Written evidence submitted by THE SENTRY (IEF0022)

Executive Summary

The Sentry welcomes this latest inquiry by the UK Foreign Affairs Committee. This submission addresses three of the questions posed in the Inquiry’s terms of reference in relation to: (i) sanctions, (ii) other measures to counter illicit finance, and (iii) the effectiveness and coordination between UK government departments. With regards to sanctions, The Sentry commends the launch of the UK’s Global Human Rights and Global Anti-Corruption sanctions regimes, but suggests improvement on scope, implementation, delisting, messaging, and source protection. With regard to other financial tools of pressure, this submission focuses on the need to increase private sector engagement and make better use of alerts or advisories. As to UK government department coordination, whilst the emergence of ‘illicit finance’ teams within departments demonstrates a willingness to engage on the topic, the concern is that individual departmental teams can lead to silos. Finally, on coordination, the submission advocates for greater knowledge sharing particularly between the Foreign, Commonwealth and Development Office (FCDO), with its enormous bank of global knowledge, and other government departments and law enforcement agencies often tackling illicit finance across borders.

1. Introduction

1. In February 2022, the UK Foreign Affairs Committee (FAC) launched its latest inquiry on responding to illicit and emerging finance (Inquiry). The Sentry welcomes this Inquiry as a timely opportunity to assess current successes and areas for improvement in the UK’s approach to illicit finance.

2. The Sentry’s submission is an attempt to share its collective experience working on illicit finance—linked in particular to conflict and human rights abuses—since 2016. This includes working closely on the creation and application of the US Global Magnitsky sanctions program, the UK’s Global Human Rights (GHR) and Global Anti-Corruption (GAC) sanctions regimes, the EU Global Human Rights regime, and most recently, the Australian equivalent. The Sentry has also worked on a number of alternative illicit finance tools, including the use of country alerts and advisories in the US and UK, enhanced anti-money laundering (AML) measures and effective supervision, and civil society involvement in public-private partnerships, and The Sentry engages on a regular basis with intergovernmental organisations such as the Financial Action Taskforce (FATF) and the United Nations.

3. The UK has taken significant steps to improve its response to illicit financial flows but must do more. The UK is uniquely positioned not only as a financial centre with accompanying advisory, legal, and accountancy services, but also as a location for world-class education, attractive investment opportunities (not least the London property market), and the accruement of a luxury lifestyle. This unique positioning demands a unique response. The Sentry submits that the UK must continue to seek out areas to close the gap on illicit financial flows, adopting a holistic cross-government approach. This submission will first set out more information about The Sentry before focusing on three specific questions raised in the Inquiry’s terms of reference:

1. How effective are the UK’s sanctions regimes on corruption and human rights? How could sanctions be used to greater effect in countering illicit finance?
2. What other measures beyond sanctions can counter illicit finance, including bilateral and multilateral approaches?
3. How, and how effectively, does the FCDO co-ordinate with other UK government departments and agencies to respond to illicit and emerging finance? To what extent does the FCDO participate in multilateral forums such as the Financial Action Task Force?

2. About The Sentry

4. The Sentry is an investigative and policy organization that seeks to disable multinational predatory networks that benefit from violent conflict, repression, and kleptocracy.

5. Pull back the curtain on wars, mass atrocities, and other human rights abuses, and you’ll find grand corruption and unchecked greed. These tragedies persist because the perpetrators rarely face meaningful consequences. The Sentry aims to alter the warped incentive structures that continually undermine peace and good governance. Our investigations follow the money as it is laundered from war zones to financial centers around the world. We provide evidence and strategies for governments, banks, and law enforcement to hold the perpetrators and enablers of violence and corruption to account. These efforts provide new leverage for human rights, peace, and anti-corruption efforts.

6. Launched in 2016, The Sentry produces hard-hitting investigative reports and dossiers on individuals and entities connected to grand corruption and violence. We advocate for the use of tools of financial and legal pressure, including anti-money laundering and illicit finance measures, targeted network sanctions, criminal prosecutions, compliance actions by banks and other private companies, and asset recovery. As a result of our work, money laundering routes have been exposed and shut down, assets have been frozen, travel has been banned, and corrupt networks have been cut off from the international financial system. Through strategic partnerships with governments, global banks, and other private and public organizations, The Sentry has succeeded in creating real consequences for many of the officials and commercial actors perpetuating and profiting from war, mass atrocities, and other human rights abuses.

