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Up until 31 December 2020, European Union (EU) sanctions automatically applied in the United Kingdom (UK). Prior to that date, EU and United Nations (UN) sanctions (which continue to apply to the UK) heavily influenced the UK’s sanctions regime. Since the end of the Brexit transition period on 31 December 2020, the UK is no longer bound by EU law. The UK, building from the EU and UN sanctions it already implemented, has started to develop its own autonomous sanctions regime.
In practice, this means that there is now an additional sanctions regime for multinational companies to comply with. A company that does business in the UK and the EU is now subject to at least two separate sanctions regimes, in addition to any others that may already apply to it, such as the US regime. While the UK regime is currently similar to the EU’s regime, evidence of diverging approaches can already be seen.
The UK Parliament passed the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) to provide the legislative framework for the UK’s post-Brexit sanctions regime. SAMLA is a substantial piece of legislation that has transformed the way in which sanctions in the UK are created, enforced and challenged. In this chapter we look at the shape of the UK’s post-Brexit sanctions regime under SAMLA.
UK sanctions bodies and authorities
A number of different entities share responsibility for formulating sanctions policy and implementing, administering and enforcing sanctions legislation in the UK. The Foreign and Commonwealth Development Office (FCDO) is responsible for overall UK government policy on international sanctions.
Financial sanctions are administered and implemented by Her Majesty’s Treasury (HM Treasury), and specifically by the Office of Financial Sanctions Implementation (OFSI), which was established in 2016 to ‘provide a high-quality service to the private sector, working closely with law enforcement to help ensure that financial sanctions are properly understood, implemented and enforced’. OFSI deals with applications for financial sanctions licences and any necessary notifications and authorisations, and has the power to impose monetary penalties for breaches of EU financial sanctions. It brings together operational and policy expertise from the Department for International Trade and the FCDO. Law enforcement agencies, such as the National Crime Agency, the Serious Fraud Office, the Crown Prosecution Service and HM Revenue and Customs (HMRC), may also investigate and bring enforcement action in respect of sanctions breaches. Travel bans are administered by the Home Office.
Trade sanctions and embargoes are administered and implemented by the Department for International Trade, which (through the Export Control Joint Unit (ECJU)) regulates the UK’s export control regime, under which an export licence is required to export certain products and technology from the country. The ECJU administers the UK’s system of export controls and licensing for military and dual-use items, as well as other trade sanctions. HMRC has powers to enforce breaches of trade sanctions. See Chapter 9 for further information about the UK export control regime.
Sources of UK sanctions
As explained above, the UK has historically followed the UN and the EU in terms of substantive sanctions measures, with the UK’s autonomous sanctions powers exercised sparingly. While SAMLA facilitates the continued application of UN sanctions, it also significantly expands the scope of the UK’s autonomous sanctions powers.
SAMLA gives powers to the ‘appropriate minister’ in the UK, defined as the relevant Secretary of State or HM Treasury, to make regulations imposing sanctions. The appropriate minister can make regulations when the minister considers it is ‘appropriate’, for the following purposes:
- to comply with an obligation that arises as a result of a UN Security Council Resolution;
- to comply with any other international obligation (which could include obligations arising from UK membership of other international organisations, for example the Organization for Security and Co-operation in Europe, as well as other international treaties or agreements); or
- for a ‘discretionary purpose’, as specified in Section 1(2) of SAMLA. These purposes include the prevention of terrorism (in the UK or elsewhere), furthering the interests of national security or the interests of international peace and security, furthering a foreign policy objective of the UK, promoting the resolution of armed conflicts or the protection of civilians in conflict zones, deterring gross violations of human rights, promoting compliance with human rights law, preventing the spread and use of weapons and materials of mass destruction, and promoting respect for democracy, the rule of law and good governance.
If regulations are made under the ‘discretionary purpose’ section, there are additional requirements imposed on the minister. A minister can only impose sanctions under a ‘discretionary purpose’ if there are good reasons to pursue that purpose of the regulations, and the minister must have determined that the imposition of sanctions is a reasonable course of action for that purpose. The minister must lay before Parliament an explanatory report detailing the reasons for the introduction of the regulations in such instances. The only exception is where disclosure would damage national security or international relations.
