Written evidence submitted by REDRESS (IEF0030)

 

SUMMARY

  1. The UK’s Magnitsky and country-specific sanctions regimes have the capability to deploy targeted measures to prevent corruption and human rights abuses, and to hold perpetrators to account. Sanctioning these actors can disrupt flows of illicit wealth in the UK and globally, and remove the economic incentives for malign actors to carry out human rights abuses in the pursuit of kleptocratic wealth.
  2. However, the effectiveness of the UK’s targeted sanctions regime has been marked by the absence of a strategic approach, a lack of coordination with other key sanctioning jurisdictions including the US and the EU, and limitations in enforcement and implementation. The UK has sanctioned less than 15% of designated individuals under the US’s Magnitsky sanctions regime.
  3. The gap between sanctions designations is currently widening, with a marked slowdown in the use of anti-corruption and human rights sanctions since the current Foreign Secretary’s appointment in September 2021. Between September 2021 and February 2022, only three actors have been sanctioned under the UK’s Magnitsky sanctions regime, in comparison to 105 designations authorised by her predecessor.
  4. REDRESS has supported credible NGOs in submitting over 15 detailed evidence packages to the FCDO, documenting cases of human rights abuses or corruption in China, Sudan, Uganda, the DRC, Cameroon, Bangladesh, Venezuela and Nicaragua, among others. In a number of these cases the US government has sanctioned the perpetrators. But in almost all of them the UK has so far failed to act.
  5. The UK could use its sanctions to much greater effect by adopting a strategic approach and expanding its focus to sanction more of those who facilitate, incite, promote, support, profit or otherwise benefit from illicit conduct.
  6. The UK has an opportunity to act as a global leader by taking a principled approach to sanctions, and at the very least, keeping pace with its allies on sanction designations. Enhancing parliamentary scrutiny is essential for increasing governmental accountability.
  7. Finally, effective implementation and enforcement fundamentally require increasing the resources available to the FCDO Sanctions Unit and OFSI.
     

INTRODUCTION

  1. This submission is made in response to the call for evidence of the Foreign Affairs Committee’s inquiry into illicit and emerging finance.
  2. REDRESS is an NGO that pursues legal claims on behalf of survivors of torture in the UK and around the world to obtain justice and reparation for the violation of their human rights. As part of our work we use Magnitsky sanctions to prevent human rights abuses and corruption, and seek to have the illicit financial proceeds of human rights abuses repurposed as reparations for victims. We do this by investigating abuses and submitting evidence to sanctions authorities and criminal prosecutors; by using data-driven analysis to shape public policy; and by supporting NGOs across the world on asset recovery and sanctions. To date we have:

a)      Helped the UK sanction Chinese officials for torture in Xinjiang;[1]

b)      Published the first data analysis of UK human rights sanctions;[2]

c)       Issued a ground-breaking guide to financial accountability for human rights abuses;[3] 

d)      Trained over 200 NGOs on using UK Magnitsky sanctions; and

e)      Supported the establishment of the APPG on Magnitsky Sanctions.[4]

  1. This submission responds to the following questions in the Committee’s call for evidence:

a)      How effective are the UK’s sanctions regimes on corruption and human rights?

b)      How could sanctions be used to greater effect in countering illicit finance?

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

A. HOW EFFECTIVE ARE THE UK’S SANCTIONS REGIMES ON CORRUPTION AND HUMAN RIGHTS?

Sanctions as a tool for countering illicit finance

  1. Magnitsky sanctions are targeted sanctions imposed by governments on individuals and entities responsible for corruption and human rights abuses across the world. The sanctions freeze perpetrators’ assets and ban them from travelling internationally. They are used in a number of jurisdictions, including the UK, US, EU, Canada and Australia, which together represent over a third of global GDP.
  2. The UK’s Magnitsky sanctions programme is composed of two regimes:

a)      The Global Anti-Corruption Sanctions regime[5] allows the Foreign Secretary to sanction individuals and entities for their involvement in bribery or misappropriation of state assets.

b)      The Global Human Rights Sanctions regime[6] allows the Foreign Secretary to sanction individuals and entities for their involvement in violations of the right to life, the right to be free from torture or the right to be from slavery.

