The widely condemned 'diversion' of the Athens-Vilnius flight to Minsk, Belarus, has focused attention on the issue of sanctions. From a business perspective, the post-Brexit independent UK sanctions regime presents a fresh compliance challenge.
By contrast to a good part of UK law post-Brexit (so-called 'retained EU law'), the United Kingdom's autonomous sanctions regime is not a simple 'copy and paste' of existing EU law. The United Kingdom is keen to demonstrate that it is a robust player on the global stage, which includes lively sanctions activity and enforcement. As such, UK domestic legislation has introduced harsher penalties and in places goes further than the EU counterparts to which it was formerly bound.
This article considers the key implications of the UK sanctions and export control regime and the factors that businesses must consider in order to avoid the risk of civil or criminal penalties in the post-Brexit landscape.
The Sanctions and Anti-money Laundering Act (SAMLA) 2018 allows the United Kingdom to adopt its own sanctions regulations to maintain compliance with UN Security Council resolutions and replace the EU sanctions regime. So, following the expiry of the transitional period, the United Kingdom has continued to implement sanctions established under UN Security Council resolutions through domestic legislation, rather than as a matter of EU law or resolution that would have applied while the United Kingdom was an EU member.
These measures target foreign governments, companies, groups, organisations, sectors and individuals. As a general rule, a distinction can be drawn between so-called 'trade sanctions' and 'financial sanctions'.
Trade sanctions are measures which impose controls on trade with certain nations or individuals and consist of:
- embargoes and restrictions on the export, sale, supply and transfer of certain goods and technology;
- the provision of technical and financial assistance and brokering services in respect of such goods; and
- travel bans on named individuals.
Financial sanctions include restrictions and limitations on the financial actions of sanctioned entities, through asset freezes, restrictions on financial markets and services and directions to cease business.
What does the new UK regime look like?
Replacements to EU sanctions regime
Under the EU (Withdrawal) Act 2018, the EU sanctions regime is retained within UK domestic law. However, following the adoption of the SAMLA, the United Kingdom has a broad discretion to amend and update its domestic regime.
To this end, the UK Foreign, Commonwealth and Development Office has implemented numerous regulations to replace the EU sanctions regime (as implemented in the United Kingdom) with domestic regulations. These include measures relating to:
- chemical weapons;
- domestic and international counter-terrorism;
- cyberactivity;
- misappropriation of state funds; and
- unauthorised drilling activities.
The United Kingdom has also adopted country-specific regulations to replace the equivalent EU regulations which restrict activities in respect of certain countries or territories, as well as certain terrorist organisations.
While the United Kingdom and the European Union previously indicated their intention to cooperate and consult in relation to sanctions,(1) divergence between the two regimes is possible. For the time being, the purpose of the UK regulations is to have substantially the same effect as the EU legislation which they replace.
However, the United Kingdom's autonomous regime is not a wholesale replication of the EU sanctions regime. For example, some EU regulations, such as the sanctions pertaining to Russia,(2) have been revoked and merged within the United Kingdom's Russia sanctions regulation.(3)
It is therefore vital that businesses active in areas targeted by international sanctions regimes familiarise themselves with the new UK regime rather than simply relying only on the existing EU framework and expecting that to suffice.
UK-specific sanctions
In addition to ensuring the implantation of the EU sanctions regime, the UK government has demonstrated that it will make use of its ability to introduce new standalone regimes.
For example, in July 2020 the United Kingdom adopted the Global Human Rights Sanctions Regulations, which enable it to impose asset freezes and travel bans on persons involved in human rights violations on behalf of their state. This regime preceded a similar EU regime which was later adopted in December 2020.
More recently, in April 2021, the United Kingdom adopted its second autonomous sanction measure, the Global Anti-corruption Sanctions Regulations 2021. These allow the United Kingdom to impose asset freezes and travel bans in relation to persons involved in serious corruption. The United Kingdom has already designated 22 individuals under this regime.
The scope for the United Kingdom to adopt autonomous sanctions measures is broad. As set out within the SAMLA, the secretary of state or the Treasury may make regulations for a variety of purposes, including measures which:
- are in the interests of national security;
- further a UK foreign policy objective; or
- promote respect for democracy, the rule of law and good governance.(4)
Businesses operating in relation to certain high-risk jurisdictions, products and services should therefore factor in the potential for wide-ranging measures under the UK sanctions regime as part of their compliance programmes.