In line with the discretionary purposes linked to human rights (as listed above), the UK government adopted a Global Human Rights Sanctions regime (GHRS) on 6 July 2020. This regime is covered below. In addition, in the run up to the end of the Brexit transition period, the UK government laid secondary legislation under SAMLA for over 30 sanctions regimes. Through these regulations, which came fully into force on 31 December 2020, the UK government intended to deliver substantially the same policy effects as existing regimes that were implemented by the EU. However, OFSI has cautioned that one should not assume that the regimes are identical.
Types of sanctions
SAMLA provides for a wide range of sanctions to be imposed by regulations, including financial sanctions, trade sanctions, immigration sanctions, and aircraft and shipping sanctions.
Financial sanctions made pursuant to SAMLA may contain prohibitions and requirements that are similar but not identical to those found in EU sanctions (covered in Chapter 2 of this Guide). Under Section 3 of SAMLA, regulations may:
- require the freezing of funds or economic resources owned, held or controlled by designated persons;
- restrict the provision of financial services to or, for the benefit of designated persons (or persons ‘connected with a prescribed country’);
- prevent the making available of funds or economic resources to designated persons (as well as the receipt of funds or economic resources from them); and
- prevent certain financial services being offered where they relate to financial products issued by designated persons.
A breach of any such prohibition may be a criminal offence, if the person or entity in question knows or has reasonable cause to suspect that the other person is designated under sanctions legislation and that person engages in prohibited conduct with the designated person, such as making funds available to them without a licence. Most UK sanctions laws also contain a further prohibition on circumventing the main prohibitions and on enabling or facilitating the contravention of the main prohibitions. Taken together, these prohibitions in effect prevent any individual or company subject to UK sanctions law from having any dealings of an economic nature with a designated person (DP), if that individual or company knows or has reasonable cause to suspect that it is dealing with a DP, even where those dealings would otherwise be perfectly lawful. Care needs to be taken in relation to any dealings with a DP in case the DP is able to use economic resources provided to him or her to obtain funds, goods or services. As with pre-SAMLA financial sanctions, the various prohibitions apply to dealing ‘directly’ as well as ‘indirectly’ with a designated person.
Section 60 of SAMLA contains a broad definition of funds and economic resources that is largely akin to the corresponding definitions under the pre-SAMLA regime.
The OFSI guidance ‘UK Financial Sanctions – General Guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018’ (the OFSI General Guidance), issued in December 2020, warns that the prohibitions relating to ‘financial services’ under UK sanctions regulations will be interpreted more broadly than the prohibitions relating to ‘financial assistance’ under existing EU sanctions regimes. In particular, the prohibitions relating to financial services cover ‘any service of a financial nature, including (but not limited to) payment and money transmission services, charge and debit cards, travellers’ cheques and bankers’ drafts’. Companies and practitioners should therefore be alive to this difference between the two regimes, to ensure that conduct permissible under one regime does not result in an inadvertent breach of the other. In particular, where a prohibition on financial services is imposed under UK sanctions regulations, it will extend to the processing of payments, money transmission services and debit cards. The OFSI General Guidance is not legally binding since it does not form part of UK legislation or judge-made case law. However, it is valuable as an indicator of how the UK government interprets UK sanctions legislation. In the absence of judicial authority on a point of interpretation, it is sensible to follow the OFSI General Guidance. The OFSI General Guidance also provides the following information:
- ‘Funds’, according to the OFSI General Guidance means ‘financial assets and benefits of every kind’, including (but not limited to) cash, cheques, deposits with financial institutions, debts, all types of security (including stocks, shares, bonds, notes, warrants, derivatives contracts), interest, dividends, guarantees, letters of credit, bills of lading, and bills of sale.
- ‘Economic resources’ are interpreted by OFSI as meaning ‘assets of every kind – tangible or intangible, movable or immovable – which are not funds, but may be used to obtain funds, goods or services’. The phrase includes (but is not limited to) precious metals or stones, antiques, vehicles, and property.
- The OFSI General Guidance indicates that crypto-assets will, in OFSI’s view, fall within the definitions of ‘funds’ and ‘economic resources’.
