This regime, of which all compliance officers at financial firms should be aware, lists individuals and entities (designated persons) who are subject to financial sanctions. The law requires firms not to provide funds or (in the case of the Terrorism Order) financial services, to them without a licence from HM Treasury.

The Treasury is responsible for the implementation and administration of international financial sanctions in the UK, for domestic designation (principally under the Terrorism Order) and for licensing exemptions to financial sanctions. The Treasury’s Asset Freezing Unit (AFU) maintains a consolidated list of designated persons that consists of the names of individuals and entities that have been listed by the United Nations, European Union and/or the United Kingdom.

Any firm that identifies a payment it believes may be a match to a designated person on the Treasury list must block that payment, subject to further investigation. Following this internal investigation, if the firm believes that the payment is indeed an exact match, it must inform the AFU. In these circumstances, the firm may only process the payment in the event of a licence to do so being granted to it by the AFU.

A failure to comply with these obligations can lead to serious consequences. A breach of the regime may result in a criminal offence being committed and/or lead to reputational damage to the firm. It carries the additional risk of criminal penalties being sought by the government against the firm and, in certain circumstances, against the management of the firm.

The Money Laundering Regulations 2007

The Financial Conduct Authority is a 'designated authority' under regulation 36 of these regulations, which constitute secondary legislation enacted under the Criminal Justice Act 1988, as amended. The regulator has the job of upholding the regulations when it deals with the financial firms it supervises. Financial institutions are 'relevant persons' pursuant to regulations 2(1) and 3(1)(b). The regulations take the form of a statutory instrument (SI 2007 No. 2157) issued under the Criminal Justice Act 1988 (as amended).

Regulation 20(1) (a), (d) and (f) of the regulations require that: “A relevant person must establish and maintain appropriate and risk-sensitive policies and procedures relating to —
(a) customer due diligence measures and ongoing monitoring;
(d) internal control; [and]
(f) the monitoring and management of compliance with, and the internal communication of, such policies and procedures, in order to prevent activities related to money laundering and terrorist financing.”

Under regulation 2, “terrorist financing” includes offences under Articles 7 and 8 of the Terrorism Order and Articles 7 and 8 of the Al-Qaida and Taliban Order. Regulation 42(3) states that: “In deciding whether a person has failed to comply with a requirement of these Regulations, the designated authority must consider whether he followed any relevant guidance which was at the time—
(a) issued by a supervisory authority or any other appropriate body;
(b) approved by the Treasury; and
(c) published in a manner approved by the Treasury as suitable in their opinion to bring the guidance to the attention of persons likely to be affected by it.”

Joint Money Laundering Steering Group guidance

The JMLSG is a body made up of the leading trade associations in the United Kingdom's financial services industry, whose aim is to promulgate good practice in countering money-laundering and to give practical assistance in interpreting the UK's anti-money-laundering and terrorist finance regulations. Since 1994 it has provided advice on anti-money laundering controls by issuing guidance for the financial sector. Subsequent editions of the JMLSG guidance have taken into account relevant legal changes and new practices in the financial services industry. The guidance produced by the JMLSG in November 2007 entitled ‘Prevention of money laundering / combating terrorist financing: Guidance for the UK Financial Sector’ (the JMLSG Guidance Notes) fulfils the requirements of regulation 42(3). The FCA always looks at the JMLSG Guidance Notes when considering whether a breach of the Money-Laundering Regulations has occurred at one of its firms. It has a statutory duty to suppress financial crime under section 1D(b) Financial Services and Markets Act 2012.

The Terrorism Order and the Al-Qaida and Taliban Order

As a member of the United Nations, the United Kingdom is required by article 25 of the United Nations Charter to carry out decisions of the UN Security Council. Consequently, the United Kingdom enacted the United Nations Act 1946 (the Act), section 1 of which empowered the making of orders in the UN Security Council to make such provision as appeared “necessary or expedient” for enabling measures required by such resolutions to be effectively applied in the United Kingdom. The Terrorism (United Nations Measures) Order 20061 (the Terrorism Order) and The Al-Qaida and Taliban (United Nations Measures) Order 20062 (the Al-Qaida and Taliban Order) were adopted by HM Government using the powers conferred on it by section 1 of the Act.

Article 8 Terrorism Order provides that: “A person must not make funds, economic resources or financial services available, directly or indirectly, to or for the benefit of a person referred to in article 7(2) unless he does so under the authority of a licence granted (by the Treasury) under article 11.”

Article 8 Al-Qaida and Taliban Order states that: “A person must not make funds or economic resources available, directly or indirectly, to or for the benefit of a person referred to in article 7(2) unless he does so under the authority of a licence granted (by the Treasury) under article 11.”

In both orders, a person referred to in article 7(2) includes any person identified in a direction by the Treasury (a designated person).

In Ahmed and others v HM Treasury [2010] 2 W.L.R. 378 the Terrorism Order and article 3(1)(b) Al-Qaida and Taliban Order were declared ultra vires by the UK's Supreme Court. Both orders have subsequently been revoked by the Terrorism (United Nations Measures) Order 2009/1747 and the Al-Qaida and Taliban (Asset Freezing) Regulations 2010/1197 respectively.

* This text is an adaptation of a decision notice that the Financial Services Authority issued in 2010.