Knowledgebase

Post-Brexit UK Sanctions:
What You Need To Know

Under the terms of the Brexit Withdrawal Agreement, the EU sanctions regime ceased to apply to the UK at 11pm on 31st December 2020. From that date, the UK’s new sanctions framework came into effect, the details of which were set out by the Sanctions and Anti-Money Laundering Act 2018 (also known as the Sanctions Act or SAMLA).

Post Brexit UK Sanctions

Like the pre-Brexit regime, the UK’s new sanctions regime is designed to deter and punish violations of international law, humanitarian crimes, and terrorist activities, and to achieve the British government’s diplomatic objectives. As one of the most important regulatory issues on the financial landscape, it is important that banks, financial institutions and other obligated entities understand their new compliance responsibilities, and how the post-Brexit UK sanctions regime will affect their relationship with businesses in Europe and around the world. 

The UK Sanctions Act

While EU sanctions no longer apply in the United Kingdom, the Sanctions Act effectively transitions those sanctions into UK law. This means that when it comes to individuals and sanctioned countries, UK sanctions broadly replicate the EU’s existing regime. In order to explain the new sanctions landscape, the Sanctions Act sets outs information on the UK’s new regulations, including:

  • The objectives of the UK sanctions regime
  • The types of sanction the UK will impose, e.g. financial sanctions or trade sanctions
  • The criteria for designating person under the UK sanctions regime
  • Exceptions to the UK sanctions regime 
  • Reporting and record keeping obligations for UK firms
  • How the UK government will enforce sanctions

On 31 December 2020, the  Foreign, Commonwealth & Development Office (FCDO) updated the UK’s autonomous sanctions list to include the countries,  individuals, entities, and ships that would fall under the new regulations. 

The UK will continue to impose sanctions according to its international obligations including, for example, its commitments to the United Nations and the United Nations Security Council Consolidated List.  

Sanctions Divergence

While there will be broad convergence with the EU sanctions regime, the UK will diverge in certain areas. Those points of divergence include:

Transposition of EU sanctions: In drafting its new sanctions regime, the UK will not directly transpose EU legislation in an effort to add clarity to the regulation. Accordingly, firms should, where relevant, be familiar with the wording of the new sanctions legislation.  

Geographical validity: Prior to Brexit, trade sanctions licenses granted in the UK were valid in EU member states. Under the post-Brexit regime, however, sanctions licenses granted in the UK will only be valid in the UK – and not within the jurisdiction of EU member-states. 

Designation thresholds: The Sanctions Act sets a lower threshold for a sanction designation than the EU regime. In contrast to  the EU’s “necessity test”, UK government ministers can make a sanctions designation when reasonable grounds exist to suspect that a person is involved in a sanctions-specified activity or is connected to persons that are. The lower threshold may mean that the UK imposes a greater number of sanctions than EU counterparts.  

Designation by description: Unlike the EU regime, the Sanctions Act allows the UK government to make a sanctions designation by description, rather than by name. Designation by description may only take place when it is not possible to do so by name, and the description must be sufficiently detailed and clear that a reasonable person would be able to tell that the persons concerned were subject to sanction. Designation by description is a relatively untested area of sanctions compliance and regulatory teething problems are expected. 

Challenging sanctions designations: Under the EU regime, sanctioned persons can challenge their designation in European courts regardless of whether that designation was applied under the UN or the EU regime. Under the UK  regime, the ability of persons to challenge their designation is limited to submitting an appeal to the Secretary of State. 

General licenses: The UK sanctions regime will reflect the US regime by issuing general licenses that allow persons to conduct otherwise prohibited activities within the jurisdiction of the UK. The general licenses will be issued by the UK’s Office of Financial Sanctions Implementation (OFSI). 

Russian sanctions regulation: The Sanctions Act replaces the EU’s dedicated list of Russia-related sectoral sanctions with a single UK Russia-related sanction regulation. The single regulation diverges from the EU’s regime in a number of ways, including:

  • Limiting exempted entities only to UK -based subsidiaries, and-
  • Broadening the definition of “financial assistance” to prohibit financial services and money transfers connected to military goods or oil exploration

Structure of sanctions list: The autonomous UK sanctions list includes all designations made under the Sanctions Act and no longer includes designations made under the EU regime. It is worth noting that the OFSI Consolidated List only includes financial sanctions.  

The Future of EU and UK Sanctions

Some commentators suggest that future limitations in data-sharing capabilities may cause greater divergence between the UK and EU sanctions regimes in the future. In the immediate wake of Brexit however, both frameworks remain broadly convergent with both the governments of the UK and the EU sharing legal, political, and diplomatic goals. 

With the effects of  Brexit still playing out,  unforeseen sanctions compliance difficulties remain a possibility: firms should carefully consider their compliance process with both regimes in order to avoid regulatory disruption going forward. 

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