- ‘Dealing with funds’, in the OFSI General Guidance, means ‘moving, transferring, altering, using, accessing, or otherwise dealing with them in any way which would result in any change to their volume, amount, location, ownership, possession, character, destination or other change that would enable the funds to be used’.
- ‘Dealing with economic resources’ means exchanging them ‘for funds, goods or services’, or using them ‘in exchange for funds, goods or services (whether by pledging them as security or otherwise)’. The OFSI General Guidance indicates that the phrase covers the use of economic resources to ‘obtain funds, goods, or services in any way, including, but not limited to, by selling, hiring or mortgaging them’. It should be noted that the everyday use by a designated person of their own economic resources for personal consumption is not prohibited.
- ‘Making available funds or economic resources for the benefit of a [designated person]’ extends only to situations where the designated person obtains, or is able to obtain, a significant financial benefit as a result. A financial benefit includes the discharge of a debt for which the designated person is wholly or partly responsible.
As regards trade sanctions, which are covered in Section 5 and Schedule 1, SAMLA provides a raft of powers, including powers to restrict imports and exports to and from prescribed countries, as well as restrict imports or exports when they are for the benefit of a designated person, and to prevent the transfer of technologies to a designated person, as well as the sale of land to or by a designated person. Services relating to such imports, exports, transfers, sales and acquisitions may also be prevented by powers conferred by SAMLA. The ECJU will remain responsible for controlling and licensing the export of controlled goods. See Chapter 9 for further information about the UK export control regime.
Immigration sanctions are covered at Section 4 of SAMLA, which confers powers to refuse leave to enter or to remain in the UK. Aircraft and shipping sanctions (covered in Sections 6 and 7 respectively) provide powers in relation to aircraft and ships connected to designated persons or prescribed countries, such as detaining them, preventing them from entering or leaving UK airspace or waters, and preventing their registration in prescribed countries.
Territorial extent and application
The provisions of SAMLA and regulations made under it are enforceable against persons within the UK, including the UK’s territorial waters., The regulations made under SAMLA may extend to:
- British ships in foreign or international waters;
- ships without nationality in international waters; and
- foreign ships in international waters.
When exercising such a power in relation to a foreign ship, the Secretary of State must approve the action. In such an instance the Secretary of State’s approval is contingent on either that ship’s home state requesting the assistance of the UK or there being a basis for such action under international law. These powers are not extended to aircraft.
The provisions of SAMLA also apply against all UK persons, wherever they are in the world. A UK person is a UK national or a body incorporated or constituted under the law of any part of the UK. This means that the UK entities and their non-UK branches must comply with UK sanctions law even when their activities take place abroad.
OFSI has published guidance on civil monetary penalties for financial sanctions breaches (the OFSI Monetary Penalties Guidance). This document includes guidance on OFSI’s approach to jurisdictional issues, confirming that it will only seek to enforce breaches of UK financial sanctions where there is a link to the UK. OFSI considers that ‘a UK nexus might be created by such things as a UK company working overseas, transactions using clearing services in the UK, actions by a local subsidiary of a UK company (depending on the governance), action taking place overseas but directed from within the UK, or financial products or insurance bought on UK markets but held or used overseas’. The guidance states that this list is not intended to be exhaustive or definitive. For further information about the enforcement of UK sanctions see Chapter 5 of this Guide.
Liability in the event of a UK sanctions law breach
As with breaches of other provisions of UK criminal law, liability under UK sanctions law may attach to both individuals and entities. For further information about the enforcement action that may be taken in response to a breach of UK sanctions law, see Chapter 5.
There are a number of ways in which criminal liability may arise in respect of UK sanctions laws. First, a person may be prosecuted in any part of the UK for a breach of UK sanctions law where that person is directly involved in the commission of the offence.
Second, a person may be liable under ordinary principles of criminal law on the basis of less direct forms of involvement. These alternative routes to liability include:
- encouraging or assisting another person to commit an offence;
- in relation to many sanctions laws, enabling or facilitating the contravention of a prohibition; and
- conspiring (agreeing) with another person to commit an offence.
