International Regulatory Enforcement (PHIRE)
UK and EU Financial Sanctions Regimes Likely to Diverge Post-Brexit
July 29, 2020
Arun Srivastava and Nina Moffatt
The looming end of the Brexit transition period will have practical implications for the UK’s financial sanctions regimes. This is because financial sanctions that apply in the UK today are derived from EU regulations. These will cease to apply after 31 December 2020.
Review replacement UK sanctions to identify any differences in sanctions targets (designated persons);
Similarly, firms should review the new UK provisions to identify any differences in the scope of restrictions applied;
Firms should consider operations in the EU which, going forward, will be subject to a different sanctions regime (i.e., the EU regime and not the UK regime); and
Consider the need to obtain new licences to operate without contravention of sanctions prohibitions (a licence in the UK will no longer be passportable in the EU and vice versa).
How UK Sanctions worked pre-Brexit
The UK has traditionally complied with UN and other multilateral sanctions regimes through EU Council Regulations and related UK Regulations made under the European Communities Act 1972. There are currently around 35 sanctions regimes that take effect in the UK under EU law and associated UK secondary legislation.
Given the reliance on EU Regulations, the UK’s departure from the EU means that the UK has had to put in place a replacement framework through the Sanctions and Anti-Money Laundering Act 2018 (SAMLA).
EU laws (including sanctions provisions) will continue to apply in the UK under the European Union (Withdrawal) Act 2018 until 11pm on 31 December 2020. Following this, sanctions made under the SAMLA will replace the current EU derived sanctions regimes.
Although the UK is unlikely to depart materially from the current EU derived sanctions regimes, there are likely to be differences in coverage, with the potential for growing divergence over time. Firms need to be live to this and ensure that they identify changes and gaps between the pre and post Brexit regimes. Clearly, firms that operate in both the UK and EU will need to be able to demonstrate compliance with both UK and EU sanctions.
SAMLA and UK Sanctions Post-Brexit
SAMLA enables sanctions regulations to be made by the UK for the purposes of compliance with UN and other international obligations. It also allows sanctions to be imposed for a variety of other reasons, which are (1) furthering the prevention of terrorism; (2) national security; (3) promoting international peace and security; (4) promoting compliance with international human rights law and respect for human rights; or (5) furthering foreign policy objectives.
SAMLA is primary legislation with grants the UK Government the power to issue financial sanctions. Under the new SAMLA framework, the financial sanctions are imposed under Statutory Instruments.
In anticipation of the end of the Brexit transition period, the Government has been issuing Statutory Instruments under SAMLA which seek to replicate the current EU sanctions regimes. For example, the Democratic People’s Republic of Korea (Sanctions) (EU Exit) Regulations 2019 will continue existing financial sanctions regimes against North Korean designated persons.
While the Government has been busy issuing new replacement sanctions in anticipation of the end of the transition period, the new provisions will not come into force until 31 December when the transition period ends. The Government notes that not all existing sanctions will be replaced by that time. If so, existing sanctions will continue on the basis that they are retained EU laws which have been “on-shored” and domesticated for UK law purposes.
SAMLA and Unilateral Sanctions
The UK Government has greater ambitions than simply carrying across existing EU provisions.
SAMLA provides the UK with the power to impose financial sanctions for a broad range of reasons. The UK has already made use of the new powers through the Global Human Rights Sanctions Regulations 2020 (made pursuant to SAMLA) which imposed sanctions on 49 individual from Saudi Arabia, Russia, Myanmar and North Korea for involvement in human rights violations (see our July 6, 2020 blog post here).
Firms need to consider gaps in coverage between the existing EU sanctions and the replacement UK sanctions made under SAMLA. Whilst the UK’s aim is to carry across the restrictions under the existing regimes there will be some differences between the EU and UK regimes. Therefore, the new replacement sanctions provisions should be compared against existing EU derived provisions and any differences identified. Difference might exist in:
Persons designated as being covered by the sanctions;
The scope of the restrictions and prohibitions applied which might be more extensive than present measures.
One example of this is the ability of the UK under SAMLA to designate sanctioned persons or entities by description. Presently, they are designated by name. This new power could bring a broader range of persons within the scope of sanctions restrictions and require firms to revisit compliance processes.
Under SAMLA the UK can continue to grant licences or exemptions from sanctions requirements. However, these licences will not provide coverage across the EU. Firms must therefore consider EU operations separately and identify whether any new licences are required to be obtained.
Similarly, firms that operate in the EU will need to have processes in place after 31 December 2020 to ensure that they track developments both in the UK and the EU, given the possibility of divergence.
Please do not hesitate to contact
Arun Srivastava (firstname.lastname@example.org; +44 (0)20.3023.5230)
Nina Moffatt (email@example.com; +44 (0)20.3023.5238)
Tom Best (firstname.lastname@example.org; +1 202 551 1821)
or any other member of the Paul Hastings Investigations and White Collar Defense and National Security Regulation and Investigations practices if you have questions or comments.