UK Hasn't Done Enough to Close Sanctions Loopholes, Parliament Says

Kevin Hollinrake, a senior minister with the U.K.’s Department for Business and Trade, said during a Feb. 6 House of Commons Business and Trade Committee hearing that he was “disturbed” by the possible oversight and that the Office of Financial Sanctions Implementation will be “looking at it very carefully.” He added that “clearly an investigation should take place” to “make sure that these organizations are doing the right thing in terms of sanctions.”

The hearing was held just after the Financial Times reported that U.K.-based banks Lloyds and Santander provided accounts to British front companies owned by Iran’s Petrochemical Commercial Company (PCC). Although PCC is sanctioned by both the U.K. and the U.S., the U.K. reportedly hasn’t designated the holding companies PCC used to maintain the British bank accounts.

Liam Byrne, chair of the committee, said PCC and its subsidiaries have been accused of raising hundreds of millions of dollars for Iran's Islamic Revolutionary Guards Corps and of working with Russian intelligence. He also said they have “been sanctioned by the Americans for some time,” but not by the U.K.

“We're not necessarily sanctioning the right people,” Byrne said. “We haven't yet fixed the gap in identifying bad people behind these companies.”

Byrne said the U.K. government should have known to sanction the companies, pointing to increased cooperation recently announced between OFSI and the U.S. Treasury Department’s Office of Foreign Assets Control. The two agencies last year said they have been working “more closely than ever” and began embedding officials within the other country’s agency (see 2311170038).

But Hollinrake said that doesn’t mean the two governments always impose the same sanctions. “We sanction some people that our allies don't, and our allies sometimes sanction people that we don't.” He added: “That's not to say we always get every case right.”

Hollinrake said the U.K.’s upcoming Economic Crime and Corporate Transparency Act of 2023 will help the government better analyze data involving companies that are potentially evading U.K. sanctions and more easily share that information with other agencies. The act's first set of changes are expected to take effect March 4.

“This is the first reform we've seen of this nature for an awfully long time,” said Hollinrake, adding that OFSI will also receive more funding for its sanctions work. “The people who are determined to evade sanctions are going to use all kinds of devices. What we're trying to do with this legislation is make it much more difficult for those organizations to use particular devices.”

Martin Swain, director of intelligence and law enforcement engagement at the U.K. Companies House, said the new authorities will allow his agency to “see links between companies far easier” by using a mix of public and private data. “But at the moment, we're very, very limited in the way we can share information proactively with other partners,” Swain said during the hearing. “The act changes our powers significantly and effectively gives us authority to share information with any public authority.”

Adrian Searle, director of the National Economic Crime Center at the U.K.’s National Crime Agency, also said he expects the new law to help the country better counter sanctions evasion. “Sanctions evasion is definitely an ongoing challenge,” Searle said, adding that U.K. corporate ownership structures “are being exploited” to hide who truly controls companies doing business in the country.

“We certainly have to believe that the changes that are coming -- that have been discussed during this committee hearing -- will help make a difference.”