As we seemingly move closer to exit day (currently fixed for 31 October 2019 at 11pm GMT), and if you haven’t already done so, now is a good time to review what’s been done to prepare the UK’s economic sanctions regime for Brexit.
This update is part of a two-part series on the impact of Brexit on economic sanctions and export control matters. For more information on export control after Brexit see our update here.
What are the key changes?
While the UK is still part of the EU, most of the legislation applicable to sanctions is based on EU law. The key changes to sanctions as a result of Brexit broadly fall into two categories:
• changes to licensing processes and applicable licensing authorities in relation to trade involving the EU; and
• the potential for divergence between the EU and UK’s approach to sanctions regulation in a post-Brexit future.
This update is therefore most relevant to businesses that operate internationally or export goods or services to the EU or via the EU. It may also be relevant to businesses that import goods or services from the EU.
What’s been done so far to prepare the UK’s economic sanctions system for Brexit?
What will happen to EU law on exit day?
Under the European Union (Withdrawal) Act 2018, EU law will be incorporated into UK law on exit day. This ‘snapshot’ of EU law as it stood on exit day is known as ‘retained EU law’. After Brexit, it will be for the UK and devolved governments and legislatures to amend it, either creating a divergence between UK law and EU law in those areas or to ‘keep up’ with changes made to EU law after exit day.
What has the UK done to prepare for post-Brexit sanctions?
Perhaps signalling the importance to the UK Government of taking control of a greater range of foreign policy decisions, one of the first Acts passed after the formal Brexit process was initiated in March 2016 was the Sanctions and Anti-Money Laundering Act 2018 (‘SAMLA’). SAMLA confers on UK Government powers to impose economic sanctions, without requiring agreement from the international community. The grounds for making sanctions under SAMLA are broad, including the furthering of a UK Government foreign policy objective or to provide accountability for, or be a deterrent to, gross violations of human rights.
The UK’s current policy in relation to sanctions is to remain closely coordinated with the EU post-Brexit and to date, the UK has issued separate regulations under SAMLA which consolidate the EU’s sanctions regimes (including on Iran - both nuclear and human rights regimes, as well as Russia, South Sudan, Burma and Venezuela among others) into UK regulations, which closely mirror the EU’s current position. Any current EU sanctions regimes that have not been covered by new regulations under SAMLA will continue as retained EU law after exit day so that no ‘gaps’ are created versus the pre-Brexit rules.
What’s going to happen to the UK’s sanctions policy after Brexit?
The creation of SAMLA means that there is potential for the UK to diverge from the EU’s sanctions policy after Brexit but it is too early to predict whether the UK would choose to adopt a contrary position to that of the EU. Sanctions are inherently more effective if they are applied together with partners and this will undoubtedly form part of the UK’s considerations in setting the UK’s post-Brexit sanction’s policy.
The UK has been a key driving force in, and has had significant influence over, the EU’s sanctions policy, providing vital intelligence and benefiting from the strength that comes from its leading global financial centre. With Brexit it remains a possibility that, in a post-Brexit world, the UK’s sanctions policy would develop in a different direction compared to the EU’s current approach.
It is clear, however, that differences in sanctions policy between the EU and the UK could create compliance difficulties for UK businesses operating in the EU, which would be obliged to comply with both regimes. Many of these difficulties are already experienced by businesses as a result of divergences between EU and US sanctions policy.
What has the UK done to prepare for financial sanctions after Brexit?
As part of the UK’s preparations for a no-deal Brexit, a number of financial sanctions regulations have been made under SAMLA. These are regulations that permit the designation of specified individuals who are subject to some form of restriction under the regulations. These will apply to designated (listed) persons, to those owned or controlled by listed persons or to those connected to certain regimes.
Financial sanctions can include an asset freeze on a listed person’s funds or economic resources, or the exclusion from access to certain financial services. All current EU financial sanctions targets will continue to be listed as a result of the European Union (Withdrawal) Act 2018. The Government notes that this list is subject to change after exit day.
We recommend that businesses conduct a review of all ‘at risk’ connected persons against the UK’s financial sanctions list after Brexit to ensure they remain compliant and responsive to any changes. To keep up to date with changes to financial sanctions lists, businesses can sign up for updates.
Are there changes on the horizon for financial sanctions post-Brexit?
A potentially significant change in relation to post-Brexit sanctions is that SAMLA provides the UK Government with the power to impose financial sanctions under SAMLA by reference to a target’s description only, rather than by name. Any such sanctions would inevitably create further compliance difficulties by adding a layer of ambiguity to an already complex regulatory regime.
Under SAMLA the UK Government also has the power to increase current UK reporting requirements on UK persons in relation to information on financial sanctions targets. The relatively young UK regulator for financial sanctions, the Office of Financial Sanctions Implementation, has to date proven itself to be an active regulator, issuing guidance and penalties (for relatively minor breaches) since its inception only a few years ago. With the additional powers under SAMLA and an active regulator, it is possible that the UK will see an increase in financial sanctions enforcement post-Brexit.