Third, certain individuals may be liable as a result of a finding of liability on the part of a company or entity (corporate liability is discussed below). Sanctions laws typically provide that a director, manager, secretary or other similar officer of a body corporate will be liable where the entity commits an offence as a result of the consent, connivance (agreement) or neglect of that individual. These provisions are intended to capture any individual occupying a managerial position within an entity.
A corporate entity may only be prosecuted for a crime in limited circumstances. The law of England and Wales is more restrictive than that of the US, for example, or other jurisdictions that have adopted a broad system of vicarious liability in which a company may be criminally liable for the acts of an employee provided that the employee was acting in the course of his or her employment.
In the case of a company, criminal liability for breach of sanctions legislation would arise only if:
- a person at a senior level within the organisation, typically at director level, was involved in the commission of an offence in the course of his or her employment; or
- the company’s board delegated full authority for a particular activity or category of activities to one or more individuals, and those individuals committed an offence in the course of their employment (again by reference to one of the first two scenarios outlined above).
The UK currently maintains three lists of designations made under sanctions legislation. OFSI continues to maintain two lists of those subject to financial sanctions, one listing asset freeze designations (the Consolidated List) and the other listing entities subject to capital market restrictions under the Russian sanctions regime (the Capital Markets List).
Post-Brexit, the UK also maintains a new UK Sanctions List maintained by the FCDO. This is a more extensive list, which consists of all designations made under UK sanctions (financial or otherwise). When the UK sanctions regulations under SAMLA came into force on 31 December 2020, 113 persons designated under EU sanctions were not similarly designated under the corresponding UK sanctions regulations.
Designation by name
SAMLA empowers relevant ministers to designate individuals and entities who have been designated by the UN. In addition to this, a minister can designate a person where the minister has reasonable grounds to suspect the person is involved in, or connected to, an activity set out in the regulations for a particular sanctions regime (an involved person). The minister must also consider that it is appropriate to designate that person, having regard to the purpose of the sanctions regime as set out in the regulations and the likely significant effects of the designation on the person. It is important to note that SAMLA confers a power to designate an entity on the basis that it is owned or controlled by another designated person, and the OFSI General Guidance indicates that the UK ‘will look to designate owned or controlled entities/individuals in their own right where possible’.
When a person has been designated by name, the notification usually required by sanctions regimes created under SAMLA must include a brief statement of reasons. However, the minister does not have to disclose anything that might damage national security or international relations, the prevention or detection of serious crime, or the interests of justice.
Designation by description
SAMLA also permits a minister to designate persons by description rather than by name. ‘This power can only be used when the minister cannot identify by name all the persons falling within the description, and the description is sufficiently precise that a reasonable person would know whether any person falls within it.’
Ownership and control
Section 62 of SAMLA permits specific definitions to be inserted into each sanctions regulation on ownership and control. SAMLA itself does not provide a definition for ownership and control. The regulations adopted to date contain identical provisions setting out the meaning and thresholds for ownership and control of an entity by a designated person. A company is owned or controlled directly or indirectly by another person if either or both of the following two conditions is met:
- the person holds directly or indirectly more than 50 per cent of the shares or voting rights in the company, or the right, directly or indirectly, to appoint or remove a majority of the board of its directors; or
- it is reasonable to expect that the person would ‘(if [the person] chose to) be able, in most cases or in significant respects, by whatever means and, whether directly or indirectly, to achieve the result that affairs of [the company] are conducted in accordance with [the person’s] wishes’.
Further provisions on ownership and control are set out in schedules to the regulations adopted under SAMLA.
As noted above, an entity owned or controlled by a designated person is liable to designation in its own right. It is likely that there will be additional designations under the ownership and control criteria as the Secretary of State becomes aware of individuals or entities linked to the already designated individuals and organisations. Companies will need to conduct significant due diligence when dealing with entities that may be linked to the designated individuals and organisations.
Each regime-specific set of sanctions regulations will also need to be read alongside the OFSI General Guidance on ownership and control. The OFSI General Guidance provides guidance on when an entity may become subject to an asset freeze if a designated person owns a minority interest in that entity. There is also guidance on how to deal with funds that are jointly owned by a designated person.
