On 21 April 2017, the UK government published its White Paper on the future of economic sanctions once the UK leaves the EU.

The government’s proposals maintain the key aspects of the current sanctions regimes, whilst hinting at areas where Brexit may be used to adapt or enhance the UK’s sanctions regime. However, it is likely to be some time before we have clarity as to what the UK’s position on sanctions will be after Brexit.

Background

The current sanctions framework in the UK comes from UN sanctions that are implemented throughout the EU by European Regulations. These Regulations set out the sanctions measures (asset-freezes, trade restrictions, financial assistance and services prohibitions etc.) and apply directly in each Member State without the need for national legislation to implement them. Each Member state then provides for the appropriate enforcement powers, including criminal penalties, through national legislation (and often replicates the sanctions offences themselves at national level).

However, once the UK leaves the EU, both the current and any future sanctions Regulations will no longer apply to the UK. Therefore, the UK will need to implement its own sanctions regime through national legislation to maintain the economic pressure on sanctioned governments, individuals and entities.

The proposed post-Brexit approach

The sanctions regime proposed by the government in its White Paper maintains the key elements of the EU sanctions regime, including:

  • freezing of assets, funds and economic resources;
  • trade restrictions and prohibitions on associated services;
  • investment bans and restrictions on access to capital markets;
  • international travel bans;
  • anti-circumvention provisions;
  • breach reporting obligations;
  • licensing of legitimate financial transactions;
  • periodic review and rights of challenge of sanctions; and
  • limiting civil liability for complying with sanctions measures.

The government also proposes to maintain the current threshold test applied for designating a particular party as a sanctioned entity – i.e. that there are reasonable grounds to suspect that such an entity meet the criteria to be designated under a particular sanctions regime.

The government has also indicated that the future UK sanctions measures may be adapted from the current EU regime. In particular, the UK may seek greater flexibility for the listing and delisting of designated sanctioned entities and to establish sanctions in support of UK counter-terrorist activity. However, the full extent of any shift from the current EU regime remains to be seen.

Brexit-related risks to internal sanctions?

Whilst the UK government appears keen to maintain a sanctions regime in line with that in the EU, Brexit does, of course, give rise to certain uncertainties.

Even though the UK measures will broadly follow the existing framework under EU Regulations, Brexit increases the risk of sanctions being applied differently in the UK compared to EU Member States. In particular, the UK will no longer be subject to the jurisdiction of, or able to obtain preliminary rulings on sanctions interpretation from, the Court of Justice of the European Union. As such, there is a risk that sanctions may ultimately be applied differently in the UK than in EU Member States.

The government has also identified the potential risk that Brexit may actually lead to a watering down of sanctions in the European Union – particularly against Russia. The UK has traditionally been one of the stronger advocates in the EU for economic sanctions. Without the UK’s influence, the government is concerned that this may lead to a greater divergence in the approaches taken by the UK and the (soon to be) 26 country block in their respective approached to international sanctions. Equally, it is possible that the UK may be drawn towards adopting a more US-style sanctions regime – which is generally more extensive than that present in the EU – if Brexit leads to a greater alignment with the US in terms of trade and foreign policy. While the White Paper gives some indication of the direction of travel of UK sanctions after Brexit, there is still significant work to be done before there will be clarity as to what a post-Brexit UK sanctions regime will look like.