23 Jan 2023

Enforcement of financial sanctions and extradition risk

Russia’s invasion of Ukraine nearly one year ago led to a deluge of new financial sanctions regulations, guidance notes, compliance advice and much sabre-rattling from OFSI and the NCA. But for all this sound and fury, has there been any enforcement action? There was the £30,000 fine imposed in September 2022 on a UK registered business that had dealings with a designated Crimean winery in breach of EU sanctions. Three months later, the NCA arrested a number of individuals linked to “a wealthy Russian businessman” on suspicion of offences including fraud and money laundering. But as far as criminal enforcement of violations of UK sanctions is concerned, nothing has happened – at least not yet.

This is perhaps predictable: the UK has no track record in taking criminal enforcement action against those who breach or circumvent financial sanctions. Equally predictable is the contrast between the UK and US experience; OFAC has frequently investigated and prosecuted those who violate US sanctions over many years. Indeed, the closest the UK has come in the past year to witnessing a criminal prosecution originated in the US. In October 2022, Graham Bonham-Carter was arrested in the UK on a US extradition request alleging that he had assisted Oleg Deripaska to evade US sanctions.

One feature of this extradition request stood out: during the US indictment period, the UK had not designated Mr Deripaska. Accordingly, the alleged conduct in the US would not have constituted a breach of UK sanctions at the time it was committed. But does it follow that Mr Bonham-Carter should not be extradited? At the heart of this question is the concept of dual criminality – and how states cooperate with each other on criminal justice matters when there are differences in the scope and application of their corresponding laws.

Under sections 64/65 of the Extradition Act 2003 (which applies to extradition requests to the UK by EU member states[1]) or sections 137/138 (which applies to extradition requests to the UK by any other state with whom the UK has extradition arrangements), the conduct alleged in a request must amount to an offence under UK criminal law. Only if this requirement of dual criminality is satisfied is there an “extradition offence” for which the requested person can be extradited.

There is no recorded case in the Administrative Court (which hears appeals on extradition matters) analysing these provisions in the context of financial sanctions. The closest point of comparison concerns extradition requests in the context of trade sanctions.

In Diri v United States [2015] EWHC 2130 (Admin), for example, the requested person was wanted by the US on 21 charges concerning the export of goods to Syria in breach of US export restrictions. The request alleged that the person was part of a dishonest agreement to deceive both US exporting companies and, thereby, US government departments. Had this alleged conduct occurred in the UK – i.e. had the requested person agreed with others to give misleading information to UK authorities for the purposes of export – the court found that this would constitute the UK offence of conspiracy to defraud. On this basis, dual criminality was satisfied. It was irrelevant that the export from the UK of certain items in the US indictment was not subject to UK export control; their export coupled with deliberate misrepresentations (identified as the “essential conduct” alleged in the request) was sufficient to infer dishonesty – an essential element of conspiracy to defraud – and thereby satisfy the dual criminality test.

Diri reflects the principle that, in applying the dual criminality test in extradition cases, what matters is not whether there is a UK offence that is an exact match (in terms of the elements of the offence or the context in which it is committed) with the overseas offence, but whether the “essential conduct” alleged against the defendant in the foreign state would amount to any offence in the UK.[2] Thus, in Diri, the US authorities did not need to rely on specific UK export control offences – which were the closest equivalents to the US offences – but could rely on the more generic offence of conspiracy to defraud, which criminalises a whole spectrum of dishonest agreements in a range of commercial contexts.

How would dual criminality apply to an extradition request alleging a breach of overseas financial sanctions? Consider the following scenarios:

  1. If the request alleges a strict liability breach of sanctions (i.e. the foreign offence has no mental element) it would be impossible to satisfy dual criminality. The UK has only legislated for civil penalties (not criminal offences) for strict liability breaches of sanctions, and the alleged conduct could not be transposed to any other offence under UK law.
  2. If the request describes a breach of sanctions involving a mental element[3], it is likely to be relatively straightforward to satisfy dual criminality:
    • If country A’s request alleges that person X dealt with the assets of person Y in the period 1 July to 31 December 2022, knowing that country A had designated Y during this period, dual criminality would be satisfied if the UK had also designated Y during the same period. English law creates criminal offences specific to sanctions that are committed where a person knows or has reasonable cause to suspect that they are breaching the relevant sanction.[4]
    • What would the position be if the UK had not designated Y during that period (the position in the US prosecution of Mr Bonham-Carter)? Just as trade sanctions offences can only be committed by providing prohibited goods or services, so too financial sanctions offences can only be committed by dealing with designated persons. By analogy with Diri, however, it matters not that X would have committed no equivalent financial sanctions offence contrary to UK law. What matters is whether the essential conduct alleged in the extradition request evidences a dishonest intent to evade country A’s sanctions, for example through deliberate deception of financial institutions or government departments. Transposing this alleged conduct means that X would be treated under UK law as acting with the mens rea of dishonesty. The analogue offence that satisfies dual criminality would be conspiracy to defraud or an offence under the Fraud Act 2006.

These examples demonstrate the elasticity of the dual criminality test. Depending on precisely how the extradition request describes the overseas breach of sanctions, it will usually be possible to transpose this conduct as a UK fraud offence.

So when might dual criminality provide a defence to a person targeted with an extradition request in these circumstances? Probably the most fertile area concerns offences of circumventing sanctions, rather than offences alleging a straightforward breach. In the UK, this anti-avoidance offence is committed where a person intentionally participates in activities knowing that their object or effect is to circumvent the relevant sanctions or to facilitate their circumvention.[5] This offence is nebulous and its precise scope untested before our courts.

If, for example, an overseas authority advanced an allegation that the requested person circumvented its sanctions regime merely by transferring their assets to a family member before they were designated under that regime, it is difficult to see how this “essential conduct”, without more, could be transposed onto the UK circumvention offence. All that this allegation amounts to is an intention to pre-empt – and protect oneself from – the effect of sanctions that might be introduced at some future point. This is unlikely to constitute circumvention contrary to UK law for the simple reason that, at the time of transferring the assets, there were no relevant sanctions in existence capable of being circumvented.

Of course, the ultimate question is exactly how the extradition request describes the alleged conduct. This will always require careful analysis. It is always possible that overseas prosecutors might advance aggressive allegations of circumvention that, on a proper analysis, do not constitute any offence under English law. And this is why judicial guidance on the scope of the UK circumvention offence would be welcome. As matters stand, that guidance may well be issued as a result of an extradition request to the UK, rather than the ever-elusive prospect of a domestic prosecution of UK sanctions violations.

 

[1] The arrangements with EU Member States under the Trade and Cooperation Agreement provide for an optional waiver of dual criminality in respect of a list of offences largely identical to that previously set out in the EAW Framework. As a result, the present starting point is that dual criminality will be required in nearly all requests from EU Member States to the UK.

[2] See Norris v Government of the United States of America [2008] UKSC 16.

[3] For example, an allegation that a person made funds available to, or dealt with the funds of a designated person without a licence, knowing that this was prohibited (primary liability), or an allegation that a person knowingly aided or abetted a breach of sanctions by another (secondary liability).

[4] See, for example, Chapter 2 of the Terrorist Anti-Freezing etc. Act 2010.

[5] See, for example, Regulation 19 of the Russia (Sanctions) (EU Exit) Regulations 2019.

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