John Binns and Serena O'Dea consider the concerns raised about the current UK sanctions regime.
Given the political uncertainty of Brexit, both the Commons' Foreign Affairs Committee ("FAC") and the Commons' Treasury Select Committee have called upon the government to address their concerns about the UK's sanctions regime, which is said to be a 'fragmented and incoherent' system causing 'cross-Whitehall confusion'.
As a member of both the UN and the EU, the UK currently adheres to UN and EU sanctions. The UK has its own autonomous sanctions regime concerning the threat of terrorism under various domestic statutes. Legislation is in place for the UK to have a fullyfledged independent sanctions regime once it leaves the EU. UK sanctions apply to any person in the UK; a UK citizen residing or travelling abroad; any corporate entity operating in the UK and any corporate entity incorporated in the UK and operating overseas. Examples of the most frequently applied measures include targeted asset freezes and restrictions to accessing financial markets and services (which can apply to individuals and entities), travel bans on named individuals and import and export bans.
The sanctions regime is somewhat fragmented, with different organisations responsible for different elements of making and enforcing sanctions. The Foreign and Commonwealth Office is responsible for policy-making, whereas the implementation and enforcement is executed by several agencies including the relatively newly formed Office of Financial Sanctions Implementation ("OFSI").
OFSI, which is part of HM Treasury, was set up on 31 March 2016 and maintains two lists of individuals and entities subject to financial sanctions. The first is the 'consolidated list', which includes persons subject to financial sanctions under EU and UK regimes, and those subject to UN sanctions. The second is a list of entities subject to capital market restrictions.
In a recent report by the Treasury Select Committee ('Economic Crime – Antimoney laundering supervision and sanctions implementation', published on 8 March 2019) it was concluded that the effectiveness of OFSI should be reviewed. In response, the government stated that the body was already being effectively regulated and monitored, with the establishment of the OFSI Governance Advisory Board in 2018, and its publication of annual reviews and compliance information. In their response, the government cited the Financial Action Task Force's Mutual Evaluation Report, which commended OFSI for its "extensive outreach" and publication of "useful guidance" and described the introduction of its powers to impose monetary penalties as having had "a substantial deterrent effect". We know that OFSI imposed its first monetary penalty in January this year, a modest amount of £5,000 on Raphaels Bank in the UK for violating EU sanctions on Egypt, followed by a fine of £10,000 imposed on Travelex UK Ltd in the same matter relating to Egyptian sanctions.
Following the UK's decision to leave the EU, Parliament passed the Sanctions and Anti-Money Laundering Act 2018 ("SALMA") to provide a legal foundation for the UK to define its own sanctions policy. On 5 June 2019, the FAC published a report about the UK sanctions policy, setting out concerns about the government not having a clear strategy in place with regards to sanctions post-Brexit.
The report identifies three key areas where further clarity is sought, namely: i) rolling over EU sanctions; ii) UK power to implement Magnitsky sanctions (named after Sergei Magnitsky, the Russian tax lawyer who died from maltreatment whilst imprisoned in Russia, following his uncovering of a large-scale tax fraud implicating Russian officials) and iii) conflicting assertions on co-operation.
The two-stage process of rolling over EU sanctions, so the UK can still implement these sanctions if the UK leaves the EU with no deal, involves the replication of EU regimes via Statutory Instruments, and the replication of EU designations of individuals. The FAC expressed concern about whether the UK would have the power to impose its own sanctions during any EU exit implementation period on individuals who have been accused of human rights violations, otherwise known as Magnitsky sanctions.
In respect of the issue of conflicting assertions on co-operating with the EU post-Brexit, the consensus was that sanctions were most effective when imposed in tandem with other allies and jurisdictions, although there do not appear to be any firm plans in place as to how any co-operation with the EU will be facilitated. The FAC had the following comments: Sanctions are too essential to the preservation of the rules-based international system and the defence of our national interests to be treated as an afterthought. The National Security Council (NSC) [a Cabinet Committee overseeing matters related to national security] must designate sanctions strategy to be an urgent priority and must allocate time and resources accordingly.
With regards to OFSI, the report recommended the government conduct a review of OFSI (which the government disputed). The FAC expressed its regret about the government's view and stated: That review should establish and assess the potential costs and benefits of placing responsibility for financial sanctions design and implementation within a single body, as opposed to the current bifurcated system, and should come to a judgment on whether that should be done. The review should also address as a matter of urgency how OFSI can improve its engagement with the private sector bodies on the front line of sanctions implementation, including through consultation with those bodies.
That said, and despite the political climate being somewhat unstable, the message to the government in the report was that it should take advantage of having an autonomous sanctions regime. The FAC concluded: The centrality of sanctions to the preservation and functioning of the rules-based international system cannot be overstated. As a champion of that system, the UK cannot afford the risk of allowing its sanctions policy to be dictated by the decisions of others. Instead, the UK must seize the opportunity to become a global leader in sanctions policy and must aim to set the international gold standard for strategy, design and implementation.
Many would agree that the UK should follow the example of the United States in having a single institution to operate the sanctions regime, similar to the Office of Foreign Assets Control. Before this can be achieved however, clarification is needed on the UK's post- Brexit sanctions policy. Estonia, Latvia and Lithuania currently have their own Magnitsky legislation, therefore it seems plausible that the UK will be able to impose such sanctions whilst still within the EU regime. However, before the UK is free of that regime, questions will need to be answered about which sanctions the UK is likely to impose in a post-Brexit world.
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