A case of continuity? UK sanctions policy post-Brexit

Government Affairs Alert

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The UK Government has committed to introducing an International Sanctions Bill in this session of Parliament. This primary legislation is required to ensure that, once it has left the European Union, the UK can continue to impose and implement sanctions in compliance with its obligations under the United Nations Charter and in support of the UK's wider foreign policy and national security objectives.

Attention is now turning to what the UK's independent sanctions policy will look like in practice. The Government's response to the public consultation on the UK's future sanctions framework was presented to Parliament in August 2017, while the House of Lords' EU External Affairs Sub Committee ("EU Sub-Committee") will recommence its short inquiry into the UK's sanction policy after Brexit when Parliament reconvenes after the summer recess.

The key questions for business include the extent to which sanctions imposed independently by the UK after Brexit may diverge from EU restrictive measures currently in place. The emerging consensus is that there will continue to be significant coordination between the UK and EU regimes and that in practical terms any differences in these measures is likely to be at the margins. Principally, this is because:

  • As a foreign policy instrument, sanctions are temporary measures whose objective is to change the behaviour of the target. Achieving this requires a concerted and coordinated international response. In its evidence to the EU Sub-Committee, the Royal United Services Institute stated "As the Iran case has shown, sanctions are most effective when they are designed collaboratively and applied in concert with multilateral political support". The Government's consultation response also acknowledged that "A coordinated [sanctions] policy is more likely to achieve its policy aims and coherence across jurisdictions would help mitigate the risks of circumvention".
  • Companies trading internationally already have to take account of U.S. and EU sanctions, as well as any specific domestic measures in their local jurisdiction. Imposing additional compliance requirements solely in the UK market would create a regulatory barrier to trade and put UK companies at a significant competitive disadvantage . In the post-Brexit environment, the Government is unlikely to introduce unilateral sanctions which either disadvantage UK business in relation to its EU competitors or which make the UK a less attractive destination for trade and investment.

Therefore, it is unsurprising that the Government's proposals appear to be firmly anchored to the existing EU regimes. Current draft legislation envisages existing sanctions measures being transposed into UK law at the point of Brexit. Going forward, the Government has proposed that UK sanctions will retain key elements of existing EU regimes, such as the "reasonable grounds to suspect" test as the threshold for individual designations. The Government has also confirmed that there are no plans to alter the current enforcement framework, which will remain based on the enhanced criminal and civil penalties introduced earlier this year.

Businesses located in or trading with the UK should be confident that, in the short to medium term at least, the UK Government's fresh powers to impose unilateral sanctions will not create significant new regulatory obligations nor will the UK diverge from those commitments which are implemented in the EU. Whilst companies will need to update their internal protocols to ensure that relevant counterparties are screened against the UK consolidated list (in addition to the EU list), the legal analysis in relation to the application and interpretation of asset freezes, arms embargoes, and trade restrictions will remain unchanged.