The widely condemned 'diversion' of the Athens-Vilnius flight to Minsk, Belarus, has focused attention on the issue on 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 UK's autonomous sanctions regime is not a simple "copy and paste" of existing EU law. The UK is keen to demonstrate that it is a robust player on the global stage, which includes lively sanctions activity and enforcement. As such, the UK's 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 will need to consider in order to avoid the risk of civil or criminal penalties in the post-Brexit landscape.
1. Sanctions at a glance
The UK's Sanctions and Money Laundering Act 2018 ("SAMLA") allows the UK to adopt its own sanctions regulations to maintain compliance with UN Security Council Resolutions, as well as replace the EU sanctions regime. So, following the expiry of the transitional period, the UK 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 UK 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 or restrictions on the export, sale, supply and/or transfer of certain goods and technology;
- the provision of technical and/or financial assistance and brokering services in respect of such goods; and
- travel bans on named individuals.
Financial sanctions include restrictions or limitations on the financial actions of sanctioned entities, through asset freezes, restrictions on financial markets and services and/or directions to cease business.
2. What does the UK's new regime look like?
Replacements to the EU's sanctions regimes
Under the EU (Withdrawal) Act 2018, the EU's sanctions regimes are retained within the UK's domestic law. However, following the adoption of the SAMLA, the UK has a broad discretion to amend and update its domestic regime.
To this end, the UK's Foreign, Commonwealth and Development Office ("FCDO") has implemented a number of regulations to replace the EU's sanctions regimes (as implemented in the UK) with domestic regulations. These includes measures relating to:
- chemical weapons;
- domestic and international counter-terrorism;
- cyber activity;
- misappropriation of state funds; and
- unauthorised drilling activities.
The UK has also adopted country-specific regulations to replace the equivalent EU regulations that restrict activities in respect of certain countries or territories as well as certain terrorist organisations.
While the UK and the EU have previously indicated their intention to cooperate and consult in relation to sanctions, divergence between the two regimes is possible. For the time being, the purpose of the UK's regulations is to have substantially the same effect as the EU legislation that they replace.
However, the UK's autonomous regime is not a wholesale replication of the EU's sanctions regime. For example, some EU regulations, such as the sanctions pertaining to Russia, have been revoked and merged within the UK'[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 upon 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 UK adopted the Global Human Rights Sanctions Regulations. This enables the UK 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 that was later adopted in December 2020.
More recently, the UK has adopted its second autonomous sanction measure in April 2021, namely the Global Anti-Corruption Sanctions Regulations 2021. This allows the UK to impose asset freezes and travel bans in relation to persons involved in serious corruption. The UK has already designated 22 individuals under this regime.
The scope for the UK 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 (but not limited to) measures that:
- are in the interests of national security;
- further a foreign policy objective of the UK; or
- promote respect for democracy, the rule of law and good governance.
Businesses operating in relation to certain high risk jurisdictions, products and services should therefore factor the potential for wide ranging measures under the UK sanctions regime as part of their compliance programmes.
3. Export controls
From 31 December 2020, the licensing requirements for the export of "dual use" items (i.e. items that can be used for both civil and military purposes) from the UK have changed.
Although the UK continues to apply the EU's Dual Use Regulation as retained EU law, exports of controlled dual-use items from Great Britain will require a licence. This includes where such products are exported to the EU. Additional export licences issued in the UK or in one of the EU 27 Member States prior to the expiry of the transition period, will no longer be valid for exporting dual-use items from the EU or the UK respectively.
The UK has adopted an Open General Export Licence ("OGEL"), which covers the export of dual-use items from Great Britain to the EU. Similarly, the EU has added the UK to its Union General Export Authorisation No EU001, which permits the export of dual-use items to certain destinations.
This does not mean that UK businesses do not have any reporting requirements before exporting dual-use items to the EU. Businesses wishing to make use of the OGEL will need to register to use the licence through SPIRE (the UK's online export licensing system); must 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 not available, businesses will need to apply to the Export Control Joint Unit through SPIRE for an individual licence. This licence will apply to: (i) a specific exporter; (ii) a specific quantity of certain items and (iii) a named consignee or end-user. Businesses will also be required to provide supporting documentation with their application including the technical specification or 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's 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 EU to Northern Ireland and vice versa. Nor are there any requirements to obtain a licence in respect of exports of dual-use items from Great Britain to Northern Ireland.
A breach of the UK's 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 imprisonment of up to 10 years. It is therefore extremely important for businesses dealing in dual-use or other controlled goods to make sure they are fully aware of the requirements of the new regime.
4. Sanction lists
Following 31 December 2021, the UK 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 ("OFSI") Consolidated List of financial sanctions targets.
The key change following the UK's withdrawal from the EU's sanctions regime is that the lists have been updated to reflect the UK specific designations. This means that the lists maintained by the UK and the individuals listed within them will have diverged from those designated by the EU.
The divergence of the UK's lists of designated persons from that of the EU is likely to only increase over time. This means 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.
5. Tougher penalties and enforcement
The penalty 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 imprisonment of up to 10 years and/or an unlimited fine. 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, which includes:
- up to seven years imprisonment; and
- financial penalties of up to the greater of (i) £1,000,000 and (ii) 50% of the estimated value of the fund and resources.
Such penalties can be imposed on both a legal entity and on the individual officers (i.e. a director, partner, manager or a secretary) of that legal entity.
Enforcement of sanctions by the EU has historically been limited, particularly when compared to jurisdictions such as the US, with individual Member States adopting varying degrees of enforcement activity.
The UK, by contrast, is strengthening and expanding its sanctions regime, although the full extent of its appetite for enforcement remains to be seen. This does, however, put additional pressure on businesses to implement an effective sanctions screening policy which includes consideration of UK sanctions.
Here to help
Gowling WLG's International Trade and Customs team regularly assist clients in navigating the EU and UK sanctions regimes, helping them to capitalise on international opportunities while avoiding the risks of civil and/or criminal liability.
If you have any questions about this insight, please get in touch with Bernardine Adkins.
Footnotes:
[] See Political Declaration setting out the framework for the future relationship between the European Union and the United Kingdom, 19 October 2019.
[] See Council Regulation (EU) No 269/2014, Council Regulation (EU) No 833/2014 and Council Regulation (EU) No 692/2014.
[] See The Russia (Sanctions) (EU Exit) Regulations 2019.
[] See Sanctions and Anti-Money Laundering Act 2018, section 1(2)
[] See Council Regulation (EC) No 428/2009
[] See for example, The Syria (Sanctions) (EU Exit) Regulations 2019 and The Russia (Sanctions) (EU Exit) Regulations 2019.
[] See The Russia (Sanctions) (EU Exit) Regulations 2019.