Circumvention offences establish criminal liability for breaches of financial sanctions. The potential engagement of the circumvention offences invites a review into whether the offences interact with the Proceeds of Crime Act 2002.
What are the circumvention offences?
The circumvention offences are contained within each financial sanction. Sanctions prevent a company or individual from engaging or dealing in financial transactions with a designated or targeted individual, entity or body. A person is likely to commit a circumvention offence if they,
“intentionally participate in activities knowing that the object or effect of them is (directly or indirectly): to circumvent any of the prohibitions, or to enable or facilitate the contravention of any such prohibition or requirement.”
The addition of “direct or indirect” to the actus reus of the offences, widen the scope for potential transgressions. For example, a direct transaction would include paying a designated person for their goods or services. Similarly, if a designated person owns 50% or more of a company, trading with that company would indirectly breach the sanctions and could lead to a circumvention offence.
On indictment, the circumvention offences can carry a sentence of up to 7 years or an unlimited fine.
Are breaches and circumvention of financial sanctions the same?
Yes, and no. Circumvention will always breach a financial sanction. However, not all breaches will satisfy the mens rea and actus reus of a circumvention offence. There is a requirement for knowledge that the “object or effect” of the actions would directly or indirectly circumvent the sanction. It is not enough to believe or suspect that circumvention could occur.
Additionally, intent to circumvent the sanction must be present. Both knowledge and intent are higher thresholds, which have not been met previously. Intent also can be inferred from the circumstanced and facts of each case. OFSI has issued fines for breaches of sanctions, but we are yet to see a reported criminal prosecution of a circumvention offence.
Who could face a circumvention offence?
Financial sanctions are binding on individuals and legal entities operating in the UK, or UK nationals or legal entities founded in the UK.[1]
For companies, the offence will only apply if the “controlling mind” has the mens rea for the offence, likely an “officer of body corporate” such as a director or senior officer. If a company is charged, both the corporate body and the officer would be liable for prosecution. In some instances, it could be appropriate to pierce the “corporate veil” to determine whether an individual is using the company to circumvent a sanction.[2]
Could a circumvention offence involve the Proceeds of Crime Act 2002?
Yes. POCA 2002 was drafted to stop the collection and retention of funds derived from criminal conduct. Criminal conduct is an activity which would amount to an offence in England and Wales. If funds are obtained from a circumvention offence, they will represent the proceeds of crime and engage parts of POCA 2002.
Is there a relationship between circumvention offences and money laundering in Part 7 of POCA 2002?
Yes. Money laundering at its core is the concealment and movement of illegal funds through financial transactions. It is impossible to have circumvention, the intentional movement of money to breach a financial sanction, without querying a money laundering offence on the backend. A circumvention offence could easily predicate a money laundering offence under section 327 – 329 POCA 2002. The offences require the proceeds to be criminal before the person interacted with the funds, and each offence captures activity from concealment (section 327), arrangements (section 328) to acquisition, use and possession (section 329).
A circumvention offence can engage Part 7 and for professional persons the reporting obligations in section 330, but each case must be considered on its own facts.
Could the court confiscate the funds from a circumvention offence?
Yes, but only if the court is satisfied that the funds represent the benefit of a defendant’s criminal conduct. Using confiscation proceedings under Part 2 POCA 2002, the court could deprive a defendant of the benefit he earned from circumventing a sanction. Confiscation proceedings can involve corporate bodies, and the corporate veil can be pierced for the purposes of confiscation.[3]
The amount confiscated would have to be a direct result of the circumvention offence, and the court would consider the criminal benefit against the amount of money available to the defendant.
The court could make an order for confiscation against the defendant for either the criminal benefit or the available amount, whichever is less. However, the confiscation order could be reopened if the defendant’s available amount increased.
The court will attach a default prison sentence to the order which could be activated if the defendant wilfully refuses or culpably neglects to pay his confiscation order.
How can individuals and businesses prevent committing a circumvention offence?
Individuals should continue to review the financial sanctions in place and avoid intentionally entering circumvention arrangements.
Companies should educate senior staff that could fall into the “officer of body corporate” category of the circumvention offences and criminal liability on an individual and corporate scale.
Additionally, all staff should be made aware of their reporting obligations to OFSI and their employer should have clear policies and procedures for internal reporting. However, the obligation remains with the company and includes breaches committed by the reporter or a breach that is witnessed by the reporter. Failing to report while not a criminal offence, does carry a risk of severe financial penalties.
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Ariana Caines is a Barrister at Bright Line Law with experience with Part 2 and Part 7 POCA 2002 matters.
Bright Line Law’s practice includes advising and representing clients on sanctions, anti-money laundering, and asset forfeiture cases under the Proceeds of Crime Act 2002. You can read more about our practice areas here.
[1] Office of Financial Sanctions Implementation, Financial Sanctions Guidance, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/862451/OFSI_general_guide_to_Financial_Sanctions.pdf, January 2020, last accessed 3 December 2020
[2] See Prest v Petrodel [2013] UKSC 34
[3] See R v Sale [2014] EWCA Crim 1306
