On Wednesday 18 October 2017, the UK Government introduced the Sanctions and Anti-Money Laundering Bill (the "Sanctions Bill") into Parliament. The Sanctions Bill received its second reading in the House of Lords on 1 November 2017, and is scheduled to reach Committee stage in the Lords on 21 November 2017.

Following our previous Government Affairs alert on UK Sanctions policy post-Brexit, this alert summarises the key sanctions-related provisions in the Sanctions Bill and analyses the extent to which the draft legislation signals a departure from the current sanctions framework imposed in the UK.

Overview

The UK's implementation of sanctions currently relies heavily upon the European Communities Act 1972 (ECA). Post-Brexit, the UK will no longer be able to use the ECA as a legal basis to implement and enforce sanctions. Therefore a new domestic framework is required: both to allow the UK to meet its international obligation to implement United Nations (UN) sanctions, as well as to implement non-UN sanctions in co-ordination with the UK's international partners as a tool of foreign policy and national security policy.

The EU Withdrawal Bill will have the effect of transferring current EU sanctions regimes into UK law upon the UK's exit from the EU. Therefore, businesses now have clarity that, in the short term at least, sanctions imposed by the UK Government will mirror those currently imposed by the EU. Ministers will be given temporary powers for a two year period to amend lists of designated persons which derive from EU sanctions.

Who will impose UK sanctions after Brexit?

Post-Brexit, the Sanctions Bill gives the Government the power to impose sanctions where it considers this appropriate:

  • for the purpose of compliance with UN or other international obligations;
  • for the purpose of preventing terrorism;
  • in the interests of national security or international peace and security; or
  • to further a foreign policy objective of the UK Government.

The threshold for designations

Prior to the introduction of the Sanctions Bill, the Government consulted as to the appropriate threshold for designating persons for the purposes of sanctions. The Government received several suggestions as to what might constitute a suitable threshold, including 'reasonable grounds to suspect', 'reasonable grounds to believe' (a higher threshold that would require greater evidence), and 'reasonable grounds to believe and necessary for the protection of national or international security'.

The Sanctions Bill states that the Government does not have the power to designate a person unless it has reasonable grounds to suspect that the person is involved in some way in a specified activity, and it is appropriate for that person to be designated having regard to the purposes of the sanctions policy. In its response to the public consultation, the Government clarified that this threshold would only be met if there was sufficiently solid evidence to enable the Government to form a reasonable suspicion that the person was involved in the specified activity. The Government has sought to maintain a similar threshold to its international partners, such as the EU, in order to facilitate international coordination of sanctions policy.

Challenging a designation

The Sanctions Bill provides several methods for a person to challenge their designation. Firstly, designated persons will have a statutory right to ask the Government to revoke or vary their designation. Whilst the Government will have discretion as to whether it revokes or varies the designation, it is obliged to revoke the designation if certain conditions are not fulfilled. Secondly, the designated person is entitled to apply for a court review of the decision, pursuant to which the court will apply general judicial review principles.

Periodic reviews of designations

The Sanctions Bill provides for annual reviews of specific sanction regimes, and three-yearly reviews of individual designations:

  • Government must review sanctions regulations on an annual basis, the first review taking place one year after the date that the regulations are made. The Government must review whether the regulations are still appropriate for the purposes for which they were intended.
  • the designation of individual persons must be reviewed every three years, with an obligation on the Government to vary or revoke the designation where it no longer has reasonable grounds to suspect that the person is involved in a specified activity, and no longer considers it appropriate for that person to be designated, having regard to the purposes of the relevant regime.

Representing the Labour Party, Lord Collins of Highbury's speech during the second reading debate provided an indication of the amendments that the Opposition may seek to make to the Sanctions Bill during Committee stage. These include amendments that would require the Government to carry out robust impact assessments that consider the humanitarian consequences of particular sanctions regimes, a statutory requirement to publish an annual report on sanctions implementation and greater Parliamentary scrutiny of the sanctions implementation process.

No short-term policy change

The Sanctions Bill is not primarily intended to create new sanctions policy in the UK. Rather, its core purpose is to ensure the UK's continued compliance with UN and other relevant international sanctions regimes. As such, the Sanctions Bill itself will not bring about major changes for companies with respect to their continued compliance with existing sanctions regimes. However, companies will need to update their policies and procedures to ensure that relevant counterparties are screened against the new standalone list of UK sanctions targets (in addition to any other relevant lists of designated person).

Longer-term, questions remain as to whether the UK Government's sanctions policy will diverge from that of the EU and the UK's other international partners. Might there, for example, be occasions where the UK Government wishes to take a tougher stance on a particular regime, or conversely where the Government decides to soften certain restrictions in order to meet the UK's broader foreign policy objectives?

Any divergence between the content of UK and EU sanctions will create additional regulatory burdens for businesses operating in and with the UK, potentially putting UK businesses at a significant disadvantage against their EU competitors. Therefore, we would expect that, to a high degree, the UK Government will continue to coordinate its sanctions policy with the EU. In his speech opening the second reading debate, Minister of State Lord Ahmad of Wimbledon reiterated this stance. Lord Ahmad stated that "multiple divergent sanction regimes can raise compliance costs for business". As such, "in designing and implementing future UK sanctions, [the Government] will, wherever possible, work closely with the EU, the United States and other international partners to ensure maximum alignment and to reduce the impact on business". However, Lord Ahmad conceded that it was too early to speculate on the exact form that future UK-EU collaboration on sanctions policy will take post-Brexit.

Notwithstanding the UK Government's stated position at the present time, businesses should remain alert to the possibility of future divergence between sanctions imposed by the UK and its international partners. The Government has accepted that, once the UK's sanctions policy is governed by a new domestic Sanctions Act, such divergence is a legal possibility and as such cannot be ruled out.