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Legal Brief: Brexit Creates Potential Criminal Opportunities

By Silas Bartels, ACAMS moneylaundering.com legal writer

(Editor’s note: This is the first of a monthly feature that will use moneylaundering.com content produced by our legal team to highlight current legal issues affecting compliance. This month, we look at the potential criminal risks and regulatory gaps presented by the United Kingdom’s proposed withdrawal from the European Union, commonly known as Brexit.)

The United Kingdom’s planned exit from the EU, or Brexit, is still clouded in uncertainty, prompting officials to extend a deadline for withdrawal that was set to expire Thursday to Oct. 31 of this year. What follows is an overview of some of the major documents, guidance and regulation U.K. officials have produced in anticipation of Brexit, and in preparation for it.

National Crime Agency (NCA) Director General Steve Rodhouse issued a statement on Sept. 18, 2018 concerning the importance of maintaining access to EU information-sharing tools, which he emphasized are vital to international efforts against criminal groups.

The statement reflects findings presented June 14, 2018, in the NCA’s National Strategic Assessment, warning that criminals will seek to exploit the opportunities Brexit may present, “for example from the design and implementation of a new U.K. customs system, or from increased challenges for EU and U.K. law enforcement in locating and extraditing international fugitives if the U.K. were to lose enforcement or intelligence-sharing tools.”

Financial Conduct Authority (FCA) Chief Executive Andrew Bailey echoed Rodhouse’s priorities in an Oct. 25, 2018 speech in London, where he called for a permanent post-Brexit arrangement that would continue to allow for close alignment with the EU.

Many of the documents produced by U.K. agencies reflect the government’s view that a “hard” Brexit, or withdrawal from the EU without a negotiated deal, is unlikely. Such an outcome would immediately nullify the applicability of EU rules in the United Kingdom, regardless of whether the country has a substitute legal and regulatory framework in place.

But the government’s position has evolved.

On Aug. 23, 2018, HM Treasury began issuing guidance designed to help British firms and citizens prepare for a no-deal scenario. The guidance, which applies to the banking, insurance and other financial services, is only a sample of the ongoing work by several agencies to outline the potential problems posed by Brexit.

Other efforts include the enactment of the European Union (Withdrawal) Act 2018 on June 26, 2018, to empower regulators and other agencies to deliver transitional arrangements and guidance.

The EU Withdrawal Act generally aims to provide financial regulators with a transitional tool to phase in post-Brexit regulations and prevent gaps in supervision. Specifically, the measure transposed approximately 12,000 provisions of EU law into domestic law.

However, a 2017 report to Parliament by the Department for Exiting the European Union found that “a significant amount of EU-derived law, even when converted into domestic law, will not achieve its desired legal effect in the U.K. once we have left the EU.”

The report concluded that many of the laws copied over by the EU Withdrawal Act could not be implemented in Great Britain because they refer to specific European institutions, or are predicated on U.K. membership of, or access to, a particular EU regime or system.

In light of these technical hurdles, Treasury, the FCA and other government agencies are working to amend aspects of the retained EU legislation so that it stays in effect after Brexit. U.K. officials have also published several consultation documents, including a 986-page paper issued by the FCA in November.

On Feb. 28, 2019, the FCA issued a policy statement that took the views of industry into account and presented near-finalized rules that were to have been implemented by March 28 in the event that no deal had been reached.

Regulators still intend that to the extent possible, the rules that apply now will continue to apply after Brexit, as FCA chief Andrew Bailey expressed in October.

In line with this intention, the FCA has signed memoranda of understanding with the European Supervisory Authorities, the U.S. Securities and Exchange Commission, and, most recently, the Australian Securities and Investments Commission, to ensure uninterrupted information sharing and supervisory cooperation in the event of a hard Brexit.

Further efforts from Treasury include the issuance of draft statutory instruments on Nov. 13, 2018, under the EU Withdrawal Act that would amend any retained EU anti-money laundering laws to ensure that they remain effective in the U.K. following Brexit.

Six months earlier, U.K. lawmakers adopted the Sanctions and Anti-Money Laundering Act 2018, which, among other objectives, seeks to establish an independent U.K. sanctions regime, and includes AML and counterterrorist financing provisions, as well as data-sharing procedures to enable Treasury to continue meeting international standards.

On Oct. 12, 2018, the Foreign and Commonwealth Office published guidance that signals the government’s intent to continue observing EU sanctions after Brexit, with or without a deal in place.

Foreign Secretary Jeremy Hunt reiterated in a letter to the House of Commons Foreign Affairs Committee in December that the United Kingdom will continue abiding by EU-issued sanctions following Brexit.

Despite these attempts to address gaps in the post-Brexit AML and sanctions framework, the Sept. 18 statement from Rodhouse, the NCA chief, shows the extent to which U.K. law enforcement and regulatory authorities currently depend on the EU and the likelihood that this reliance will continue after the withdrawal.

U.K investigators, according to Rodhouse, still require EU-administered databases and judicial tools to share information rapidly and take joint action against transnational criminal groups promptly and effectively.

The statement also emphasizes that losing access to EU financial intelligence and law-enforcement cooperation will imperil U.K. efforts against serious and organized crime.

Contact Silas Bartels at sbartels@acams.org

Topics : Anti-money laundering , Counterterrorist Financing , Sanctions
Source: United Kingdom
Document Date: April 12, 2019