words were interpreted narrowly.

Whilst this Red Alert is unwise, the root cause of the problem lies elsewhere: that a highly ambiguous word was used in a regulation that creates a criminal offence. Perhaps no one in government apprehended that this mattered. There was no apprehension that a policy of having smart, effective sanctions, carefully worded in order to hit the intended target without inflicting a great deal of collateral damage, would be undermined by resort to undefined words such as ‘circumvent’. Whilst it is impossible to measure the fear this has engendered and the consequential stifling of legitimate international finance and trade, it is clear that a huge amount of business has moved from the UK in order to relocate to counties like the UAE, in order to minimise the risk of criminal liability arising from a breach or circumvention of UK sanctions. That was not the intended outcome.

This article was first published in Edition 118 of World ECR.