Contributed By Winston & Strawn London LLP
Banks and other regulated lenders are obliged by law and regulation to ensure that funds drawn from them are not used in breach of anti-corruption and sanctions regimes. Lenders are required by law to actively seek and identify bribery and corruption risks and maintain processes to mitigate these risks, and to identify and implement controls regarding money laundering.
The UK is currently required to adhere to UN and EU sanctions and it also has an autonomous terrorist sanctions regime. It is expected that the EU sanctions regime will cease to apply to the UK following Brexit, however, in the case of a no-deal Brexit, the UK will look to carry over all EU sanctions at the time of its departure pursuant to the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act) or the EU (Withdrawal) Act 2018.
As a consequence of increasingly aggressive enforcement action (especially by the US sanction authorities), lenders now seek specific contractual assurances in these areas which go beyond general compliance with applicable laws, representations and undertakings and the illegality mandatory prepayment provision. In relation to anti-corruption laws, lenders’ proposals are often less wide-ranging than those relating to sanctions.
In the pre-contract due diligence stage, investigations into the borrower group’s compliance with sanctions law have become customary. Non-compliance with sanctions laws will customarily constitute an event of default under the facilities, or trigger automatic prepayment and cancellation of the loans, restricting the borrower’s use of proceeds and entitling the lender to accelerate the loan and to take enforcement action against the borrower.