The OFSI General Guidance also makes clear that if the relevant ownership and control criteria are met ‘and the person who owns or controls the entity is also a designated person, then financial sanctions will also apply to that entity in its entirety (meaning these assets should also be frozen). The prohibitions on making funds or economic resources available directly or indirectly to a designated person, also prohibit making them available to an entity who is owned or controlled, directly or indirectly, by the designated person. The UK Government will look to designate owned or controlled entities/individuals in their own right where possible.’
Unlike the EU guidance on ownership and control (covered in Chapter 2 of this Guide), the definitions adopted for the purposes of the SAMLA regulations are not presented as examples of circumstances in which ownership and control can be presumed unless rebutted, but instead as conclusive indicia of ownership and control for the purposes of the UK autonomous sanctions. We suspect that the ownership and control provisions of the regulations and the OFSI General Guidance will provide fertile ground for interpretation and legal challenge now that the UK is no longer bound by EU law.
In practice, the level of due diligence conducted by a company with a view to questions of ownership and control is likely to vary depending on its sector. Companies that are subject to due diligence requirements under anti-money laundering and counter-terrorist financing regulations are likely to have in place procedures designed to identify the presence of a designated person in a company’s ownership structure. Companies that fall outside the scope of this legislation may well not have these types of procedures in place, although they are still subject to sanctions legislation, and will commit an offence if they deal with a designated person when they know, or have reasonable cause to suspect, that they are dealing with such a person.
Challenging designations and delisting under SAMLA
One of the key differences between the pre and post Brexit UK sanctions regime is the way in which those subject to financial sanctions can challenge their designation. Under the pre-Brexit regime, persons designated under EU sanctions, either by virtue of a UN listing or an EU listing, were only able to challenge their designations at EU level and, to a more limited extent, UN level. SAMLA permits individuals and entities to challenge their listings in the UK or to request the UK’s assistance to secure their removal from a UN list.
Although SAMLA provides a mechanism for those listed under UK and UN Sanctions regime to challenge their listing, many persons would also be designated under corresponding EU sanctions. As under the pre-Brexit regime, there is no mechanism to challenge EU designations in the UK.
Right to request variation or revocation of designation
SAMLA provides a designated person the right to ask the government to revoke or vary his or her designation, for example if a person believes he or she has been misidentified or considers the designation does not meet the required evidentiary threshold.
The evidentiary threshold for designation by name and by description is set out in Sections 11(2) and 12(5) of SAMLA respectively. These requirements are:
- that the appropriate minister has ‘reasonable grounds to suspect’ that the person, organisation or the person falling within that description is an involved person (see above for the meaning of this phrase); and
- that the appropriate minister considers that it is ‘appropriate’ to designate that person.
The UK government’s response to the public consultation on the future UK sanctions regime states that the ‘reasonable grounds to suspect’ test is the appropriate evidentiary threshold. This threshold would only be met if there is suffcient information or evidence to enable the government to form a reasonable suspicion.
Section 23 of SAMLA allows designated persons access to quick redress, and is labelled as an administrative challenge. It is clear from SAMLA that the decision of any such request must be made as soon as ‘reasonably practicable’ and the person who makes the request must be informed of the decision and the reasons ‘as soon as reasonable practicable after the decision was made’.
This route is not available, however, to persons subject to a UN designation. UN designated persons must request that the appropriate minister ‘use their best endeavours’ to persuade the UN to remove them from the relevant UN instrument.
Once a request has been made, an appropriate minister must decide whether or not to comply with the request. The same designated persons cannot submit another request upon assessment by the appropriate minister, unless that person can show that there is a significant matter of which the government was not aware.
The appropriate minister who made a designation has the discretion to revoke or vary that designation. Revoking a designation means that the designated person would no longer be subject to the restrictions set out in the relevant regulation. Varying a designation allows the minister to add any changes to the designation, such as updating information used to identify an individual.
However, a minister is obliged to revoke a designation when the required conditions of the relevant designation power are not met. This may be as a result of the government’s own review of designations, or if a designated persons seeks reassessment of their designation.
Designated persons seeking reassessment of their designation
SAMLA also provides designated persons a route to challenge government decisions in the High Court, or in Scotland, the Court of Session.
