Assessing U.K. sanctions in a post-Brexit world

Out of the shadows

National government and international bodies like the United Nations and the European Union impose financial sanctions and restrictive measures to deter or bring about change to entities and individuals that endanger their domestic interests or violate international norms of behavior. The United States also issues sanctions, often with a wider reach and more serious consequences than the United Nations and European Union.

Prior to Brexit, the United Kingdom pursued its sanctions policy through these international organizations while maintaining a handful of its own sanctions with little need to impose sanctions independently. No longer lockstep with EU legislation as a result of Brexit, however, the United Kingdom needed its own sanctions regime. On July 6, the United Kingdom announced the first sanctions under its new Global Human Rights sanctions regime, targeting 47 individuals and two entities.

The regulations setting out the sanctions are made under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) and impose asset freezes and travel bans on individuals and entities responsible for or involved in serious violations of human rights. SAMLA was introduced to support the Brexit-driven shift to an entirely new system of autonomous U.K. sanctions. Currently, the only sanctions regime under the act is the Global Human Rights regime; there are five thematic regimes and 24 country-specific regimes that are due to come into force at the end of the U.K.’s Brexit transition period on Dec. 31.

The sanctions announced in July are an even more significant step than they first appear, as the United Kingdom acted not only independently of Brussels but also Washington. The British government is understandably anxious to show it has the knowledge and gusto to legislate confidently in a sovereign manner, and sanctions are a high-profile way of demonstrating this. The centrality of sanctions to this image projection was demonstrated in a 2019 report by the House of Commons Foreign Affairs Committee, which stated that “a robust, effective and coherent sanctions policy is indispensable to the U.K. as a global actor. … As it prepares to leave the EU, the U.K. must be ready to take responsibility for designing, implementing, and enforcing its own sanctions.”

There is a heavy political angle here, with sanctions often being used as a tool to show how strong and powerful a country is in imposing its vision and authority on the global stage. But sanctions are also a practical, and vital, set of measures in their own right.

How effective will these sanctions be?

This is the big question, and one with a political as well as legal angle. We’ve explained there are larger sanctioning bodies than the United Kingdom, and sometimes they issue sanctions that are bolder and more thorough than smaller countries like Britain. So why would anyone worry about being sanctioned by the United Kingdom if not by anyone else? And what about businesses?

While the United Kingdom has much going for it—a deep well of sanctions knowledge and expertise; the financial might of the city of London; and world-class intelligence capabilities that can support the implementation and enforcement of sanctions, for example—it cannot be compared to the United States, where sanctions policies are given enormous gravitas by the dominance of the dollar in global trade.

The U.K.’s first foray into unilateral sanctions is targeted at human rights abuses—a pretty safe step and widely accepted as a good area to focus on. But what happens when the United Kingdom goes after an individual or region in conflict with the other major players? Can the United Kingdom seriously issue major sanctions against the likes of Russia or China without the United Nations or United States to back them up? They can, of course, but what impact would they have, and would Russia or China take any notice? Answers to these questions will eventually reveal the true standing of the United Kingdom in a post-Brexit world.

Another question is how aggressive the United Kingdom will be in enforcing its blacklist. Since its inception in 2016, the government’s Office of Financial Sanctions Implementation (OFSI) has had a relatively light touch when it comes to issuing fines, only handing out its first multi-million-pound penalty in April 2020, when Standard Chartered was fined £20.4 million (U.S. $24.9 million) for breaching EU sanctions targeting Russia. It remains to be seen if OFSI will be able to issue fines on the scale of the U.S. Treasury’s Office of Foreign Assets Control or have to settle for smaller amounts.

What do U.K. sanctions mean for compliance professionals?

In simple terms, it means there is another set of sanctions legislation to be aware of and with which to be compliant.

Practically, it means banks and other firms covered by U.K. sanctions will need to review their existing procedures and update screening filters, ensuring that know your customer checks are up to date so that you know who your customers are trading with and what legislation covers their activities.

In the short term it is likely that many of the U.K. sanctions are going to mirror that of other bodies, so financial institutions should already be covered. This doesn’t mean that you should assume you’re covered, as each piece of legislation requires full attention to ensure compliance.

Looking ahead

As with any change in policy, and especially true when it comes to anything linked to Brexit, we’ll only really know the effectiveness and outcome of the United Kingdom issuing sanctions further down the line. It is possible that, over time, U.K. case law could diverge from EU law in a post-Brexit environment as the country becomes more confident of going it alone.

What we can affirm now though is that this first batch of sanctions is a sure-footed step into the right direction and that other moves will come. It is clear the United Kingdom is intent on issuing its own sanctions and will attempt to wield its power in the post-Brexit landscape, whether other bodies back them or not.

The International Compliance Association is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.