  1. The UK’s country-specific sanctions regimes also act as a tool for countering illicit finance. For example, as of 14 March 2022 the UK had used the UK’s Russia sanctions regime[7] to sanction 18 Russian oligarchs with links to Vladimir Putin.

The link between human rights abuses and illicit finance

  1. A common driver of large scale human rights abuses is a desire to control access to government wealth or natural resources, sustaining networks of kleptocratic wealth. This is done through using torture, arbitrary detention, enforced disappearance, extrajudicial killings and other acts of violence against political opponents, rival ethnic groups, journalists, protestors, human rights defenders and others.
  2. By way of example, in Sudan the Rapid Support Forces, once known as the Janjaweed, were the government-sponsored militia responsible for many of the worst abuses during the Darfur genocide in the early 2000s. The power amassed by the RSF has since allowed it to dominate a number of Sudanese industries, including gold mining. It has made its commander, Mohamed Hamdan Dagalo (known as “Hemedti”), one of the richest individuals the country.[8]
  3. Perpetrators of human rights violations subsequently take their amassed fortunes out of their countries, seeking safe haven in jurisdictions including the UK. Sanctioning these actors stops this flow of illicit wealth. Sanctions also disrupt the economic incentive for malign actors to carry out human rights abuses in pursuit of kleptocratic wealth.[9]

Case study 1 - Teodoro Obiang Mangue

  1. The cases of Teodoro Obiang Mangue and Mikhail Gutseriev illustrate the strengths and weaknesses of the current UK sanctions regime.
  2. On 22 July 2021 the UK sanctioned Teodoro “Teodorin” Obiang Mangue, Vice President of Equatorial Guinea, and son of the President, under the Global Anti-Corruption Sanctions regime. He was sanctioned for “his involvement in the misappropriation of state funds into his own personal bank accounts, corrupt contracting arrangements and soliciting bribes, to fund a lavish lifestyle inconsistent with his official salary as a government minister. This included the purchase of a $100m mansion in Paris and a $38 million private jet.”[10]
  3. The UK sanctions on Teodorin formed part of broader efforts by European and US governments in response to his kleptocracy. These have included the seizure of 25 luxury cars by Swiss criminal authorities, €150m by French criminal authorities and $70m by the US Department of Justice.[11]
  4. While Teodorin is not known to have assets in the UK, the sanctions on him have created a “trickle down fear” amongst those around him, particular those with links to the UK.[12] The UK sanctions and criminal cases elsewhere have meant that Teodorin’s associates and family members are less likely to travel to the UK or US, and are now more likely to travel to places such as Dubai and Singapore.[13]
  5. While the UK sanctions have helped confirm the truth of the allegations of corruption against Teodorin, that was already relatively well established by the previous criminal processes against him.[14] A lack of coordination with the EU and US (who have not yet sanctioned Teodorin) has also reduced the UK sanctions’ impact.[15]
  6. The UK sanctions have, though, energised local civil society and acted as a catalyst for further change. Anti-corruption NGOs focused on Equatorial Guinea are seeking to compile evidence to target other individuals for sanctions in the country.[16]
  7. The Teodorin case also illustrates how the UK should be prepared to weather diplomatic ‘blowback’ from some sanctions designations. In the wake of the UK sanctions in July 2021 Equatorial Guinea threatened to close its embassy in London.[17] Negative diplomatic responses to sanctions are, however, arguably a sign that the sanctions are working and are having an impact on perpetrators. And such diplomatic responses may be short-lived. As of March 2022 the Equatorial Guinean embassy in London was still open.[18]