7. Co-founded by George Clooney and John Prendergast, The Sentry is a strategic partner of the Clooney Foundation for Justice. Learn more at www.TheSentry.org.

3. How effective are the UK’s sanctions regimes on corruption and human rights? How could sanctions be used to greater effect in countering illicit finance?

8. When done well, sanctions relating to human rights violations and grand corruption can serve as an essential foreign policy tool. Sanctions work most effectively when they are used against carefully selected targets to achieve specific goals, whilst minimising the unintended consequences or potentially negative impacts on innocent parties of more wide-ranging sanctions. From an international perspective, effective sanctions programmes allow states to partner in a demonstration of solidarity to support the rules-based international system in the face of threats and unacceptable behaviour.

9. The UK has undoubtedly gone through a significant period of change to its sanctions landscape. Since the UK left the European Union, under the primary legislation of the Sanctions and Anti-Money Laundering Act 2018,[1] the UK has launched two new thematic sanctions regimes, the Global Human Rights Sanctions regime (GHR) and the Global Anti-Corruption Sanctions regime (GAC), alongside amendments and updates to other country-specific regimes. The very fact that the UK has launched the GHR and GAC should be commended. The launch of the GHR and GAC regimes brought the UK largely in line with modern sanctions approaches, led most prominently by the US Global Magnitsky Act. But there are a number of improvements that should be made the maximise the efficiency of these regimes.

10. At the outset, it should be noted, however, that measuring the effectiveness of any sanctions regime is notoriously difficult. Very rarely do those subject to sanctions directly attribute the designation as the reason for their change in behaviour. Effectiveness is more commonly assessed through a holistic examination of an individual or entity’s previous and subsequent behaviour within a domestic policy landscape and within context of other domestic, regional, and international tools of pressure, all over what is often a relatively long period of time. In short, assessing the effectiveness of sanctions is possible, but it requires a nuanced process with a wide scope of interpretation. With this in mind, five areas of focus for the future effectiveness of the UK’ s human rights and corruption sanctions regimes should be prioritised: (i) scope, (ii) implementation, (iii) messaging, (iv) delisting, and (v) protection of sources.

Scope

11. The narrow scope of the GHR and GAC regimes will likely always limit the effectiveness of the sanctions regimes. The GHR regime limits applicable human rights to the: (i) right to life, (ii) right not to be subjected to torture or cruel, inhuman or degrading treatment or punishment, and (iii) the right to be free from slavery, not to be held in servitude or required to perform forced or compulsory labour.[2] The GHR regime therefore currently precludes designation for the violation of a number of well-established human rights including the right to freedom of expression, of association, and of religious belief. Compare this to the US Global Magnitsky regime, wherein the scope is set out as ‘serious human rights abuse’, thereby providing protection to the widest range of human rights.[3]

12. Similarly, the GAC regime limits ‘corruption’ to bribery and misappropriation of property.[4] This precludes a significant number of additional corrupt activities set out in the UN Convention Against Corruption (UNCAC).[5] Whilst the ‘involved person’ test for both the GHR and GAC is drawn to allow for a wide array of conduct to be sanctioned, the limited scope of the GAC and GHR regimes will necessarily limit the effectiveness of sanctions regimes designed to target human rights violations and corruption

13. Sanctions are also most effective when multiple countries or regions’ sanctions programmes act together to coerce or constrain a target’s ability to carry out unacceptable behaviour or to send a strong political signal that such behaviour is intolerable. Adopting a wider scope would also ensure that international cooperation can be maximised.

14. It is understood that the scope of the GHR and GAC can be amended, but it is also The Sentry’s understanding that there are currently no practical plans to assess this. It is therefore recommended that the FCDO reviews this stance and revisits the possibility of extending the scope of both the GHR and GAC.

