The UK left the EU on 31 January 2020, and has now entered an 11-month transition period. Whilst most of the ongoing press coverage is focused on efforts to reach a trade deal, other issues—including future co-operation arrangements on security and law enforcement—require negotiation and agreement. The 2020 timelines were always going to be tight, and no one in January envisaged the impact and subsequent delays that would arise because of the Covid-19 pandemic.
At the time of writing, the UK government had ruled out any form of extension to the transition period. However, these are unprecedented times and nothing can be taken for granted. That said, no matter whether an extension is sought, agreed to or not, the industry must be prepared for all eventual outcomes. This includes preparing for a no-deal scenario and taking steps now to be ready for a new set of rules, expectations and cross-border compliance considerations.
It is worth noting that whilst the UK has consistently stressed its desire to align with EU sanctions, it has also made clear its wish for the freedom to diverge when deemed necessary. Illustrative of this is the strong push for new autonomous UK sanctions—particularly around human rights issues. The UK Foreign Secretary Dominic Raab has made no secret of the UK government’s desire to push forward with implementing new designations under a ‘human rights sanctions regime’, otherwise known as ‘Magnitsky sanctions.’ The scope of these new sanctions will become apparent in due course. Simultaneously, at the end of March, 46 Members of the European Parliament wrote a letter to the EU’s High Representative of the Union for Foreign Affairs and Security Policy, Josep Borrell, also calling for the EU’s External Action Service to move quickly to formulate the EU’s human rights sanctions regime. No matter how one views the future EU-UK sanctions relationship, it is clear that even with a political desire to remain aligned, divergence is anticipated. Therefore, it is critical that the industry is prepared and understands what may be on the horizon.
Deal or No Deal: Ensuring Industry Readiness
EU sanctions will continue to apply in the UK until 23:00 on 31 December 2020, but what happens next will largely depend on whether a deal can be reached between Brussels and the UK.
In preparation for the UK leaving the EU without a deal, the UK government has laid a number of statutory instruments (SIs) under the Sanctions and Anti-Money Laundering Act (SAMLA) 2018. Information on what a no-deal sanctions regime may look like can be found on the Her Majesty’s Government (HMG) website. The HMG has laid near 20 SIs, with the remaining regimes being retained under EU regulations until such time as their SIs’ are laid under SAMLA.1 In addition, the Office of Foreign Sanctions Implementation (OFSI) has published two specific guidance documents to assist with implementation in a no-deal scenario.2 These include ‘Post Brexit: Financial Sanctions—general guidance’, and ‘Post Brexit: Financial Sanctions—Russia guidance.’
In preparing for the future independent sanctions regime, it is worth highlighting the following points.
Administrative List and ID Numbers: What Changes Can Be Expected?
The Foreign & Commonwealth Office (FCO) will establish a new administrative list of designated persons under the new UK sanctions. If no deal is reached by 23:00 on 31 December 2020, the new list will go live and will be available via the HMG gov.uk sanctions web page. OFSI’s current message is that their consolidated list will continue for the foreseeable future. Unlike the FCO list, which will cover a much wider set of sanctions, the OFSI list will include those designated purely under financial sanctions restrictions. It is envisaged that existing ID numbers will remain the same on the OFSI consolidated list, which will be helpful for the industry.
No-deal Post-Brexit Designations: Will They Be the Same?
In short, the answer is no. The new UK regime will have a different evidential threshold to that of the EU. Given this, it is reasonable to assume that some EU designations may not be carried over to the new UK regime. For those subject to both EU and UK sanctions obligations, there will be the need to consider compliance against both lists.
Screening Implications: Will the New Lists Create an Upsurge in Screening Hits?
Potentially, depending on how screening systems are configured. Institutions would be well advised to follow closely whether the move to the new UK sanctions administrative list will create an upsurge in screening hits. At the most basic level, all those sanctioned under the new UK system will reference the relevant UK law and not the EU regulations. The challenge is how to make this change without the subsequent need for a full-scale review.
This is being worked on in government and the aim is to minimize disruption. In short, on a no-deal Brexit day, there may be widespread hits resulting from technical changes. It will be critical to understand what is technical versus any substantive changes—such as EU designations not carried over into the new UK regime.
The Status of Existing EU Guidance: Can it Be Relied Upon Post-Brexit?
An ongoing debate across the industry is what status existing EU guidance will have in the new independent UK regime. Current EU-UK industry norms on how to interpret EU regulations are often defined by subsequent guidance issued by the European Commission. UK and non-UK compliance officers should closely compare any guidance issued by OFSI and how it relates to comparable EU guidance. Some key differences are expected to emerge.
Streamlining EU-UK licencing: Will the UK Follow the Current EU Approach?
The new legal framework for the UK offers a new approach to licencing, such as the issuance of general licences. Over time, there should be a push for UK authorities to utilise this new tool. A move to a general licence framework will require a change of culture within government departments. Initially there may be some resistance, but general licences should become more readily available as confidence in the new independent regime grows. On a practical note, the current message from the UK government is that, on Brexit day, specific licences will remain in place until such time they expire or are revoked.
As former chair of the European Banking Federation sanctions expert group, I have consistently stressed the need to remain alive to the shifting sands of EU-UK sanctions policy. Although we are a number of months out from Brexit, monitoring potential developments now will enable smoother implementation. This will also advance dialogue between EU and UK competent authorities. Of course, much depends on whether a deal can be reached between now and December and if that deal will make a significant impact on the sanctions architecture.
For the foreseeable future, there can—and indeed should—be continued cooperation. This is evident on statements from France, Germany and the UK (E3) regarding Iran and their continued cooperation on the Instrument in Support of Trade Exchanges (INSTEX). Much wider collaboration also exists.
With sanctions implementation, the devil is in the details. The UK already adopts a different stance on key aspects of EU interpretation, with the Libya regime being a key example. The OFSI’s fine of £20.4 million in April to Standard Chartered related to the EU’s Russia sanctions further illustrates the need to understand the approach of both the EU’s and the UK’s competent authorities. Determining how each will interpret underlying restrictions and exemptions of the same regulation may not be straightforward.
In fairness, consistency of implementation is not solely an EU-UK matter but a relevant issue across the breadth of EU member states. To support our community in digesting such differences, ACAMS is launching a range of new initiatives to support technical sanctions compliance. Promoting dialogue is critical to understanding how competent authorities view implementation requirements. As sanctions regimes become more complex, dialogue becomes more important.
Justine Walker, head of global sanctions and risk, ACAMS, firstname.lastname@example.org
- “UK sanctions regimes under the Sanctions Act,” gov.uk, 31 January 2020, https://www.gov.uk/government/collections/uk-sanctions-regimes-under-the-sanctions-act
- “Post Brexit: Financial sanctions—Guidance,” gov.uk, 1 February 2019, https://www.gov.uk/government/publications/post-eu-exit-financial-sanctions-general-guidance