16 November 2017

UK Finance Briefing – Impact of Brexit on the Future Application of UK Sanctions

The note outlines the International Sanctions compliance landscape in which UKF members operate and our key observations of the new Legislative Framework the UK will use post Brexit to implement Sanctions – the Sanctions and Anti-Money Laundering Bill.

Key points

The majority of sanctions implemented in the UK derive from either UN Security Council Resolutions or multilateral agreements put in place at EU level. When the UK leaves the EU, new legislation will therefore be required and as such, the introduction of the Sanctions and Anti-Money Laundering Bill is viewed by our members as necessary to ensuring Government is equipped to implement its foreign policy and national security priorities following Brexit.

• In considering the Bill’s implementation, of crucial importance will be how the UK will approach sanctions and utilise the broad powers at its disposal post-Brexit. Our members note indications from Government that the UK will not seek to diverge from current EU sanctions policy and will continue to coordinate with the EU and other international partners, including the US. We overwhelmingly support this approach but also recognise that differing EU – UK legal structures and political foreign policy priorities will, over time, result in a likely element of UK – EU sanctions divergence.

• We further recognise that operating outside the current EU framework will enable, and may somewhat necessitate, a greater flexibility in the design of sanctions programmes. As such this briefing aims to offer preliminary views on the Bill itself whilst also highlighting areas where we believe the role of the UK as an effective sanctions authority could be further enhanced.

• Overwhelming, EU harmonisation is viewed by our members to have heightened the impact of sanctions on designated entities and individuals no matter where in the EU these designated parties are located or where they access finance services. Post-Brexit divergence between EU and UK sanctions would create uncertainty for financial institutions in respect of compliance, and we believe would weaken the overall effectiveness of both EU and UK sanctions implementation.

• As sanctions practices develop and evolve, ensuring EU – UK foreign policy cohesion should remain a central priority. We proposed that in moving forwards an option for ensuing future cohesion could potentially involve some type of decision-making apparatus involving both EU and UK sanction authorities. The aim, wherever possible, should be to preserve EU – UK harmonised approaches for designing, implementing, lifting and enforcing sanctions. We further stress that continuing UK – EU interaction will also provide a stronger platform for reducing divergence of approach with other key actors where political interests may not always be aligned. For example, EU – US diversion of sanctions policy towards Iran and Russia. 

• As a result of the new Bill, businesses operating globally will wish to consider their legal exposure to new UK sanctions legislation. It is therefore imperative that the UK legislative architecture clearly defines how new legislation will be applied. To support this understanding, we highlight key areas where further clarity will be required. This includes areas such as jurisdictional scope, ownership and control, reporting obligations plus more detailed aspects on establishing consistent requirements across subsequent regulations.

• Our members are clear that the UK’s departure from the EU offers a timely opportunity to create a domestic licensing regime which responds to the sanctions legislation in a comprehensive and coherent way. This is viewed as especially important if the UK wishes to remain competitive within international trade and global finance. The new Bill appears to offer the ability for the UK to consider greater use of general licences or broader project-based licences. This is viewed as a welcome development by UK Finance members.

• UK Finance members have increasingly articulated that the current framework permitting humanitarian transactions into sanctioned and conflict environments needs re-thinking and an update. We propose that a new equilibrium be found that recognises the strategic importance of facilitating both humanitarian aid and permissible civilian transactions to higher risk jurisdictions subject to economic sanctions, whilst balancing expectations of appropriate sanctions compliance and counter terrorist controls. Our briefing sets out opportunities for creating a more conducive regulatory and legal environment that should be considered alongside the introduction of the Bill. 

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