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The Government clarifies its proposals for a post-Brexit sanctions regime

  • United Kingdom
  • Brexit
  • Diversified industrials
  • Energy and infrastructure
  • Technology, Media and Telecoms

14-08-2017

On 2 August, the Government has published its response (“the Response”) to the consultation on the legal framework for imposing and implementing sanctions in the United Kingdom upon its withdrawal from the European Union.

The consultation lasted for 9 weeks and closed on 23 June 2017 – just a couple of days after the Queen’s Speech, which confirmed the Government’s intention to introduce a Sanctions Bill during this Parliamentary Session. We discussed the proposed White Paper which outlined the Government’s vision for establishing a post-Brexit sanctions regime in our previous briefing (available here) .

The key points of the Response are set out below.

Powers to impose sanctions

‘Reasonable grounds to suspect’ threshold: The Government considered that the ‘reasonable grounds to suspect’ threshold, which is applied by the EU courts, is the correct threshold for designating sanctioned persons and it will not be amended post-Brexit. This threshold would “only be met if there is sufficiently solid evidence to enable the Government to form a reasonable suspicion”. The Government thought that having a similar threshold for imposing sanctions as the UK’s international partners would facilitate international coordination of sanctions policy.

UK nexus: The Government indicated that it has no plan to expand the jurisdiction of the UK sanctions programmes. The Sanctions Bill will set out how UK sanctions are to apply where there is a link (or nexus) to the UK. The Government added that it will provide clear guidance on the meaning of the UK nexus.

Separate provisions for UK and UN sanctions: The Sanctions Bill will have separate provisions for: (i) individual listings under the UK autonomous sanctions regime; and (ii) UN sanctions which the UK is obliged to implement under international law.

Review and challenge

Review of UK sanctions: The Government will review UK autonomous sanctions on an annual basis to check whether the sanctions remain appropriate. It will also review every individual listing under each autonomous UK sanctions programme at least every three years. It is worth noting that the Government did not propose to establish an independent reviewer or Ombudsperson focussed specifically on UK sanctions. At the same time, it noted in the Response that there is a case for improving the way designations are agreed and reviewed at the UN level.

Mechanisms to challenge listings: Designations imposed under a sanctions programme (whether enacted by the UN or autonomously by the UK) are subject to challenge by way of a judicial review before the High Court, as well as by way of requests to the Government for ‘administrative reassessment’. In relation to any High Court challenge, the Sanctions Bill will enable the use of closed material procedures, which protect the disclosure of sensitive documents but make them available to the presiding judge, where the Government needs to rely on such documents in court. The Government confirmed that it would always provide an unclassified statement of reasons for designation. However, it did not consider it necessary to follow the EU’s approach of providing for a full merits appeal process in the UK courts.

Licensing and implementation

Licensing power for financial sanctions: The Government will broaden the licensing powers available to the Office for Financial Sanctions Implementation (OFSI), and it intends to create a power enabling general licences to be introduced (for example to facilitate humanitarian aid to regions affected by sanctions), together with a power to create more specific licensing grounds enabling persons to pay for their basic needs, access to justice, and to make payments under contracts and judgments.

Reporting obligations: In line with the current approach, the Government proposes to extend the obligation to report non-compliance issues to ‘everyone’ who is aware of or suspects a breach of financial sanctions. The Government also stated that retrospective reporting on breaches over the previous five years is required. This obligation is limited to financial sanctions only. Trade sanctions will be subject to separate reporting requirements, broadly in line with those currently contained within the Export Control Act 2002.

New powers to seize and detain funds and assets: The Sanctions Bill will introduce new powers to seize funds and assets that are subject to an asset freeze, whether or not they have been obtained through, or intended for use in, unlawful conduct, without breaching the asset-freeze itself. Despite questions having been raised in the consultation about the reasons for the introduction of this new power, the Government said that it will not consult further on this issue.

Compensation for unlawful sanctions designations: The Government will, to the extent that is consistent with the Human Rights Act 1998, limit the ability of designated persons to seek compensation for unlawful sanctions designations.

Commentary

The Response confirms the Government’s aim to establish a more efficient sanctions framework post-Brexit. The Response provides more concrete guidance on aspects of the Sanctions Bill that affect the burden of sanctions across different industry sectors.

Overall, the Response shows that the Government intends to largely build on existing measures based on EU laws. Many aspects of the sanctions regime will remain aligned with EU laws, including the applicable threshold for sanctions designations, the system of periodic review and the preservation of asset freeze powers. This should give more certainty to businesses and ensure a more seamless transition post-Brexit.

On the other hand, the Government seeks to provide for greater flexibility in certain aspects, in particular the management of delisting applications and the enforcement of sanctions. Issuing general licences and creating more specific licensing grounds to enable persons affected by sanctions to make payments under contracts and judgments should also ease the compliance burden on businesses. Nevertheless, it is expected that the Sanctions Bill will form the basis of an even more robust regime, entrusting the authorities with broader enforcement powers, in particular in relation to controlling the funds and assets of sanctioned persons.

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