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The Government consults on the future of the UK’s sanctions regime post-Brexit

  • United Kingdom
  • Brexit
  • Competition, EU and Trade - Brexit

24-04-2017

On 21 April 2017, the Government launched a consultation on the UK’s future legal framework for imposing and implementing sanctions. The publication of the White Paper, less than a month after Article 50 of the Treaty on the Functioning of the European Union was triggered, is timely and shows that the Government is keen to ensure that it is able to continue to operate an effective sanctions regime after Brexit.

The White Paper confirms that the Government plans on replicating the main features of the EU’s sanctions regime, whilst seeking “greater flexibility” to allow sanctioned individuals to challenge their listings and to reduce the burden of sanctions on the industry, where possible.

The purpose of the consultation is to seek views on the legal powers the Government will need upon the UK’s withdrawal from the EU to maintain an efficient and effective sanctions regime, whilst ensuring compliance with the UK’s obligations under the United Nations Charter.

The consultation calls for feedback from stakeholders both at home and overseas to help inform the content of future sanctions legislation. The deadline for responding to the consultation is 23 June 2017.

UK’s role in negotiating global sanctions

Sanctions are an important foreign policy and national security tool. Currently, the EU implements both the UN and the EU’s autonomous sanctions on behalf of all its Member States. The Government aims to secure a smooth transition during the Brexit process to a new UK sanctions regime which implements international obligations independently and which allows the UK to impose its own autonomous sanctions.

The UK has played a central role in negotiating global sanctions as one of the Permanent Members of the UN Security Council. The UK and its EU partners have also imposed autonomous sanctions in situations where the UN has chosen not to act, but where a response was still considered necessary.

For the UK to continue to lead in this area, it cannot be seen as acting in isolation. In fact, the Government recognises that sanctions require broad application to be effective and intends to continue to work closely with its allies and partners to ensure that sanctions remain a viable instrument of foreign policy.

The need for new sanctions legislation

The UK has some limited domestic powers to impose sanctions, however, these are not sufficient to replicate the full range of measures currently in force at the UN and EU level.

For example, the United Nations Act 1946 (“UN Act”) gives the Government the power to implement sanctions agreed through UN Security Council Resolutions. However, in 2010 the UK Supreme Court ruled that the UN Act could not be lawfully used to impose asset freezes. This led to the passing of the UK Terrorist Asset Freezing Act 2010, which allows for asset freezes to be imposed in certain circumstances. The UK possesses other financial sanctions powers: for example, the Anti-terrorism, Crime and Security Act 2001 gives the Government the power to make freezing orders, and the Counter-terrorism Act 2008 allows the Government to make directions to cease financial activity with a specified third party, sector or country. Nevertheless, these powers are rather limited and strict criteria must be satisfied to use them, which makes them unsuitable for implementing wider sanctions regimes.

The UK also has existing powers to impose various types of trade measures under the Export Control Act 2002. However, these are primarily used to implement controls on exports to non-sanctioned destinations.

The Government recognises that, after Brexit, it will be necessary to expand the powers in domestic legislation to cover additional measures, and that it is not possible to achieve a continuation of the UK’s sanctions regime simply through the Great Repeal Bill, as simply replicating the current measures would not allow the Government to update, amend or lift them in response to fast moving events.

Primary legislation will create a framework containing powers to impose sanctions regimes. However, the Government acknowledges that adopting primary legislation to implement each new sanctions measure would not be practical, as a rapid and flexible response is often necessary to deal with international crises. As such, secondary legislation will be needed to put in place the detailed measures for specific sanctions regimes and sanctions designations.

The entry into force of the new legislation will be timed to coincide with the date of the UK’s actual withdrawal from the EU, taking into account any extension of the 2-year period under Article 50 (which must be agreed unanimously by all EU Member States). The UK intends to continue to comply with the EU sanctions regime until Brexit, including honouring its obligations with respect to the Common Foreign and Security Policy.

Exemptions to sanctions and challenges to listings

The Government confirms in the White Paper the intention to maintain the UK’s current emphasis on applying sanctions carefully, so as to maximise the effect on the target whist minimising unintended consequences.

In particular, exemptions to sanctions are mentioned as a crucial element of the sanctions regime, which help address any adverse humanitarian impact and unnecessary constraints on UK persons. These can take the form of broad exemptions, permitting certain types of activity, as well as licensing regimes. One example is the UK’s current licensing powers, enabling a competent authority to permit a person subject to an asset freeze to access sufficient funds and economic resources to satisfy their basic needs. The Government is keen to ensure that exemptions to sanctions continue to be an important element of the UK’s sanctions regime.

