What’s sanctions evasion?

UK sanctions impose legal restrictions on certain financial, economic and trade activity. These restrictions may apply to countries, regimes, organisations or individuals and commonly include asset freezes, financial prohibitions and trade controls.

Sanctions evasion refers to activity that is deliberately structured to avoid the effect of those restrictions.

What is sanctions evasion?

In practice, sanctions evasion can include:

• obscuring a sanctioned person’s involvement in a transaction;
• routing funds through third parties or jurisdictions to mask a sanctions link;
• using corporate structures, trusts or nominees to distance assets from a designated person; or
• misrepresenting goods, services or counterparties to allow activity to proceed.

The central factor is intent. The arrangements are designed to conceal or bypass sanctions controls rather than arising from misunderstanding or administrative error.

Why is sanctions evasion relevant for AML?

Sanctions evasion has direct relevance for AML because it can result in assets becoming criminal property. Once sanctions are deliberately breached or circumvented, the funds or assets involved may represent the proceeds of criminal conduct.

As a result, sanctions evasion feeds into:

• client and matter risk assessments;
• decisions around enhanced due diligence;
• ongoing monitoring; and
• internal and external suspicious activity reporting (SAR).

Supervisors expect sanctions risk to be considered alongside money laundering, terrorist financing and proliferation financing within a firm’s overall risk framework.

Which UK legislation covers sanctions evasion?

Sanctions evasion is addressed through several connected pieces of UK legislation.

Sanctions and Anti-Money Laundering Act 2018

The UK sanctions framework is established under the Sanctions and Anti-Money Laundering Act 2018. This legislation enables the government to introduce sanctions regimes through regulations covering financial, trade and other economic restrictions.

These regulations typically create offences for:

• intentionally circumventing sanctions, and
• enabling or facilitating breaches by another person.

Proceeds of Crime Act 2002

Sanctions evasion also links closely to the Proceeds of Crime Act 2002. Where assets are generated, retained or moved through sanctions evasion, they may fall within the definition of criminal property.

Money Laundering Regulations 2017 (as amended) (MLRs)

The MLRs don’t create sanctions offences themselves but they do require firms to identify, assess and manage their sanctions evasion risk.

What are the sanctions evasion risks?

A clear, proportionate, risk-based approach underpins effective sanctions evasion risk management. For most firms, this includes:

• reliable sanctions screening;
• clear onboarding and ID verification processes; and
• ongoing monitoring that reflects changing risk.

Clear internal and external SAR processes help ensure that sanctions-related suspicions are handled consistently and in line with both sanctions law and AML requirements.

Managing sanctions evasion risk

A clear, proportionate, risk-based approach underpins effective sanctions evasion risk management. For most firms, this includes:

• reliable sanctions screening;
• clear onboarding and ID verification processes; and
• ongoing monitoring that reflects changing risk.

Clear internal and external SAR processes help ensure that sanctions-related suspicions are handled consistently and in line with both sanctions law and AML requirements.

Final thoughts

For regulated professionals, the focus is on recognising when arrangements are designed to conceal a sanctioned connection. This allows you to respond in line with your business’ risk-based AML approach.

Clear reasoning, proportionate due diligence and good record-keeping allow firms to manage sanctions exposure confidently while meeting legal and supervisory expectations.