Implementation

15. Further consideration must also be given to the implementation of the GAC and GHR regimes, even in their current form. The Sentry has long advocated for a network approach that can maximise the effectiveness of sanctions. Carefully targeted sanctions against the individual or entity directly involved are not enough. Sanctions that target their networks are required, as well, particularly when the main perpetrator is in a position of power, given that those at the top of the food chain are ostensibly busy running countries or regions and therefore rely heavily on networks of professionals and advisors (i.e., enablers). If sanctions are to be truly effective and change behaviour then they must also target those who are assisting, which can include family members. This approach of targeting not only those at the top, but also the known networks can provide a far more effective tool in a government’s overall toolbox for combatting dirty money.

16. This network approach is particularly effective with regards to corruption-related sanctions and illicit financial flows. An example of this network approach would be the US Department of the Treasury’s use of the Global Magnitsky sanctions authority to designate Dan Gertler, an international businessman and billionaire whose fortune derives from hundreds of millions of dollars’ worth of opaque and corrupt mining and oil deals in the Democratic Republic of Congo.[6] The designation was based on the US Treasury Department’s determination that Gertler, a close friend of former President Joseph Kabila, had acted as his middleman in the sale of mining assets. These assets were severely underpriced and sold to offshore companies linked to Gertler, leading the DRC to lose billions in public revenue. The effects of the Global Magnitsky sanctions were immediate. Just weeks after they were announced, Randgold, the DRC’s largest gold operator, said it would stop providing services to Gertler’s gold mining company.[7] But just as important as the first sanctions were further sanctions in June 2018 against 14 Gertler-affiliated entities.[8] These were followed by further sanctions on individuals and 12 Gertler-affiliated entities in December 2021.[9] This approach of adding additional individuals and entities within Gertler’s network demonstrates the level of engagement required to administer effective sanctions, and it has been credited as a significant factor in Kabila’s decision not to run for reelection and Gertler’s alleged recent negotiations with the DRC government to return some of the mining assets.[10]

17. The UK has so far shied away from adopting a network approach to sanctions under the GAC and GHR, thus limiting effectiveness. For sanctions—especially those linked to illicit finance—to be as effective as possible, the UK should resolve to adopt a network approach.

Messaging

18. In order to fully implement a network based approach to sanctions, effective messaging accompanying sanctions designation must be constantly deployed. This is particularly relevant for GHR and GAC, which target specific individuals or entities rather than entire countries. It is vital that, when sanctions designations are announced, it is made clear that the sanctions are targeting the corrupt or human rights abusers, not the innocent citizens of the country. Too easily the narrative surrounding sanctions can be hijacked by those sanctioned to spin the story as one of repression or even neo-colonial meddling. This hijacked narrative benefits the sanctioned persons by turning the spotlight away from the actions that led to their designations and onto the country or regional body responsible for the sanctions and those innocent citizens in country. Improved messaging starts with basics, such as communication in languages that are understood in country and the use of photographs, graphics, radio communication, and easily accessible lists including the reasons for sanctions. Messaging should also make clear that the action is aimed at an individual or group of individuals in support of innocent citizens and the country more widely. Messaging of this kind requires forward planning and dialogue between London and relevant embassies or high commissions.

Delisting

19. In order to improve the effectiveness of sanctions, the UK government must work to improve its public-facing action around delisting—the removal of sanctions from an individual or entity. This is a crucial area, as it exemplifies the difference between a common criticism of sanctions being a punishment for individuals who otherwise may be outside the scope of traditional forms of justice and the legitimate aim of changing behaviour. If a change in behaviour is truly the goal of any sanctions programme, then a clear process for how sanctions can be lifted is required. In terms of delisting individuals, the UK government, led by the FCDO, should clearly set out its policy on whether the position of the individual or their behaviour are the determining factors for delisting.

20. There is no ‘one size fits all’ test, and cases should be considered on a case-by-case basis, but clearer guidelines on delisting are crucial to protecting the rights of those subject to sanctions and countering any negative messaging from those individuals or states that may, as discussed above, seek to argue that sanctions are an unfair or overly harsh action. Put simply, if you can show a clear path towards how sanctions can be removed, you go a long way to demonstrating how sanctions can be an effective tool.