Case study 2 - Mikhail Gutseriev

  1. Mikhail Gutseriev is a prominent Russian businessman who is one of the main private investors in Belarus and a longstanding associate of President Lukashenko. The UK sanctioned Gutseriev on 9 August 2021 under the Belarus country regime, following an EU sanctions designation against him on 21 June 2021. Gutseriev was sanctioned by the UK for providing: “support for the Government of Belarus and its serious human rights violations and repression of civil society and democratic opposition, including through use of his business interests.”[19]
  2. The EU and UK sanctions have forced Gutseriev to dispose of major assets and reduce his formal control over them. In June 2021, in likely anticipation of his EU sanctions designation ten days later, Gutseriev transferred his 37.15% ($227 million) stake in oil company Russneft to his brother, Sait-Salam.[20] Three days after the EU sanctions Gutseriev resigned from the board of directors of RussNeft.[21] In July 2021 it was reported that Gutseriev had handed over control of other key assets, the UK company GCM Global Energy and the company Neftisa, to his brother.[22] Following the EU sanctions against Gutseriev, ratings agency Fitch withdrew its rating of RussNeft.[23]
  3. However, the Gutseriev case also demonstrates some of the limitations of current UK sanctions. It is claimed that Gutseriev owns more than £1 billion worth of London property through a network of offshore firms.[24] The Pandora papers are reported to have identified £50m of London property owned by Gutseriev.[25] It is unclear whether UK sanctions have been successful or not in freezing this property.
  4. In February 2022 it was reported that a private jet previously linked to Gutseriev was allowed to land at Luton Airport twice in January 2022.[26] An FCDO document had listed the aircraft as being subject to sanctions,[27] but appeared to have been amended to remove the reference to the aircraft in February 2022.[28]

Need for improvement

  1. While these examples demonstrate the potential impact of the UK’s sanctions regimes in combating illicit finance, there are a number of factors that continue to undermine the sanctions’ effectiveness and which must be addressed.

Slowdown in use

  1. In recent months, there has been a significant slow-down in the Government’s use of the regimes. Since her appointment in September 2021, the current Foreign Secretary has sanctioned just 3 actors under the Global Human Rights and Anti-Corruption Sanctions regimes – a stark comparison to the 105 actors sanctioned by her predecessor.
  2. This decline in the use of these regimes has occurred in spite of civil society organisations providing the FCDO with an increasing number of high-quality evidence submissions documenting cases of corruption and human rights violations. Since September 2021, REDRESS has been involved in the submission of over 15 evidence packages by credible NGOs to the FCDO, all of which provided substantial evidence of sanctionable activities. These documented cases of human rights abuses or corruption in Sudan, Uganda, the DRC, Cameroon, Bangladesh, Venezuela and Nicaragua, among others. In a number of these cases the US government has sanctioned the perpetrators. However, the UK has failed to act.

Narrow approach

  1. When making sanctions decisions, the Government has often failed to take a sufficiently broad or strategic approach. This has led to significant gaps in accountability and deterrence. For example, when sanctioning Chinese officials in Xinjiang for their involvement in the Uyghur genocide, the Government did not sanction the high-ranking official who is often referred to as the “architect” of the genocide, Chen Quanguo.
  2. A narrow approach to sanctions may also allow designated actors to evade asset freezes. In the case of Russian businessman Mikhail Gutseriev (see case study 2), he has been able to transfer assets to family members to avoid some of the impacts of sanctions.[29]

Lack of coordination

  1. A consistently coordinated approach to sanctions is lacking and the UK is falling behind its allies, particularly the US. In a recent statement, Lord Ahmad, Minister of State for South Asia, the United Nations and the Commonwealth, stressed that coordination is at the heart of the UK’s sanctions regime, noting that “sanctions work best when multiple countries act together to constrain or coerce a target’s ability to carry out unacceptable behaviour, or to send a political signal that such behaviour is intolerable”. In spite of this, as of March 2022 the UK had sanctioned less than 15% of those designated under the US’s Magnitsky sanctions regime.
  2. The failure of the UK to keep pace with its allies undermines the effectiveness of sanctions by allowing corrupt officials, kleptocrats and human rights perpetrators, sanctioned by the US to and other jurisdictions, to use the UK as a haven to enjoy their ill-gotten gains. Similarly, the failure of the US and EU to sanction in cases where the UK has taken action (eg, on Teodorin in case study 1), has reduced the impact of the UK’s actions.

Failures in enforcement

  1. The effectiveness of sanctions is often undermined by a lack of enforcement. For example, as referred to in case study 2, in February 2022, it was reported that a private jet targeted by sanctions for being linked to Mikhail Gutseriev was allowed to land at Luton Airport twice in January 2022.[30] The failure to enforce causes damage to the credibility of the sanctions regimes and weakens their potential deterrent effect.
     

