19 Feb 2021
While a member of the EU, the UK implemented EU-approved sanctions. As a result of the UK’s decision to leave the EU – which legally came into effect in January 2020, followed by the expiry of the transition period at the end of the same year – the need arose for the transfer of sanctions-making powers back to London. This also provided the British government with a rare opportunity to rethink from scratch how sanctions should be designed and implemented, the sort of root-and-branch review of a policy in which few governments are able to engage.
A 2019 report by the House of Commons Foreign Affairs Committee (FAC) labelled the government’s preparations for a post-Brexit sanctions strategy ‘fragmented and incoherent’, with MPs calling on the government to ‘seize the opportunity to become a global leader in sanctions policy’. Since that report was released, both a British general election and the formal separation from the EU have occurred, so has the government arrived at a more coherent sanctions strategy?
THE UK SANCTIONS LIST: MORE THAN JUST TRANSPOSING
A cornerstone of any sanctions regime is the list of those entities and individuals who are subject to sanctions.
The end of the transition period marked the point at which the UK no longer implemented EU sanctions. While most EU designations were transferred to the UK Sanctions List, 113 designated entities and individuals who were previously designated in the EU were absent from the new UK list.
This is not a result of lack of time, but rather a deliberate choice. As highlighted by UK Finance – an umbrella organisation for the banking and finance industry – the regulations (statutory instruments) created for each country or thematic sanctions regime in advance of the end of the transition not only replace existing EU sanctions regimes but ‘allow the UK to finesse the regimes with language that was not possible via the EU legislation’. This has resulted in more specific drafting of individual sanctions regimes, and different legal tests for when entities and individual persons can be designated in the UK.
In addition to transferring designations, the government also carried out general ‘housekeeping’ to merge and consolidate sanctions regimes to ensure designations better reflect the policy objective they are pursuing. For example, some persons previously designated under country-specific sanctions regimes were moved to the UK’s new global human rights regime (a regime the EU did not have while the UK was a member), and others previously designated under the EU Ukraine sanctions regime were consolidated into the UK’s new Russia sanctions regime.
Over time, the difference between the EU’s and the UK’s sanctions list will likely expand as sanctioned entities can challenge their designations in UK courts (who will further refine the UK’s evidentiary standards and thresholds for designation over time), and political priorities in the UK and the EU may diverge on who should be sanctioned.
Divergence in specific designations is therefore to be expected (and should be encouraged) if the UK wants to set its own gold standard on sanctions.
AD HOC COORDINATION
Even if designations diverge, sanctions are more effective if their overall objectives are coordinated with other sanctions regimes. UK sanctions on their own may have less effect if those who are designated do not hold assets in the UK or have access to alternative financial markets.
Since leaving the EU and during the transition period, the government enthusiastically pursued new sanctions relationships, particularly on human rights sanctions. In September 2020, the UK announced joint sanctions with Canada against Belarusian President Alexander Lukashenko (after the EU stalled on whether to move ahead with its own sanctions), and in December 2020 the UK government announced another tranche of human rights-related designations pursued jointly with the US. The Foreign Secretary, Dominic Raab, has also expressed a desire to use the Five Eyes intelligence relationship for sanctions coordination purposes.
At the same time, however, the EU–UK sanctions relationship has formally ended. In the joint October 2019 Political Declaration both the EU and the UK expressed a desire to cooperate on sanctions, including the ability to potentially exchange information on sanctions listings, implementation and enforcement, technical support, and ‘dialogue on future sanctions designations and regimes’. However, the final agreement did not cover foreign policy cooperation and therefore no framework for sanctions coordination.
While such a framework could come into place in future, and while the current lack of framework will not inhibit cooperation where political priorities align, it is also clear that the UK is looking to develop a sanctions regime that can act swiftly. So far, the US and Canada have offered that. The EU, requiring the agreement from all member states to pursue sanctions (some of which are more sceptical of the use of sanctions than others), might not.
However, if the UK strives to be a global leader on sanctions it should not only rely on Western sanctions allies but also seek to (re)build international consensus on the use of sanctions, involving countries in Asia, Africa and Latin America who hold closer diplomatic and economic links with the countries it wishes to sanction.
A sanctions list is only as good as its implementation. This includes having coherent and coordinated policy across different government departments involved in sanctions, as well as effective engagement and guidance to the private sector tasked with implementing them.
Put simply, financial sanctions are designed in the Foreign, Commonwealth & Development Office (FCDO) and implemented in HM Treasury by the Office of Financial Sanctions Implementation (OFSI). In an ideal world, sanctions would be implemented, not enforced. That means translating sanctions policy objectives (devised in the FCDO) into implementation guidance (by OFSI) to the private sector, to ensure sanctions implementation works for – not against – those objectives.
Engagement with the private sector has been embraced, with the OFSI issuing a steady stream of guidance and industry outreach events leading up to the end of the transition period. The OFSI also appears ready to take full advantage of some of the tools that an independent UK sanctions regime has afforded it, such as the issuing of general licences. These, absent from the EU’s sanctions framework, could make navigating sanctions exemptions easier, especially for humanitarian organisations who continue to provide aid to sanctioned jurisdictions.
This month the new director of OFSI, Giles Thomson, also announced his intention to closely integrate sanctions with the government’s wider economic crime agenda. At a time when many are accusing the US of ‘overusing’ sanctions (and the Biden administration is announcing a review of US sanctions use), the government would be wise to consider sanctions as merely one of many tools available to it.
Using sanctions proportionally and transparently will only benefit the UK in showing global sanctions leadership and avoid criticisms of overuse faced by other sanctions regimes.
In the two years since the FAC’s report, the UK government has established an independent sanctions regime that is uniquely different to others both in terms of the actual designations, its priorities and its implementation. No doubt UK sanctions actions are being observed not only in the UK, but around the world. However, turning these initial steps into sustained leadership on sanctions will take work, and the UK’s post-Brexit sanctions journey has therefore only just started.
By Emil Dall, RUSI, 18 February 2021
Read the original article at RUSI
RiskScreen: Tackling Financial Crime with Smart Technology
You can claim CPD minutes for this content, by signing up to our CPD WalletFREE CPD Wallet