The Government recently published its draft legislation for a domestic, post-Brexit, UK-only international sanctions framework, the Sanctions and Anti-Money Laundering Bill. It aims both to ensure that the government has the powers to convert existing EU sanctions regimes into UK law post-Brexit, and to provide it with the necessary powers to take rapid action either to make changes to existing sanctions regimes or to establish new regimes. The Bill builds on the White Paper consultation it launched in April, and the response to feedback that it published in the summer. As noted in the recent DIT paper on the Future UK Trade Policy1, this Bill forms part of the wider global UK International Trade framework that the Government is looking to develop.
As an EU Member State, the UK has been at the forefront in urging the EU to use sanctions proactively as a tool for external action, and in shaping the content of EU sanctions measures. But the legal acts by which those measures are delivered are EU-level Decisions which are then (for the most part) given effect by binding EU regulations –although enforcement has remained a Member State competence. As the UK leaves the EU, it needs to have in place a domestic legal framework to replace the EU Decisions and Regulations.
The government has expressed its interest in aligning sanctions regimes of the UK and the EU in order to combat emerging threats.2 This Bill aims to ensure that it can do that (the individual sanctions regimes will be made in subsequent secondary legislation under powers established in this Bill). The Bill would not itself impose any substantive sanctions; it would give the government the power to make such laws within certain parameters. What is interesting to note is the way that the new power is drafted, and where allowance has been made for the UK’s sanctions laws to evolve from the current EU model without the need to get a further Parliamentary mandate. We pick up in this OnPoint on a few noteworthy elements.
New Categories of Sanctions
Sanctions are commonly characterised as falling into two types: trade sanctions (i.e., restrictions on the sale, supply, transfer, import or export of goods, technology and the provision of related services), and financial sanctions (ie dealing with identified persons and entities, investment bans and restrictions on the provision of other financial services such as insurance). The new Bill identifies five different classifications of types of sanctions, namely:
- Financial sanctions: including restricting market access, asset-freezes and preventing the movement of suspicious funds until their rightful owner has been determined;
- Trade sanctions: placing controls on import, export and movement of goods, the provision and procurement of services and investment, and others as further specified in Schedule 1 of the Bill;
- Immigration controls: including travel bans, which prevent persons from coming to or transiting through the UK, and provide for the cancellation of any existing leave granted to citizens of other countries. The Bill would allow travel bans to be imposed upon a designated person, as well as providing the ability to create exceptions to travel bans in certain circumstances;
- Aircraft sanctions: prohibiting access to UK airports, detaining aircraft (which may include drones) and prohibiting ownership, operation or registration of an aircraft in a designated country; and
- Shipping sanctions: prohibiting access to UK ports and removing ships from the register for ships maintained by the Registrar General of Shipping and Seamen.
This captures the range of measures which are currently used by the EU. But the recognition of these categories is not intended to limit the range of sanctions that the Government can introduce: it is empowered to add additional categories in secondary legislation.
Licensing and Exemptions
At present, ECJU3 and OFSI4 can, like their counterparts in other Member States, only grant a licence (to allow a business or person to do something which is otherwise prohibited by sanctions) where the relevant EU Regulation provides for this. This restriction on their discretion has been much criticised by businesses. The Bill offers the prospect (but not the certainty) of OFSI and/or ECJU having a wider discretion as to the granting of licences after Brexit: the legislation establishing each sanctions regime will set out the extent of OFSI and ECJU’s licensing power as regards that regime. In particular, the Bill allows the government to give OFSI and ECJU:
- A full discretion to licence, where appropriate, any activity otherwise prohibited by the sanctions; and
- The ability to grant general licences (ie a licence addressed to a category of persons/entities, and/or to do a general category of activity such as humanitarian work).
The Government will not have unfettered freedom to give OFSI and ECJU a broader licensing power; in the case of sanctions set by the UN Security Council, its Resolutions require UN Members to prohibit certain activities and do not always allow for the possibility of licences. But through its seat on the UN Security Council, the UK can continue to help shape the formulation of these UN resolutions.
Penalties for Breach
The criminal penalties for breach of financial sanctions were increased earlier this year, and are now seven years in prison5 and/or an unlimited fine for both trade and financial sanctions. Additionally, in respect of breaches of financial sanctions, OFSI may issue (civil) monetary penalties of up to £1m or 50 per cent of the estimated value of the funds involved in a prohibited transaction, whichever is greater6. The Bill does not seek to alter this, but it does empower the government to increase the maximum jail term to 10 years.
The sanctions prohibitions which the Bill authorises may be imposed in relation to conduct (which may be an act or omission): in the UK or its territorial sea, or by a UK Person. This would not materially change the current position or entirely resolve the uncertainty created by recent OFSI publications as regards what constitutes a UK nexus, but it would go some way to doing so. The Bill envisages that the sanctions could be extended to any of the Channel Islands, the Isle of Man and the British Overseas Territories, which under current arrangements are subject to substantially the same sanctions measures as the UK but by different legal instruments.
The Bill proposes an obligation on the government to issue guidance with each set of sanctions regulations it makes. OFSI and ECJU already issue guidance, but this specific obligation may prompt the government to ensure that known areas of ambiguity are clarified more than is currently the case, which should in turn offer greater clarity for businesses as to what is required of them.
The Bill is one of a number of key legislative proposals which the government aims to pass as part of its pre-Brexit legislative package. It is first due to be debated in the House of Lords on 1 November 2017. The remainder of the timetable, and the ease of its passage through Parliament, are likely to be influenced by the wider Brexit debate as much as the specific sanctions provisions.
How Dechert Can Help
Dechert’s International Trade and White Collar Crime teams have extensive experience of developing compliance policies and procedures in relation to sanctions, AML and a wide range of related areas of regulatory compliance. We have in our team sanctions and AML experts who, in addition to legal expertise, have first-hand experience of working in HM Treasury’s sanctions team, the SFO and at a range of other government and regulatory bodies. We are well placed to assist in reviewing and adjusting existing policies, or if need be developing new policies, to ensure that clients have the right procedures in place to comply with these new regulatory requirements.
1) The paper, published by the Department for International Trade, is available on the DIT website
2) HM Government, Foreign policy, defence and development – A future partnership paper published on 12 September 2017
3) The Export Control Joint Unit, which is part of the Department for International Trade
4) The Office of Financial Sanctions Implementation, the sanctions implementation office within HM Treasury
5) Section 144(3)(a) and 145(2)(b) of the Policing and Crime Act 2017
6) Section 146(3) of the Policing and Crime Act 2017