When considering an application brought under Section 38 of SAMLA, the courts will apply the legal principles of judicial review. If a designated person seeks a revocation or variation of their listing, he or she must apply for this through the administrative process listed in SAMLA before he or she is able to access the redress through a legal challenge provided.
The following decisions can be challenged in the relevant courts:
- a request to review, or a decision after the request, on whether a UK designation should be varied or revoked; or
- if the appropriate minister did not comply with the request to use best endeavours to persuade the UN to remove them from the relevant UN instrument.
Under proceedings on an application under Section 38 of SAMLA, the courts may not award damages unless the court is satisfied that the tort of negligence was committed or the decision concerned was in bad faith. This approach is comparable with the current law on awards of damages in sanctions cases within the EU. This section also confirms that legal challenges are to be dealt with under the provisions in Section 38.
Periodic government review
Section 24 of SAMLA requires the government to conduct a periodic review of sanctions regulations made under Section 1 of SAMLA and any ‘qualifying designations’ made by an appropriate minister. ‘Qualifying designations’ is set out in Section 24(3) of SAMLA and includes designations that:
- freeze funds or economic resources owned, held or controlled by designated persons;
- prevent financial services from being provided to, or for the benefit of designated persons;
- prevent funds or economic resources from being made available to, or for the benefit of designated persons; or
- provide for designated persons to be excluded persons for the purposes of Section 8B of the Immigration Act 1971.
The appropriate minister must review each qualifying designation and decide whether to revoke, vary, or take no action with it. A review must occur within three years of a qualifying designation being made. After this initial review, a further review must be conducted within three years of the preceding review, for as long as the designation remains in place.
Sanctions legislation typically provides for certain exceptions from the prohibitions and restrictions imposed by the legislation. These exceptions may take the form of exempt activities (i.e., conduct that is expressly permitted by the sanctions legislation in question without the need for any licence or authorisation). Sanctions legislation may also provide for licences and authorisations to be granted to permit conduct that would otherwise be in breach of a prohibition.
Licensing, authorisation and notification requirements provided for under EU sanctions legislation are administered by the relevant authorities of Member States. Accordingly, in the UK, OFSI dealt with licensing decisions in connection with EU financial sanctions, while the Department for International Trade (through the ECJU) dealt with applications in the context of EU trade sanctions. Post Brexit, OFSI and the ECJU continue to be responsible for issuing licences in connection with UK financial sanctions and trade sanctions after the end of the Brexit transition period.
The OFSI General Guidance confirms that the licensing process will remain broadly unchanged, but with several new exceptions. In addition, specific licences that were issued while the UK was bound by EU sanctions ‘will be treated as if they had been issued under the relevant [SAMLA] Regulations’ and can be relied upon until they expire.
The OFSI General Guidance contains a useful explanation of the approach taken by OFSI in relation to the licensing grounds that were typically found in EU sanctions legislation and that are now relevant to UK sanctions. These include:
- Making available funds or economic resources necessary to satisfy the basic needs of designated persons: OFSI considers that ‘basic needs involve those expenses which are necessary to ensure that the very existence of the designated person or dependent family members is not imperilled. These needs will be different if the designated person is a legal entity rather than a natural person.’ OFSI does not consider that this ground should be used to enable designated persons to continue the lifestyle or business activities they had before they were designated.
- Legal fees and disbursements: OFSI states that such fees must be reasonable and must relate specifically to the provision of legal advice or involvement in litigation or dispute resolution. In addition, the sums that could be expected to be recouped if costs were awarded in litigation ‘provide a useful starting point for assessing the reasonableness of legal fees and disbursements’.
- Satisfaction of prior court judgements or arbitration decisions against the designated entity: OFSI’s position is that the judgment or decision must have been given before the date of designation, and cannot be for the benefit of a designated person.
- Satisfaction of prior contractual obligations of the designated person: again, OFSI contends that the contract or obligation must have arisen prior to the date of designation and cannot result in funds or economic resources being made available to the designated person.
- Extraordinary expenses: OFSI states that these must be extraordinary in nature (unexpected or unavoidable and so not recurring or easily anticipated). This ground cannot be used where other grounds are more suitable or as a way of avoiding the clear limitations of those other grounds.