Protection of Sources

21. Finally, there must be greater efforts to clearly set out information on the protection of those who bring information to the attention of authorities for sanctions consideration. The GHR and GAC will always rely heavily on the involvement of individuals and civil society organisations to raise issues and provide information. It is therefore key that the authorities are able to effectively protect sources of information from either legal action or harassment. In the US, the Office of Foreign Assets Control (OFAC) is capable of protecting its civil society sources, which allows for those with information to come forwards with confidence. Whilst there will be some differences between the UK and US capabilities to protect sources, due in part to the UK’s more wide-ranging appellate processes and data protection requirements, at present the advice to nongovernmental organisations on the protection of sources remains vague and will likely hamper civil society’s ability to supply information, leading to a less effective sanctions regime.

4. What other measures beyond sanctions can counter illicit finance, including bilateral and multilateral approaches?

22. Whilst sanctions are often seen as the go-to tool for countering illicit finance, they are most effective when used as part of a policy toolbox. When considering the issue of illicit finance, the UK must widen its focus to consider a coherent strategy for designing, implementing, and enforcing a cross-government illicit finance initiative that fits within this broader policy toolbox.

23. A clear program on countering illicit financial flows that sets out these tools would deter concerns that sanctions become the only tool deployed to counter those involved in particularly intricate and difficult conflict areas or governments. The advantages of sanctions are perhaps clear: they can be issued relatively quickly, require little external discussions, and can provide impact immediately. However, whilst sanctions can sometimes produce this immediate effect, a designation by itself is unlikely to result in sustained, fundamental, and long-lasting behavioural changes. In order to use sanctions effectively and responsibly with some probability of fundamental behaviour changes, sanctions must sit alongside a full spectrum of other foreign policy, national security, and economic tools to address areas of concern.

24. One tool that is currently underused is the issuance of country alerts or advisories. The UNCAC states that parties should issue advisories regarding the types of persons to whom financial institutions should apply enhanced scrutiny, as well as the types of accounts and transactions to which they should pay particular attention.[11] The UK has used this type of tool previously with regards to corruption in South Sudan, but its use is irregular.[12] The UK can take inspiration from the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN),[13] which has issued a number of advisories warning banks and drawing their attention to patterns that financial intelligence units (FIUs) may be seeing through access to suspicious activity reports (SARs).[14] In a similar vein, the US government has recently issued a number of multi-agency business advisories, including with respect to human rights abuses and corruption in Myanmar, illicit finance and corruption in Cambodia, and forced labour and other human rights abuses in Xinjiang.[15]

25. The FCDO, in conjunction with the National Crime Agency and other relevant departments, should prioritise this tool as a way of enhancing and reinforcing other tools of financial pressure.

26. Another measure for consideration would be more consistent and focused private sector engagement. Whilst the UK can point to the Joint Money Laundering Intelligence Taskforce (JMLIT) as a model of public-private sector engagement, more engagement with the private sector around specific illicit finance initiatives, including closer engagement between the FCDO and the banking community, would enhance the UK’s overall efforts. In particular, engagement with the private sector around the use of financial tools of pressure, whether sanctions or others, would allow the private sector to understand the reason for action and would clarify the technical aspects of measures taken. In return, the public sector would gain useful insights into the challenges of implementing these tools and the ways in which the tools and their application could be improved. This engagement could be further augmented by working with the private sector on the integration of human rights due diligence as part of a wider public-private partnership.

5. How, and how effectively, does the FCDO co-ordinate with other UK government departments and agencies to respond to illicit and emerging finance? To what extent does the FCDO participate in multilateral forums such as the Financial Action Task Force?

27. To be truly effective, an overarching illicit finance policy should guide multiple UK government departments. Cross-government departmental strategy does not occur without significant effort from the departments themselves, however. The FAC’s previous concerns over a fragmented approach to sanctions policy remain.[16] The sanctions landscape only goes to illustrate that a more efficient approach is required. To this end, many government departments may well have an ‘illicit finance’ team, but the question is whether the departmental teams are working together or whether the existence of multiple departmental teams actually encourages silos in what should be a cross-government effort.

