Anti-terrorist-finance compliance has always concentrated on the observance of watchlists. The UK's Sanctions and Anti-Money Laundering Act 2018, however, seems about to impose more burdensome requirements on financial institutions when the country leaves the European Union.

In the wake of the attack on the Twin Towers on 11 September 2001, HM Government originally wanted to oblige British banks to ascertain whether any of their customers were terrorists without restricting their searches to names that it published. The American Government, however, wanted to spare its banks the sheer effort of doing this and commanded them to check watchlists only, setting the standard for the UK and everyone else by moral (if that word is appropriate) suasion. Now the old, more onerous, British policy is back with a vengeance - on the statute book.

Section 12 Sanctions and Anti-Money Laundering Act calls on the relevant minister (always a member of the Treasury team, if not the Chancellor himself) to "provide that persons of a specified description [not necessarily of a specified name] are designated persons." Designated persons are terrorists, people suspected of being terrorists or people named in (or by someone acting in accordance with) resolutions of the United Nations Security Council.

The minister can only wield this power if three conditions are met. Under Condition A, he must describe the people he is targeting well enough to let a reasonable person (i.e. a reasonable money-laundering reporting officer, financial crime officer or compliance officer) know whether this-or-that person fits the description. Condition B occurs if it is not 'practicable' for him at that moment to identify all the people he wants to target (or 'designate,' to use the Act's term) by name.

The section is full of value-judgment words. A court or a regulator can interpret the word 'practicable' to mean almost anything. The word 'reasonable' is also flexible in its meaning. Likewise, Condition B need only apply when the minister finds it impracticable to name names "at the time the description is specified," which carries with it no guarantee that he will publish the names at a later hour, when his intelligence operatives have furnished him with those names.

Condition C is more convoluted. To issue a prohibition against banks doing business with members of a particular organisation, the minister must have reasonable grounds to suspect that they are members of "an involved person," a term that can mean a terrorist organisation, among other things. In the case of any other specified description, he must have reasonable grounds to suspect that any person who answers to that description "would necessarily be an involved person." He must also believe his description to be appropriate. Few banks are likely to ask the courts to rule that the minister did not make a reasonable choice. The Act will take effect on the day of 'Brexit,' the day on which Britain leaves the EU.

Joanna Dimmock, a partner at the City law firm of White & Case, argues that the designation of unnamed persons is likely to cause much more work for financial institutions: "A typical sanctions measure is the 'asset freeze', whereby the assets of certain designated persons are frozen, and it is prohibited to make available to them any funds or economic resources. Designated persons (both individuals and entities) are listed in a consolidated list by name and known identifying characteristics. The Act envisages that the asset freeze could also cover unnamed persons, identified only by their description. It is unclear how straightforward it will be in practice for businesses to identify customers and counterparties falling within a given description. Regardless of the information provided by the Government, businesses with limited information about customers or counterparties will find it difficult to assess whether they are covered. Businesses are likely to need significant enhancements to their due diligence and sanctions screening processes, given that they will no longer be able to rely on simply running the names of customers and counterparties against the consolidated lists of designated persons."

* Joanna Dimmock can be reached on +44 20 7532 1647 or at joanna.dimmock@whitecase.com