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Insight

UK sanctions: A brave new dawn?

Written by David Povey on Tuesday August 25, 2020


23 June 2016: Brexit vote

31 December 2020: Brexit will come into law

2021 and beyond: A new era

23 June 2016 was polling day for one of the most contentious polls ever put to the British people. More than four years on, there have been many column inches and headlines devoted to the repercussions of the EU referendum and the British people’s decision to leave the EU. One area often overlooked in these discussions is the impact of Brexit on sanctions. A post-Brexit world means that the UK must now use its power to issue sanctions itself, which is itself a big deal in practical terms and politically. In this insight piece, we will explore why and what impact it will have on compliance professionals.

Background

On 6 July 2020, the UK announced the first sanctions under its new Global Human Rights sanctions regime, targeting 47 individuals and 2 entities.[1]

The regulations setting out the sanctions are made under the Sanctions and Anti-Money Laundering Act (SAMLA) 2018 and impose asset freezes and travel bans on individuals and entities responsible for or involved in serious violations of human rights. SAMLA was introduced to support the Brexit-driven shift to an entirely new system of autonomous UK sanctions. Currently, the only sanctions regime under the Act is the Global Human Rights regime; however, there are 5 thematic regimes and 24 country specific regimes that are due to come into force at the end of the UK’s Brexit transition period at 11pm on 31 December 2020.[2]

These sanctions were the first batch issued by the UK unilaterally. To understand why this is significant lets first take a brief look at what sanctions are, and what the situation used to be.

What are sanctions?

Sanctions are internationally endorsed measures (laws and regulations) that are usually the last form of coercive persuasion imposed on individuals (Specially Designated Nationals – SDNs), organisations, regimes and countries, to accelerate change in behaviour and to bring them in line with internationally accepted political norms. Sanctions are of global importance as they are an effort to bring about change for international safety and global well-being. 

Traditionally who issues them, and how?

National government and international bodies like the UN and EU impose financial sanctions and restrictive measures to deter or bring about change to entities and individuals that endanger their domestic interests or violate international norms of behaviour. The US will also issue sanctions, often with a wider reach and more serious consequences than the UN and EU. For the UK, this has meant following these wider international bodies, while having input into how they are made. Prior to Brexit, the UK pursued its sanctions policy through these international organisations, while maintaining a handful of its own sanctions with little need to impose sanctions independently.

So, what now?

No longer in-step with EU legislation, the UK needed its own sanctions regime. Its unveiling in July is an even more significant step than it first appears, as the UK acted not only independently of Brussels but also Washington. The British government is understandably anxious to show that it has the knowledge and gusto to legislate confidently in a sovereign manner, and sanctions are a high-profile way of demonstrating this. The centrality of sanctions to this image projection was demonstrated in a 2019 report by the House of Commons Foreign Affairs Committee which stated that ‘a robust, effective and coherent sanctions policy is indispensable to the UK as a global actor …As it prepares to leave the EU, the UK must be ready to take responsibility for designing, implementing and enforcing its own sanctions.’[3] There is a heavy political angle here with sanctions often being used as a tool to show how strong and powerful a country is in imposing its vision and authority on the global stage. But sanctions are also a practical, and vital, set of measures in their own right.

How effective will these sanctions be?

This is the big question and one with a political as well as legal angle. We’ve seen that there are larger sanctioning bodies than the UK (the UN, EU and US) and that sometimes, these issue sanctions that are bolder and more thorough than the UK. So why would anyone worry about being sanctioned by the UK if not by anyone else? And what about businesses? While the UK has much going for it – a deep well of sanctions knowledge and expertise, the financial might of the City of London, world-class intelligence capabilities that can support the implementation and enforcement of sanctions – it cannot be compared to the US, where sanctions policies are given enormous gravitas by the dominance of the dollar in global trade.

The UK’s first foray into unilateral sanctions is targeted at human rights abuses, a pretty safe step and widely accepted as a good area to focus on. But what happens when the UK goes after an individual, or a region that is in conflict with the other major players? Can the UK seriously issue major sanctions against the likes of Russia or China without the UN or US to back them up? They can, of course. But what impact would they have and would Russia or China take any notice? Answers to these questions will eventually reveal the true standing of the UK in a post-Brexit world.

Another question is how aggressive the UK will be in enforcing its blacklist. Since its inception in 2016, the government’s Office of Financial Sanctions Implementation (OFSI) has had a relatively light touch when it comes to issuing fines, only handing out its first multi-million-pound penalty in April 2020, when Standard Chartered were fined £20.47 million for breaching EU sanctions targeting Russia.[4] Will it be able to issue fines on the scale of the US’s Office of Foreign Assets Control (OFAC) or have to settle for smaller amounts?

The UK carving out its own space on the global stage is exactly what many who supported Brexit hoped would happen following the UK’s departure from the EU. The question is, how effective will the sanctions enacted by Parliament be worldwide?

What do UK sanctions mean for compliance professionals?

  • In simple terms, it means there is another set of sanctions legislation to be aware of and with which to be compliant.
  • Practically, it means banks and other firms covered by UK sanctions will need to review their existing procedures and update screening filters, ensuring that know your customer (KYC) checks are up to date so that you know who your customers are trading with and what legislation covers their activities.
  • In the short term it is likely that many of the UK sanctions are going to mirror that of other bodies so financial institutions should already be covered.
  • This doesn’t mean that you should assume you’re covered; each piece of legislation requires full attention to ensure compliance.

Conclusion (and future)

As with any change in policy, and especially true when it comes to anything linked to Brexit, we’ll only really know the effectiveness and outcome of the UK issuing sanctions further down the line. It is possible that, over time, UK case-law could diverge from EU law in a post-Brexit environment as the UK becomes more confident of going it alone.

What we can affirm now though is that this first batch of sanctions is a sure-footed step into the right direction and that other moves will come. It is going to be fascinating seeing how jurisdictions, issuing bodies and indeed businesses and individuals react and respond to the UK issuing sanctions. It is clear that the UK is intent on issuing its own sanctions, and will attempt to wield its power in the post-Brexit landscape, whether other bodies back them or not.


[1] Gov.uk, ‘UK announces first sanctions under new global human rights regime’, 6 July 2020: https://www.gov.uk/government/news/uk-announces-first-sanctions-under-new-global-human-rights-regime – accessed August 2020

[2] Gov.uk, ‘UK sanctions regimes under the Sanctions Act’, https://www.gov.uk/government/collections/uk-sanctions-regimes-under-the-sanctions-act – accessed August 2020

[3] House of Commons Foreign Affairs Committee, Fragmented and incoherent: the UK’s sanctions policy, 5 June 2019: https://publications.parliament.uk/pa/cm201719/cmselect/cmfaff/1703/1703.pdf – accessed August 2020

[4] Peter Ibrahim and Meredith Rathbone, ‘Standard Chartered fined £20.47 million; OFSI finally showing its teeth?’, Steptoe, 2 April 2020: https://www.steptoeinternationalcomplianceblog.com/2020/04/standard-chartered-fined-20-47-million-ofsi-finally-showing-its-teeth/ – accessed August 2020


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