This analysis was first published on Lexis®PSL on 11 May 2021 and can be found here (subscription required).
What are the main areas of divergence that you are seeing between UK sanctions and EU sanctions?
From a practical perspective, one of the key changes has been the introduction of the new concept of 'persons connected with' a sanctioned country in a number of the UK statutory instruments made under SAMLA 2018. Export/trade restrictions under relevant EU sanctions regulations typically apply where sanctioned goods or services are to be provided to persons in a sanctioned jurisdiction or elsewhere where the goods are for use in a sanctioned jurisdiction. However, the use of the phrase ‘persons connected with’ (and its accompanying definition) opens up the scope of relevant restrictions applying to the provision of specified goods/services to persons located outside of the sanctioned country and therefore creates compliance challenges. While businesses will always have needed to assess if their transactions ultimately involved sanctioned entities, these developments place further emphasis on who the goods/services are going to, rather than where they are ultimately going. These sanctions will still apply even where the end-user is 'connected with' a sanctioned country, but located and using the goods outside that country and is not itself designated.
In addition, a number of definitions used within the various UK statutory instruments have been clarified. For example SAMLA 2018 export and trade-related sanctions typically apply to broadly defined 'financial services', as opposed to 'financing and financial assistance' under EU law. One specific point of interest is that the definition of 'financial services' specifically includes 'payment and money transmission services (including credit, charge and debit cards, travelers' cheques and bankers' drafts)' whereas the Court of Justice in Rosneft Case C-72/15 and subsequent Commission Guidance previously clarified that the term 'financial assistance' does not, for purposes of EU law, include the processing of a payment, as such, by a bank or other financial institution which does not involve any use or commitment of that institution's own resources.
What impact do these differences have in practice?
Each of these differences create a compliance cost for businesses, particularly in the form of initial time spent understanding the scope of the changes for their particular activities and then adapting business flows and processes to enable appropriate compliance procedures to be deployed. Additionally, where a business or its supply chain has touch points in both the EU and the UK, the differences in the equivalent sanctions regimes need to be appreciated and adaptations may be required. For example, for projects/transactions with EU and UK touch points, a licence may be required under UK law, but not under EU law and process changes and additional time will need to be allowed to accommodate these differences. Similarly, EU licences will no longer be valid in the UK, so multiple licences may be needed in circumstances where previously only one was required.
However, with change also comes opportunity. In particular, the autonomous nature of the UK's new sanctions framework provides the potential for more direct collaboration by the Office of Financial Sanctions Implementation with business, such as through the issuance of general licences. An example of this has already been seen with the issuance of the Russia sanctions General Trade Licence on 31 December 2020.
At a policy level, the agility with which the UK is now able to implement new sanctions regimes and restrictions is beneficial in advancing its foreign policy goals. The UK's desire to capitalize on this has been evident, for example, through the implementation of the UK Global Human Rights Sanctions Regulations 2020, SI 2020/680 (and designations thereunder) and, more recently, the designation of Burmese military officials under the Burma (Sanctions) (EU Exit) Regulations 2019, SI 2019/136 (and the subsequent replacement by the Myanmar (Sanctions) Regulations 2021, SI 2021/496) following the military coup in Myanmar on 1 February 2021, as well as through the most recent Global Anti-Corruption Sanctions Regulations 2021, SI 2021/488 – a novel development, which echoes similar measures under US law.
However, legal and compliance officers need to keep in mind that swift action by the UK can create a time lag between the implementation of restrictions at the UK level versus the EU level and therefore opens up the possibility of divergence across regimes. This brings with some of the same challenges discussed above.
What are your predictions for further UK/EU divergence in this area?
To some degree, to look forwards it is necessary to also look backwards. In October 2019, the UK and EU published the joint Political Declaration setting out the framework for the future relationship between the EU and the UK. Within this, the parties recognized 'sanctions as a multilateral foreign policy tool and the benefits of close consultation and cooperation'. It stands to reason that sanctions are more likely to be effective when introduced in a coordinated and multi-lateral fashion. In light of this, the declaration stated that "Consultation on sanctions should include the exchange of information on listings and their justification, development, implementation and enforcement, as well as technical support, and dialogue on future designations and regimes". Thus, it is likely that the EU and UK will co-operate on sanctions where foreign policy objectives align.
In the short term, it is therefore likely that divergences in sanctions restrictions as between the EU and UK will occur as a result of timing differences in the implementation of restrictive measures rather than policy differences.
However, there is also scope for substantive divergence (particularly in the longer term) and we have already seen this, for example, through the changes to the drafting of the various sanctions regimes under SAMLA 2018 as well as the UK's decision not to bring across each and every EU asset freeze listing. It is therefore important that businesses (and their advisors) treat the two sanctions frameworks as separate and not assume that the position is the same under each both now and going forwards.
Authored by Jamie Rogers and Ellie Rees.