B. HOW COULD SANCTIONS BE USED TO GREATER EFFECT IN COUNTERING ILLICT FINANCE?

Increased resources

  1. A long-standing concern of civil society is that the lack of implementation by the FCDO’s Sanctions Unit and enforcement by OFSI is due to insufficient resourcing. There is also a particular concern, which the Government has recognised,[31] about the resourcing of enforcement of sanctions in the British overseas territories, where many corrupt actors hide their wealth.[32] These issues have been brought to the fore in the current Ukraine crisis.
  2. There is little transparency into the budget for the UK’s sanctions work. When asked about this recently by Baroness Northover, the Government simply confirmed that as of December 2021, there were 40 – 49 staff working in the FCDO Sanctions Unit (covering all forms of sanctions, including sectoral sanctions in addition to targeted sanctions), and in the financial year 2020/21 the Sanctions Unit spent £49,000 on non-pay costs.[33] By comparison, the US has an annual budget of $4.5 million for its Magnitsky and other targeted sanctions programmes alone.
  3. Sufficient resources for the FCDO Sanctions Unit, OFSI, the NCA’s new Kleptocracy Cell, and enforcement agencies in the Overseas Territories are critical to ensuring the effectiveness of the UK’s sanctions programmes in countering illicit finance. As a first step, the UK Government should follow the US example and publish its budget for Magnitsky sanctions across all relevant departments and agencies to ensure greater transparency.

A strategic approach to sanctions

  1. The UK’s regimes allow for sanctions to be imposed on state and non-state actors involved in corruption and human rights abuses in numerous ways , i.e. not only those who are directly responsible for that conduct, but also those who facilitate, incite, promote, support, profit or otherwise benefit from them; who conceal evidence of them; or who fail to investigate and/or prosecute when they have a duty to do so. They also permit the UK to impose derivative sanctions on individuals and entities owned or controlled, directly or indirectly, by an involved person; acting on behalf of or at their direction; and those who are associated with them.
  2. The Government must consistently use the full breadth of these regimes to take action against the  diverse range of actors involved in activities which generate illicit finance, including enablers.

Global leadership

  1. The Government has repeatedly stated that it will use its sanctions regime to “take on a distinctive leadership role as a credible, effective and collaborative sanctions partner”.[34] It is time to put this into practice.
  2. If the UK is to contribute to the fight against illicit finance, it must lead by example and ensure that it keeps pace with its allies. The Government must also capitalise on the momentum which has built around targeted sanctions in the context of the Ukraine crisis and encourage other countries to develop their own laws and help to implement them robustly. This means working bilaterally with allies and using the fora of multilateral diplomacy, including the newly established G7 Sanctions Working Group. 

Enhanced Parliamentary scrutiny

  1. In response to the Committee’s Moscow’s Gold report,[35] the Government recognised the need for parliamentary scrutiny of the use of sanctions powers. It also agreed with the Committee’s conclusion that the Foreign Affairs Committee would be the most appropriate committee to undertake this.[36]
  2. It is essential that this recommendation is implemented and that a mechanism for formal parliamentary oversight is established. This would allow enhanced scrutiny over the resourcing of the UK’s sanction activities and the FCDO’s decision-making processes (including as to when sanctions are not imposed), and to hold the Government to account on its use of sanctions to tackle illicit finance. 
  3. The need for such parliamentary oversight is now even more important in light of the Government’s amendments to the UK’s sanctions regime under the Economic Crime Act 2022, which have removed certain obligations on the Government to review and report on its sanctions regulations under the Sanctions and Anti-Money Laundering Act 2019.