28. As an example of the need for further cross-government engagement, the FCDO houses—in London and around the world—a vast bank of knowledge that needs to be accessible to all government departments and agencies focused on international illicit financial flows. The role of the FCDO in providing invaluable knowledge to law enforcement, sanctions teams, and others should be prioritised to avoid the delays that occur when staff are required to read up on a situation in order to engage in it. This is particularly true with regards to engagement ‘down the chain’ from destination countries such as the UK, through transitional countries to source countries in which illicit finance emanates. To this end, consideration should be given to hosting regular illicit finance roundtables bringing in relevant stakeholders from the FCDO, the Home Office, the Ministry of Finance, the National Crime Agency, the Ministry of Justice, regulators responsible for anti-money laundering and countering the financing of terrorism (AML/CFT), and other government departments that deal with different aspects of illicit financial flows.

29. As to the question on the FCDO’s participation in multilateral forums such as the FATF, it is not clear how much direct engagement occurs. The Ministry of Finance is tasked with FATF engagement, but the FCDO has no clear mandate—that is publicly available—for direct engagement with the FATF. It would be beneficial for the Ministry of Finance to engage more closely with the FCDO to identify how the UK’s work in illicit financial flows can be advanced at the FATF.

6. Conclusion and Recommendations

30. In conclusion, The Sentry welcomes the timing of this Inquiry as an ideal opportunity for the UK to evaluate and improve its approach to illicit finance. The sad reality is that the UK’s illicit finance challenges are rarely contained within UK borders. Rather, illicit financial flows that end up in the UK are often directly linked to corruption, human rights violations, and conflict abroad. What is needed is clear UK policy that combines both domestic and foreign aspects in order to be most effective. The Sentry therefore respectfully makes the following recommendations:

1. Sanctions:

(i)                 The current GHR and GAC regimes are limited in scope. In order to be as effective as possible the UK government should increase the scope of the GHR and GAC.

(ii)                To date, the UK has usually used sanctions on individuals or entities but not entire networks, thus limiting the effectiveness of sanctions regimes. The UK government should adopt a network-style approach to designations.

(iii)              Effective sanctions do not stop at the time of designation. In order to be as effective as possible, the messaging and delivery of sanctions must be carefully thought out and adapted to each designation. The UK government should adopt simpler communications and clearer messaging around sanctions.

(iv)             The delisting of individuals and entities is a key area of any effective sanctions regime. The UK government should publish clear and transparent delisting guidelines.

(v)               Effective sanctions regimes rely on individuals and civil society to engage and provide evidence that can underpin designations. At present, the UK government advice on the protection of these sources remains vague. The UK government should clarify the protection of sources.

2. Additional Tools:

(i)                 Illicit finance is a complex issue and requires multiple tools to be used at once. The UK has issued alerts and advisories to help combat illicit financial flows, but their use has been inconsistent. The UK government, including law enforcement agencies, should use advisories and alerts more consistently alongside other tools of financial pressure.

(ii)                The private sector, especially banks and other financial institutions, is crucial to combatting illicit financial flows. Yet the UK government has a patchy track record of engaging the private sector. The UK government should engage with the private sector on a more regular basis.

3. HMG Engagement:

(i)                 Departmental ‘illicit finance’ teams demonstrate the will to engage on the issue, but having too many teams risks the creation of departmental silos. The UK government should revisit departmental teams and look for ways to cut across departments.

(ii)                With regards to the need for greater engagement with the private sector highlighted above, the UK government should invite relevant departments within the FCDO to join these public-private partnerships.

(iii)              With regards to international illicit finance in particular, the UK government should find a streamlined way for government departments and law enforcement agencies to access the FCDO knowledge bank.

4. Multilateral Engagement:

(i)                 Identify areas of engagement between the FCDO and the Ministry of Finance as related to the fight against money laundering, terrorist financing, and proliferation financing.

(ii)                Generate awareness on how the FCO could feed more directly into the FATF process and how it can support strategic countries in managing the FATF process more effectively.

(iii)              The Ministry of Finance should engage more closely with the FCO to identify how the UK’s foreign policy interests and work in illicit financial flows and sanctions can be advanced at the FATF.

15 March 2022

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