From 31 December 2020, the licensing requirements for the export of 'dual-use' items (ie, items which can be used for both civil and military purposes) from the United Kingdom have changed.
Although the United Kingdom continues to apply the EU Dual Use Regulation(5) as retained EU law, exports of controlled dual-use items from Great Britain require a licence. This includes where such products are exported to the European Union. Additional export licences issued in the United Kingdom or in one of the 27 EU member states prior to the expiry of the transition period are no longer valid for exporting dual-use items from the European Union or the United Kingdom, respectively.
The United Kingdom has adopted an open general export licence (OGEL), which covers the export of dual-use items from Great Britain to the European Union. Similarly, the European Union has added the United Kingdom to its Union General Export Authorisation EU001, which permits the export of dual-use items to certain destinations.
This does not mean that UK businesses have no reporting requirements before exporting dual-use items to the European Union. Businesses wishing to make use of the OGEL must:
- register to use the licence through SPIRE (the United Kingdom's online export licensing system);
- comply with the conditions of the OGEL; and
- ensure that appropriate records are kept in relation to the use of the licence.
If the OGEL is unavailable, businesses must apply to the Export Control Joint Unit through SPIRE for an individual licence. This licence will apply to:
- a specific exporter;
- a specific quantity of certain items; and
- a named consignee or end user.
Businesses must also provide supporting documentation with their application, including the technical specification of their products and an end user undertaking in a prescribed form.
Additional considerations apply to exports from Northern Ireland. Under the Northern Ireland Protocol, the EU Dual Use Regulation will continue to apply in respect of Northern Ireland. This means that there is no requirement to obtain an export licence to export dual-use items from the European Union to Northern Ireland and vice versa. There is also no requirement to obtain a licence in respect of exports of dual-use items from Great Britain to Northern Ireland.
A breach of the UK export control regime will be a criminal offence, with the penalties including:
- the revocation of licences;
- the seizure of the relevant goods;
- a compound penalty fine; and
- up to 10 years' imprisonment.
It is therefore extremely important for businesses dealing in dual-use or other controlled goods to ensure that they are fully aware of the requirements of the new regime.
Since 31 December 2021, the United Kingdom has maintained its main sanctions lists. These include:
- the UK Sanctions list, which covers all designations made under the SAMLA; and
- the Office of Financial Sanctions Implementation's Consolidated List of Financial Sanctions Targets.
The key change following the United Kingdom's withdrawal from the EU sanctions regime is that the lists have been updated to reflect the UK-specific designations. This means that the lists maintained by the United Kingdom and the individuals listed within them will have diverged from those designated by the European Union.
The divergence of the UK lists of designated persons from that of the European Union is likely to only increase over time, meaning that it is important to check both the UK and EU lists before engaging in high-risk activities, adding an extra (but necessary) layer to businesses' sanctions screening and compliance processes.
Tougher penalties and enforcement
The penalties for breaching UK sanctions regulations are severe. The precise terms applicable to breaches of trade sanctions are set out within the relevant statutory instrument. For example, a person who commits an offence under the trade prohibitions in respect of certain jurisdictions will be liable for up to 10 years' imprisonment and an unlimited fine.(6) This marks a substantial increase from the previous maximum penalty of two years' imprisonment for trade sanctions.
Similar penalties are in place for breaches of financial sanctions, including:
- up to seven years' imprisonment; and
- financial penalties of up to £1 million or 50% of the estimated value of the fund and resources, whichever is greater.(7)
Such penalties can be imposed on both a legal entity and individual officers (ie, directors, partners, managers and secretaries) thereof.
Enforcement of sanctions by the European Union has historically been limited, particularly when compared with jurisdictions such as the United States, with individual member states adopting varying degrees of enforcement activity.
The United Kingdom, by contrast, is strengthening and expanding its sanctions regime, although the full extent of its appetite for enforcement remains to be seen. However, this does put additional pressure on businesses to implement an effective sanctions screening policy which includes consideration of UK sanctions.
Endnotes
(1) See Political Declaration Setting out the Framework for the Future Relationship Between the European Union and the United Kingdom, 19 October 2019.
(2) See EU Regulation 269/2014, EU Regulation 833/2014 and EU Regulation 692/2014.
(3) See the Russia (Sanctions) (EU Exit) Regulations 2019.
(4) See Section 1(2) of the SAMLA.
(5) See EU Regulation 428/2009.
(6) See, for example, the Syria (Sanctions) (EU Exit) Regulations 2019 and the Russia (Sanctions) (EU Exit) Regulations 2019.
