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UK Sanctions – the start of a new era

After the Brexit transition period, EU sanctions will no longer apply in the UK.  The UK’s various sanctions regimes will come into force in their place under the Sanctions and Anti-Money Laundering Act 2018 (the “SAMLA Act”).  Gurpreet Chhokar looks at how the new sanctions will look in the post-Brexit world.

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UK Sanctions Post-Transition Period

After the Brexit transition period (which ends at 11pm on 31 December 2020), EU sanctions will no longer apply in the UK.  The UK’s various sanctions regimes will come into force in their place under the Sanctions and Anti-Money Laundering Act 2018 (the “SAMLA Act”).

Until 31 December 2020 , the UK remains bound by EU and UN sanctions decisions, but during the transition period the UK government has been entitled to bring into force autonomous UK sanctions regimes through secondary legislation (i.e.in the form of regulations).  The UK Sanctions regulations (the “Regulations”)[1], which were implemented through the SAMLA Act, are comprehensive in that they set out the framework for the UK’s post-Brexit sanctions regime. The Regulations include:

  • the purposes of the sanctions regime;
  • the criteria for sanctions to be imposed on a person or entity;
  • the type of sanctions, such as trade and financial sanctions;
  • details of exemptions that may apply/licenses that can be obtained; and
  • how the government will enforce sanctions.

Insofar as UN sanctions are concerned, the UK government will implement these into UK domestic law after the transition period as they will still be bound by these.

Distinguishing features

The Regulations largely maintain and extend the position under the existing EU sanctions regimes. For example, the Regulations include the same broad categories of sanctions as are currently established through each of the EU’s various sanctions regimes (i.e. asset freezes, trade sanctions, travel bans etc).

However, there will also be some important differences. The most obvious being that the applicability of the sanctions under the Regulations will be narrower in that they only apply within the territory of the UK and to UK nationals and UK incorporated entities/bodies with regard to their activities anywhere in the world.

Another key area of difference is in relation to concepts such as “ownership” and “control” in the context of asset freezes and the effect of these restrictions on entities owned or controlled by a listed person. Insofar as the EU position is concerned, funds or economic resources of non-listed persons or entities which are controlled or owned by a listed person or entity will in principle be considered as making them indirectly available to the latter, otherwise known as the “indirect benefit presumption”. However, this presumption is rebuttable if it can be reasonably determined, on a case-by-case basis, taking into account all of the relevant circumstances (including certain criteria), that the funds or economic resources concerned will not be used by or be for the benefit of the listed person or entity.[2]

In contrast, the UK has removed the rebuttable presumption by stating the following: “ If [the ownership and control] criteria are met, and the person who owns or controls the [non-listed] entity is also a designated person, then financial sanctions will also apply to that entity in its entirety [meaning these assets should also be frozen]. The prohibitions on making funds or economic resources available directly or indirectly to a designated person, also prohibit making them available to an entity who is owned or controlled, directly or indirectly, by the designated person.[3] In practice, this means that the assets and funds of a listed entity’s or listed person’s subsidiaries or controlled entities will also be immediately frozen. So, the concepts of “ownership” and “control” are broader in their application.

Whilst there will be similarities between the respective UK and EU sanctions regimes after the transition period, they will not be identical.  Accordingly, businesses will need to carefully review their internal processes and procedures to ensure that they are fully compliant with the various UK’s sanctions regimes.

Early signal of divergence

As mentioned above, during the transition period the government can bring into force autonomous UK sanctions regimes through secondary legislation. On 6 July 2020, the government issued The Global Human Rights Sanctions Regulations 2020 (the “Human Rights Regulations”) through SAMLA. This is the first time since Brexit that the UK has diverged from EU sanctions policy by imposing sanctions under a new UK-only Human Rights sanctions regime.

The Human Rights Regulations impose asset freezes and travel restrictions on individuals for alleged human rights abuses. The regulations target three types of human rights abuses (i) interference with a right to life; (ii) torture or cruel, inhuman, or degrading treatment or punishment; and (iii) slavery, servitude or forced or compulsory labour.  At present, 49 individuals and organisations have been sanctioned under these regulations, with further sanctions expected in the coming months. The first series of sanctions under this new regime have been targeted at those responsible for some of the worst human rights abuses: (i) 25 Russian nationals, 20 Saudi nationals; (ii) 2 high-ranking Myanmar military generals; and (iii) 2 organisations with links to North Korea’s gulags.

The Human Rights Regulations do not target any specific jurisdiction or government, instead they target individuals and organisations internationally. This is different from the traditional EU approach to sanctions, which usually target countries.  At present, the Human Rights Regulations are narrow but may be expanded to include other types of abuses in the foreseeable future, for example, corruption. This is therefore an evolving space.

Looking ahead

Businesses in the UK will need to review their current due diligence/compliance controls and procedures to ensure that they are compliant with the various UK sanctions regimes, this will include:

  • updating their existing processes and procedures to account for the differences between the EU and UK sanctions regimes, for example, a “Listed Person” under the UK sanctions regimes will be wider than a “Listed Person” under the EU sanctions regimes; and
  • considering whether their standard form contractual documentation needs to be updated to account for the UK sanctions regimes.

In the months and years ahead, we will see the real extent of the divergence between EU and UK sanctions policy. This will largely depend on factors such as the evolvement of the UK’s international trade policy, the stance of the UK political party in power, as well as developments in US policy and politics.

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Gurpreet Chhokar

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gurpreet.chhokar@collyerbristow.com