The Government would also like to establish a robust framework for sanctioned persons to challenge their listings. The Government hopes the new legislation will allow for “greater flexibility in the way we approach these issues and allow us to draw on international best practice”.

Under EU law, sanctioned persons can ask the EU Council to reconsider a listing. The UK Government proposes to adopt a similar approach under UK legislation, allowing sanctioned persons to request a review of their listing by the Government. Additionally, the new legislation will provide a mechanism for sanctioned persons to challenge their UK listings before the Courts.

EU courts do not currently award damages to those persons who successfully challenge their designations unless there are special circumstances that justify the award of compensation. The Government is considering whether the UK’s domestic legislation could include any measure that would require a similar approach by the UK courts.

Licensing

The Government commits to ensuring that the licensing powers relevant to financial sanctions continue to be robust, flexible and efficient. The principle of proportionality will continue to play an important role, with licence conditions which take human rights into account and ensure that only measures that are necessary are imposed.

In relation to licensing for trade sanctions, it is proposed that the Export Control Joint Unit will continue to license goods, technology and services subject to sanctions in the same manner as it currently does. These existing licensing powers will be extended to cover any new trade sanctions brought into UK law.

Implementation

The Government recognises that businesses play a crucial role in monitoring financial transactions involving sanctioned persons to ensure compliance. The new sanctions powers will include reporting obligations on anyone who becomes aware of or suspects a breach of financial sanctions. They will be required to report to the Government if they know or suspect that a current customer, or any customer in the previous five years, is a sanctioned person, or has committed an offence under the legislation. The Government intends that this will replicate and clarify the current reporting duties under EU law.

The Government is aware that sanctions inevitably impose some costs on businesses and wants to ensure that those costs are proportionate to meet the objectives of the measures. The Government’s aim is that the new legislation will not add additional burdens on industry, and the White Paper confirms that the Government will seek to reduce those burdens whenever possible, without jeopardising the integrity of the regime.

Enforcement of sanctions

The Government intends to continue its robust approach to the enforcement of sanctions.

The Policing and Crime Act 2017 changed the legal framework for enforcing financial sanctions, harmonising the maximum penalty for an offence at seven years on conviction across all financial sanctions regimes, introducing deferred prosecution agreements and serious crime prevention orders, and giving the Government a power to impose monetary penalties. The Government confirms in its White Paper that these enforcement powers have been set at the correct level, and that the new legislation will restate the current position.

The new legislation will also make it an offence not to supply information relating to breaches of financial sanctions to the Government, consistent with international standards in this area. The Government also intends to include a power that allows law enforcement to seize funds/assets from a sanctioned person to enable those funds/assets to be frozen once brought into the UK without appropriate licences.

HMRC will continue to investigate possible breaches of export control legislation, including breaches of trade sanctions, under powers contained in the Export Control Order 2008 and the Customs & Excise Management Act 1979. Penalties for knowingly contravening export control prohibitions are a maximum of ten years imprisonment, or a fine, or both. The Government believes these are proportionate and does not plan to revise them.

Nevertheless, following the UK’s withdrawal from the UK, the Government will need new powers to enforce autonomous UK sanctions. The new legislation will also provide for a power to enable the Government to enforce sanctions against maritime vessels and aircrafts, including the ability to search and seize them. The Government recognises that these powers will need to be consistent with the UK’s international obligations, including under the UN Convention on the Law of the Sea and the Convention on International Civil Aviation.

Commentary

The White Paper does not contain detailed proposals for the new sanctions legislation. Rather, it describes the principles and policy considerations which the Government intends to use when proposing the new legislation.

Brexit certainly presents an opportunity to improve the existing sanctions regime, and the Government has identified some important areas of improvement in its White Paper, such as reducing the burden of sanctions on the industry where possible, clarifying the current reporting duties, and providing for greater flexibility in allowing exemptions to measures and challenges to sanctions listings.

It remains to be seen whether the Government makes the most of this opportunity for improvement, and the present consultation is a timely and welcome engagement with stakeholders at the beginning of the 2-year Brexit process.

Perhaps one of the most important statements in the White Paper is the Government’s recognition that, in order to ensure that sanctions remain a viable tool of foreign policy, the UK must continue to work closely with its international allies and partners.

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