C. WHAT OTHER MEASURES BEYOND SANCTIONS CAN COUNTER ILLICIT FINANCE, INCLUDING BILATERAL AND MULTILATERAL APPROACHES?

  1. International corruption and illicit finance enable vast amounts of money to be embezzled from communities, leaving a select few with multi-million or billion-pound amounts, and many ordinary citizens impoverished. Corrupt systems are commonly perpetuated through repressive and abusive practices, such as violations of the right to freedom of speech and assembly, arbitrary detentions, enforced disappearances and torture.
  2. International law requires that property confiscated by a State as proceeds of crime, including corruption, be disposed of, including by return to its prior legitimate owners.[37] Victims of serious violations of international human rights law and international humanitarian law also have a right to reparation under international law.[38]
  3. Under the current system, assets frozen under sanctions are highly unlikely to be confiscated by the UK government. This means that millions or even billions of pounds of assets belonging to perpetrators are being frozen (and unable to be used) indefinitely, while victims are not being compensated for the abuses they have suffered.
  4. In order to be truly effective, strategies to counter illicit finance should move beyond simply freezing corruptly-acquired assets to pursuing their confiscation and repurposing for the benefit of victims of corruption and human rights abuses. This may be achieved through building and strengthening the capacity of the National Crime Agency and Serious Fraud Office to confiscate assets through the Proceeds of Crime Act 2002, and/or by introducing new legislation that directly enables the confiscation of such frozen assets. More information can be found in REDRESS’ briefing: Implementing the Right to Reparation: Confiscation of the assets of oligarchs and human rights abusers for the benefit of victims.[39]


FURTHER INFORMATION

  1. For further information please contact Charlie Loudon, International Legal Adviser, and Megan Smith, Legal Officer, at REDRESS.

 

 

 

 

 

 

 

 

 

 

March 2022

 

8

 


[1] https://redress.org/news/uk-sanctions-on-chinese-officials-for-xinjiang-abuses-a-welcome-step/

[2] https://redress.org/news/year-one-in-numbers-uk-global-human-rights-sanctions/

[3] https://redress.org/financialaccountability/

[4] https://redress.org/news/new-cross-party-parliamentary-group-pushes-for-further-sanctions-to-tackle-human-rights-abusers-and-kleptocrats-in-the-uk/

[5] The Global Anti-Corruption Sanctions Regulations 2021.

[6] The Global Human Rights Sanctions Regulations 2020.

[7] The Russia (Sanctions) (EU Exit) Regulations 2019 (as amended).

[8] https://www.reuters.com/article/us-sudan-gold-exclusive-idUSKBN1Y01DQ

[9] See The Sentry’s Report “Consequences for Kleptocrats, Financial Pressures to Support Peace in Sudan”: https://thesentry.org/reports/consequences-for-kleptocrats/

[10] https://www.gov.uk/government/news/new-uk-sanctions-against-individuals-involved-in-corruption-around-the-world

[11] https://www.hrw.org/news/2021/07/28/france-equatorial-guinea-vice-presidents-conviction-upheld

[12] REDRESS interview with Tutu Alicante, Director of EG Justice, 15 March 2022, note on file.

[13] Ibid.

[14] Ibid.

[15] Ibid.

[16] Ibid.

[17] https://www.reuters.com/world/uk/equatorial-guinea-close-embassy-london-2021-07-26/

[18] Confirmed by Equatorial Guinea London Embassy in telephone call with REDRESS, 14 March 2022.

[19] UK Office of Financial Sanctions Implementation, Current List of Designated Persons: Belarus, 14 March 2022, available at: https://www.gov.uk/government/publications/financial-sanctions-belarus

[20] Meduza, Russian billionaire Mikhail Gutseriev transferred RussNeft stake to his brother prior to sanctions, 11 August 2021, available at: https://meduza.io/en/news/2021/08/11/russian-billionaire-mikhail-gutseriev-transferred-russneft-stake-to-his-brother-prior-to-sanctions

[21] Meduza, Russian billionaire Mikhail Gutseriev transferred RussNeft stake to his brother prior to sanctions, 11 August 2021, available at: https://meduza.io/en/news/2021/08/11/russian-billionaire-mikhail-gutseriev-transferred-russneft-stake-to-his-brother-prior-to-sanctions

[22] Meduza, Russian billionaire Mikhail Gutseriev transferred RussNeft stake to his brother prior to sanctions, 11 August 2021, available at: https://meduza.io/en/news/2021/08/11/russian-billionaire-mikhail-gutseriev-transferred-russneft-stake-to-his-brother-prior-to-sanctions

[23] FitchRatings, Fitch Affirms RussNeft at 'CC'; Withdraws Rating, 20 July 2021, available at: https://www.fitchratings.com/research/corporate-finance/fitch-affirms-russneft-at-cc-withdraws-rating-20-07-2021

