This post examines how financial sanctions are introduced and operate in the United Kingdom Overseas Territories (UKOTs), in particular the British Virgin Islands (the BVI), the Cayman Islands, Bermuda, and Anguilla.

What are sanctions?

Very broadly, sanctions are rules that set out prohibitions or restrictions that ensure global peace and stability. Sanctions can be imposed on individuals, entities, trade sectors and even entire regions. The most common form of sanctions include: financial sanctions, arms and dual use restrictions, export/import and trade restrictions.

What are financial sanctions?

Financial sanctions largely refer to asset freezes which would prohibit persons (individuals or entities) from dealing with the designated person’s funds or economic resources and providing funds or economic resources (whether directly or indirectly) to a designated person. When countries impose financial sanctions they have the ability to limit, or in some cases completely restrict, access to financial services altogether.

How are the sanctions implemented?

The BVI, Cayman Islands, Bermuda, and Anguilla are all considered UKOTs. Since Brexit, the UK extends its domestic sanctions regimes to these UKOTs through UK legislation known as Orders in Council (OIC). Some UKOTs, such as Bermuda and Gibraltar, implement their own regimes without relying on UK OICs. The UK Crown Dependencies also, very broadly, follows the UK sanctions legislation.

There are also instances when various United Nations (UN) sanctions legislation or resolutions that relates to sanctions are also applicable to the UKOTs. The UKOTs are not themselves members of the UN but their interests are represented by the UK’s seat at the UN General Assembly. For example, legislation such as the Terrorism Acts, the anti-money laundering and counter terrorist financing (AM/CTF) regimes and the Proliferation Financing (Prohibition) Acts are instances where the local legislature in the UKOTs have chosen to enact domestic legislation to give effect to the UN sanctions regime.

Who are the competent authorities in the UKOTs that implement the sanctions?

• In the BVI – the Governor is the competent authority who administers the sanctions regime. The Governor will likely liaise with the BVI’s Attorney General’s Chambers for any legal guidance required under the sanctions regime and on the BVI’s Financial Investigation Agency for any investigations that are required under the sanctions regime.
• In the Cayman Islands - the Governor is the competent authority who administers the sanctions regime. The Governor has delegated some functions to the Cayman Islands Financial Reporting Authority.
• In Bermuda – the Minister of Legal Affairs is the competent authority who administers the sanctions regime. The Minister works through the Ministry of Legal Affairs Financial Sanctions Implementation Unit to assist on various matters related to Bermuda’s compliance with the sanctions regimes.
• In Anguilla – the Governor is the competent authority who administers the sanctions regime. The Governor works with the Financial Intelligence Unit.

Why are sanctions implemented?

In particular, as it relates to financial sanctions, these are implemented to:

• Prevent access to funds and economic resources that would allow those who are considered as designated persons under the sanctions to finance their actions and intentions
• Protect personal or business assets until the sanctions freeze is lifted or a licence is granted by a competent authority
• Force those persons who are subject to the sanctions to change their behaviour which was the action(s) that resulted in the implementation of the sanctions
• Signal disapproval at an international level
• Send political messages

Who has to comply with the sanctions regimes?

In the UKOTs all persons who are considered as “Territory persons” need to comply. The term Territory person is essentially, a person who is:

• An individual ordinarily resident in the relevant UKOT who is:
  • A British citizen, a British overseas territories citizen, a British National (Overseas), or a British Overseas citizen
  • A person who under the British Nationality Act 1981 (the BNA) is a British subject
  • A British protected person within the meaning of the BNA
• A body incorporated or constituted under the law of any part of the UKOT

Similar rules also apply to ships and aircraft depending on the type of sanctions - if maritime or aviation.

The sanctions regime attaches to the passport of an individual, the constitutive documents of a corporation or entity, the flag of a ship or the registration number of an aircraft. No matter where in the world the individual, entity, ship, or aircraft may be, if a body of sanctions legislation is implemented and extended to the UKOTs, all UKOT persons of all the categories set out above must comply with the relevant regime.

Non-compliance with the sanctions legislation is a criminal offence that would expose the non-compliant person or entity to both monetary and custodial penalties.

How do you find out about sanctions in the UKOTs?

Interested persons would be encouraged to check the following websites and subscribe for alerts:

• UK: https://www.gov.uk/government/publications/the-uk-sanctions-list
• The BVI: https://www.bvifsc.vg/about-sanctions-1 and https://fiabvi.vg/International-Sanctions/About-Sanctions
• The Cayman Islands: fra.gov.ky
• Bermuda: https://www.gov.bm/international-sanctions-measures
• Anguilla: https://www.fsc.org.ai/internationalsanctions.php

What to do if you are dealing with a designated person?

Actions to be taken will need to be assessed on a case-by-case basis, however, very broadly they will entail:

• Checking all of the information on the designated person within the custody, possession, and control of the person who has the suspicion
• Checking to ensure that the person who may be subject to the sanctions is actually on the UK Sanctions List (as updated from time to time)
• If domestic sanctions lists are maintained a check of these is worthwhile to ensure that the same person is on the UK Sanctions List
• Consider asking the target (or client) for more information
• Work out the ownership and control analysis to determine if there are intermediary between the UKOT entity and the designated person(s) that might also be subject to any asset freeze
• If there is any uncertainty it would be best practice to contact any of the competent authorities referred to above in the relevant UKOT and liaise with local legal counsel as necessary should advice be required
• If the information confirms that a designated person is involved the funds and economic resources of such person must be immediately frozen and a report filed with the competent authority (see our previous note here)
• Ensure that the relevant internal controls and procedures are effected from an AML/CTF perspective
• Should the need arise for licensing, make an application on appropriate grounds, to the local competent authority
• There may be exemptions afforded in the actual sanctions legislation where licensing may not be applicable and where persons can continue to deal with a designated person (subject to the safe-harbours in the sanctions legislation), identifying these situations can be an analytical process and in those cases legal counsel’s assistance should be sought

What should take place if funds or economic resources of a non-designated person are frozen?

If, after careful checks it is determined that a person whose account and/or funds have been frozen is not a designated person, a request should be made with the person who was supposedly subject to the designation to provide documentation clearly showing that they are not subject to any sanctions.

If the results and documentation confirms that the person is not a designated person then it would be safe to unfreeze the assets and/or funds and an immediate notification of this should be submitted to the relevant competent authority.

However, if after reviewing the results and documents it is still not clear if a person is a designated person or not and the issue cannot be solved easily, a report should be filed with the relevant competent authority requesting guidance on the matter (especially in cases where a licence is issued). The competent authority may provide guidance on the scope of the licence and how to deal with the person.

Depending on the response from the relevant competent authority the freeze can be lifted or continue to remain in place.

Should you have any questions on how to deal with sanctions matters please contact your usual Harneys contact or any of the authors.