Brexit: What to expect from the future International Sanctions Bill?

On 29 March 2017, the notification given by the Prime Minister of the United Kingdom (UK), Teresa May, to the European Council officially triggered Article 50 of the Treaty of the European Union (EU) and thus started the negotiations for the exit of the UK from the EU.

In her speech of 21 June 2017, the Queen announced the adoption of the European Union (Withdrawal) Bill (hereinafter “EUW Bill”, also commonly known as “Great Repeal Bill”) which aims to ensure that European law will no longer apply in the UK. The EUW Bill was published on 13 July 2017, and is currently under review from the Parliament.

The EUW Bill will repeal the 1972 European Communities Act (ECA), which introduced the UK into the EU. In the same time the EUW Bill will transpose into domestic UK law all EU direct legislation in order to ensure a smooth transition on the day after Brexit.

However, transposing all EU law into UK legislation will not be enough to prepare the UK for its exit from the EU. In the Queen’s speech other different bills were announced alongside the Great Repeal bill, and in particular a Bill regarding International sanctions (announced as “International Sanctions Bill”). At this stage, no publication date has been communicated and we can only speculate on the new provisions that will be adopted in the UK regarding economic sanctions.

The briefing paper accompanying the Queen’s Speech explains that the International Sanctions Bill will aim to (i) ensure that, as a permanent member of the United Nations (UN) Security Council, the UK will continue to play a central role in negotiating global sanctions regimes; and (ii) return decision-making powers on non-UN sanctions to the UK.

Today UK sanctions legislation derives from three sources: UN Security Council resolutions, EU sanctions (which either implement UN sanctions or adopt autonomous EU sanctions, like for example sanctions against Russia or Syria), and UK’s own sanctions regimes. Brexit will not change UK’s obligation to implement UN sanctions. However, after exiting the EU the UK must be capable of adopting its own sanctions legislation.


White paper on International sanctions

On 21 April 2017 the UK government launched a consultation, entitled “Public Consultation on the United Kingdom’s future legal framework for imposing and implementing sanctions” regarding the proposed legal powers to enable the UK to impose and implement sanctions once left the EU. The public consultation was closed on 23 June 2017.

On 2 August 2017, the UK government published its response to the above mentioned consultation regarding the future UK legal framework on international sanctions. According to the UK government’s reply, the UK needs to be able to impose and implement sanctions in order to comply with its obligations under the UN Charter.

In fact, the ECA 1972 confers the power on the UK Treasury to create UK sanctions legislation. After its repeal, the UK will need to create its own primary legislation regarding international sanctions, as the EUW Bill will only preserve the existing sanctions regimes but it will not provide the powers necessary to create new ones. The future International Sanctions Bill aims to fill that void.

The reply of the UK government to the public consultation can give us a first peak of what can possibly expect from the future International Sanctions Bill. The government’s response includes the following legal powers and subjects:

  • New powers to impose, implement and enforce sanctions regimes. As it is not possible to foresee all of the foreign policy situations that might necessitate sanctions in the future, the UK government wishes to maintain certain flexibility to use sanctions. Thus, the government envisages the possibility that each time it wishes to establish a sanctions regime it will table secondary legislation in Parliament. Thus, the Sanctions Bill would specify the main measures that may be included in a specific sanctions regime but also give the government a degree of flexibility to suggest other measures when it creates or amends a specific sanctions regime through secondary legislation.
  • Threshold for designation. According to the UK government, the appropriate threshold for individual designation will be “reasonable grounds to suspect” test. The threshold would only be met if there is sufficiently solid evidence to enable the government to form a reasonable suspicion.
  • Extraterritoriality. Several respondents to the public consultation requested from the UK government not to expand the jurisdiction of its sanctions. The UK government confirms that it does not intend to expand UK sanctions beyond their current reach.
  • Annual review of regimes to ensure that they remain appropriate. The government intends to review on an annual basis whether each UK autonomous sanctions regime remains appropriate. In addition, every individual listing under each autonomous UK regime would be subject to review by the government at least every three years. UN sanctions regimes and the individual listings under them will not be subject to regular unilateral reviews as they are agreed at the UN level, and the UK does not have the unilateral power to suspend or lift them. The UK will keep them under review as part of its role in the UN Security Council.
  • Possibility for individuals and organisations to challenge any sanctions imposed on them. Those subject to UK sanctions would have the ability to request an administrative reassessment of the government’s decision at the time they are designated or re-designated. They will also be able to request for such reassessment at any other time as long as they are able to provide relevant information evidence or arguments that have nor previously been considered. Designated persons would also be able to challenge their designation before the High Court by way of a statutory challenge procedure applying judicial review principles. The government intends however to put limits on the ability of a designated person to seek compensation in respect of a successful challenge to designation.
  • Possibility for the government to issue exemptions. The UK government intends to create a power enabling general licences to be introduced in certain circumstances to authorise specific activities when needed, for example in delivering humanitarian aid in regions affected by sanctions.
  • New powers when dealing with frozen assets. The government intends to take a new power to seize and detain funds and assets that are subject to asset freeze.

House of Lords inquiry on UK sanctions policy after Brexit

The House of Lords EU External Affairs Sub-committee has also launched an ongoing inquiry into UK sanctions policy after Brexit. The inquiry of the House of Lords covers:

  • The advantages and disadvantages of future co-operation between the UK and EU on sanctions policy and how such co-operation might take place;
  • Examples of EU co-ordination with non-Member States on sanctions (Norway or Switzerland for example);
  • The current sanctions regime and how this will be transposed into UK law, including through the Great Repeal Bill; and
  • The impact of a separate UK sanctions regime on the UK’s ability to achieve its foreign policy goals.

What the business should expect from the future International Sanctions Bill?

The future International Sanctions Bill and the creation of autonomous UK sanctions regime will have an important impact on business as it will bring further checking and due diligences requirements. However as many multinationals and corporations have already put in place compliance programs, UK sanctions measures should not result in a substantive rise of resources necessary to ensure compliance obligations. This, however, will not be the case for small and medium sized companies as multiplicity of sanctions regimes will likely increase both costs and administrative burdens.

In terms of controls and enforcement of measures, on 31 March 2016, the UK created the Office of Financial Sanctions Implementation (OFSI) to operate on the basis of the US model. This administration is for now responsible for monitoring, transposing within UK the economic sanctions measures adopted to date by the EU, and enforcing their provisions After Brexit, OFSI will become a central actor in the implementation of the future autonomous UK powers regarding economic sanctions.

Also from a practical point of view, it is important to mention that the imposition of UK sanctions, alongside EU sanctions, could double court fees for a person or an entity listed by both the UK and the EU. This person or entity will have no choice but to challenge its designation before both courts, national and the European Court of Justice, which is a costly and long process.

As the future legal framework is more and more revealed, it seems that no major differences will exist with the current situation. It is however more difficult to foresee the future UK sanctions policy, and namely whether the UK will align with the sanctions policy of the EU or the US. Taking into account the close cooperation between the UK and the EU in the past, we can consider that both sides have incentives to remain close allies even after the exit of the UK from the EU.