G7 Cornwall: Sanctions risks high on the horizon

The G7 summit in Cornwall saw the United States back in the fold aiming to promote multilateralism under the principles of democracy,
human rights and good governance, with an eye on targeting corruption and increased use of sanctions.

There was the usual posturing by heads of state, a visit from members of the British Royal Family and the opportunity to roast
marshmallows on the beach at the first in-person summit in two years. G7 summits matter, and it was valuable for leaders to come back together and build those personal relationships that are so essential to international relations. At the summit, leaders made sweeping commitments on health, climate change and the economy, launching a new $100+billion infrastructure framework, “Build Back Better World” (B3W), to counter China’s “Belt and Road” initiative.

It is built on Western principles of human rights, good governance and transparency. Although the G7’s approach to financial crime
prevention was light-touch, statements referencing particular countries indicate that sanctions risks are on the horizon.

Financial crime prevention initiatives

The G7 recognised the need to tackle corruption, for example, through information sharing, countering the misuse of shell companies and limiting the ability of corrupt actors to conceal their illicit wealth via real estate. It remains to be seen what measures policy makers will take to translate this into credible action. With regards to shell companies, transparent and accessible beneficial ownership registries are vital.

In terms of real estate, this could include the introduction of measures similar to the UK’s register of overseas entities owning property or the requirement to carry out enhanced due diligence on politically exposed persons (PEPs) or foreign public officials purchasing land or property. Firms should be taking advanced measures when facilitating purchases of overseas property by foreign PEPs. This includes understanding the source of wealth and funds being used to buy real estate.

The G7 made many references to upholding human rights throughout the Communiqué and heavily condemned forced labour. This could lead to a call for modern slavery legislation or a requirement to carry out human rights and/or modern slavery due diligence in supply chains. Another type of due diligence was floated, concerning the option of introducing due diligence to counter deforestation and forest degradation in supply chains.

The G7 further committed to intensifying efforts to tackle environmental crimes. This includes by recognising the illegal wildlife trade as “serious organised crime”, targeting money laundering linked to the illegal wildlife trade, and strengthening beneficial ownership registries. The G7 further committed to “prevent and tackle corruption and illicit financial flows and promote integrity, transparency and accountability”.

Sanctions on the horizon

G7 leaders made country-specific statements that appear to indicate a willingness to impose human rights, anti-corruption or other
sanctions measures on the countries listed below:
• China: The G7 condemned human rights violations in Xianjing and Hong Kong.
• Russia: The G7 called on Russia to account for chemical weapons use, stop the persecution of civil society and media, and hold
accountable those perpetrating ransomware attacks, abuse of virtual currencies to launder ransoms, and other cyber crimes.
• Belarus: The G7 indicated that it was coordinating sanctions actions to hold Belarus accountable for the forced landing of flight
FR4978 and the arbitrary detention of a journalist.
• Ethiopia: The G7 called for accountability for human rights violations in Tigray.
• The Sahel: The G7 expressed alarm at the attacks on civilians, human rights violations and the existing humanitarian crisis.
• Chad and Mali: The G7 stressed the need for a civilian-led transition to democracy.
• Libya: The G7 reiterated the need to implement the ceasefire agreement.
• Afghanistan: The G7 called on parties to stop the violence and implement a ceasefire.
• North Korea: The G7 called for denuclearisation.
• Myanmar: The G7 condemned the military coup in Myanmar.
• Iran: The G7 committed to ensuring that Iran “will never develop a nuclear weapon”.

Firms should ensure that their country risk policies are updated to include these countries as high-risk for AML/CFT and also for
sanctions. Firms should be aware of any customers that may be incorporated, owned by, or have operations in these countries and consider applying enhanced measures such as more frequent transactional reviews. Moreover, they should continue to monitor day-to-day situations as a crisis could trigger an international response. Firms should also remain aware of retaliatory measures applied. On June 10, 2021, the day before the G7 summit, China adopted the Anti-Foreign Sanctions Law.

This law allows it to establish its own sanctions lists and apply countermeasures or regulations, while extending extraterritoriality of Chinese sanctions. Firms should have strong sanctions policies and processes in place to allow them to stay on top of the rapidly
moving situation, including staff training and having contingency plans available to freeze any assets quickly as required by sanctions
measures that are introduced.

It remains to be seen what type of coordination actions G7 countries will take in and against these countries to drive forward change but
also what countermeasures will be enacted by countries such as China and Russia in response to perceived Western aggression.


First published on Thomson Reuters Regulatory Intelligence on 22 June 2021