[24] Daily Mail, Is a big FREEZE headed for 'Moscow-on-Thames'?, 28 January 2022, available at: https://www.dailymail.co.uk/news/article-10451781/Is-big-FREEZE-headed-Moscow-Thames-Ukraine.html

[25] Guardian, Revealed: Pandora papers unmask owners of offshore-held UK property worth £4bn, 5 October 2021, available at: https://www.theguardian.com/news/2021/oct/05/pandora-papers-reveal-true-owners-offshore-held-uk-property-london

[26] iNews, Sanctions: UK faces questions over enforcement after private jet linked to Belarus spends week in Britain, 15 February 2022, available at: https://inews.co.uk/news/sanctions-uk-faces-questions-over-enforcement-after-private-jet-linked-to-belarus-spends-week-in-britain-1460476?ito=twitter_share_article-top

[27] Way Back Machine, FCDO, Belarus: UK imposes significant new package of economic sanctions on Belarus on anniversary of fraudulent election, 9 August 201, available at: https://web.archive.org/web/20210809191948/https://www.gov.uk/government/news/belarus-uk-imposes-significant-new-package-of-economic-sanctions-on-belarus-on-anniversary-of-fraudulent-election

[28] iNews, Sanctions: UK faces questions over enforcement after private jet linked to Belarus spends week in Britain, 15 February 2022, available at: https://inews.co.uk/news/sanctions-uk-faces-questions-over-enforcement-after-private-jet-linked-to-belarus-spends-week-in-britain-1460476?ito=twitter_share_article-top

[29] Meduza, Russian billionaire Mikhail Gutseriev transferred RussNeft stake to his brother prior to sanctions, 11 August 2021, available at: https://meduza.io/en/news/2021/08/11/russian-billionaire-mikhail-gutseriev-transferred-russneft-stake-to-his-brother-prior-to-sanctions

[30] https://inews.co.uk/news/sanctions-uk-faces-questions-over-enforcement-after-private-jet-linked-to-belarus-spends-week-in-britain-1460476

[31] As per Michael Ellis MP, https://hansard.parliament.uk/commons/2022-03-01/debates/6EF274E3-57A6-46ED-BFE2-348AEB926501/Sanctions

[32] In February 2022, Transparency International linked £830 million worth of property in the UK’s OTs and Crown Dependencies to individuals close to Russian President Vladimir Putin or Russians accused of corruption.

[33] https://data.parliament.uk/DepositedPapers/Files/DEP2022-0173/Lord_Sharpe_letter-Burundi_Sanctions_Regulations_2021.pdf

[34]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1052217/The_Sanctions_Regulations_Report_on_Annual_Reviews.pdf

[35] https://publications.parliament.uk/pa/cm201719/cmselect/cmfaff/932/932.pdf

[36] https://publications.parliament.uk/pa/cm201719/cmselect/cmfaff/1488/1488.pdf

[37] See Article 57, United Nations Convention Against Corruption; and Article 8, the Declaration of Basic Principles of Justice for Victims of Crime and Abuse of Power develops guidelines.

[38] See, e.g.: Part IX of the Basic Principles and Guidelines on the Right to a Remedy and Reparation for Victims of Gross Violations of International Human Rights Law and Serious Violations of International Humanitarian Law; Article 8 of the Universal Declaration of Human Rights (“UDHR”);  Article 2 of the International Covenant on Civil and Political Rights (“ICCPR”); Article 6 of the International Convention on the Elimination of All Forms of Racial Discrimination (“CERD”); Article 24 of the International Convention for the Protection of All Persons from Enforced Disappearances (“ICPPED”);  Article 14 of the Convention Against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (“UNCAT”); Article 75 of the Rome Statute of the International Criminal Court (“Rome Statute”); Article 3 of the 1907 Hague Convention (IV) respecting the Laws and Customs of War on Land (“Hague Convention (IV)”); and Rule 150 of ICRC Customary International Humanitarian Law.

[39] https://redress.org/wp-content/uploads/2022/03/2022.03.08-Reparations-Briefing-Economic-Crime-Bill.pdf