The OFSI General Guidance also sets out OFSI’s approach to certain further licensing grounds:
- Humanitarian assistance activities: OFSI states that this ground ‘enables payments to facilitate any humanitarian activity; or where applicable, any activity whose purposes are consistent with the objectives of UN Security Council Resolutions’. OFSI considers humanitarian assistance to include the work of non-governmental organisations carrying out relief activities for the benefit of civilians. Importantly, OFSI notes that a licence ‘may still be required despite an activity using government funds’.
- Diplomatic missions: OFSI sets out that a licence may be granted to ensure the ‘proper functions of a diplomatic mission or consular post’. A pre-requisite for such a licence is compliance with international law.
- Extraordinary situations: this licensing ground applies to non-UN designated persons, and is intended to enable ‘anything to be done to deal with an extraordinary situation’. The OFSI General Guidance makes it clear that this is intended to cover ‘disaster relief or provide aid’ and for situations that ‘must be extraordinary in nature (unexpected, unavoidable and not recurring)’. This licensing ground cannot be used ‘where other grounds are more suitable’ or in an attempt to circumvent a limitation present in respect of another ground.
- Transfers in the interest of independent persons: allowing an independent person to transfer an interest in frozen funds or resources to another person where:
- the independent person is not a designated individual;
- they do not hold the interest jointly with a designated individual;
- they are not controlled by a designated individual; and
- the independent person holds the interest in the funds or resources.
- Ring-fenced funds: The OFSI General Guidance also confirms that UK autonomous sanctions will contain an exception to allow large financial institutions to transfer funds held or controlled by a designated individual to comply with the ring-fencing requirements imposed under the Financial Services (Banking Reform) Act 2013.
The OFSI General Guidance also provides further details about legal advice, court fees and investments:
- OFSI notes that generally there is no prohibition from providing legal advice when an asset freeze is in place, but ‘the payment for legal services and the provision of legal services on credit do require an OFSI licence’. The OFSI General Guidance also notes that in certain circumstances, such as where sanctions prohibit specific actions, a lawyer should carefully consider if the advice being provided is to help the client comply with the sanctions regime or to facilitate a breach.
- OFSI states that court fees and payments into courts for security for costs ‘can be licensed under the reasonable legal fees licensing grounds’. Separate licensing grounds are required for the payment of security for damages into court and, in the event a court fee will be invoiced to a designated individual as a disbursement, this can be paid ‘without a licence only if the payment is ‘not “significant”’. Whether a court fee is ‘significant’ is a factual matter.
- OFSI confirms that generally frozen funds, and any profits from frozen funds, cannot be invested. The OFSI General Guidance states that exceptions or licensing grounds are unlikely to allow for such activity. However, the OFSI General Guidance does note that in certain circumstances ‘some asset management may be permitted, under the “basic needs” licensing ground, to ensure that the existence of the business or the frozen assets is not imperilled’. Such an application will be considered by OFSI on a case-by-case basis.
The OFSI General Guidance confirms that an expired licence cannot be extended. A new licence needs to be applied for, and OFSI ‘will require full supporting information’.
In addition to the additional licensing grounds above, the OFSI General Guidance suggests a divergence of approach between the UK and EU as regards licensing in two further aspects.
First, autonomous UK sanctions, in contrast with EU sanctions, include a power to issue general licences, as opposed to specific licences (authorisations granted to an individual or entity which has applied in writing). The OFSI General Guidance suggests that the UK government will make use of these licences in unforeseen circumstances to support policy priorities. As set out in the OFSI General Guidance, each general licence will include requirements for prior notification of use, record-keeping and reporting. Any party using a general licence must check the terms of that licence and comply with its conditions. By way of example, on 1 January 2021, OFSI issued its first general licence to enable people to make payments to Crimean sea ports out of non-frozen funds.
Second, SAMLA introduced the concept of directions. A direction may be issued under SAMLA in respect of a statutory requirement, and can provide an exception to a requirement. Such directions are only available for certain sanctions regimes, and are applied for using a form available through OFSI’s website. Directions may be conditional, and can be varied by OFSI at any time.
Licences relating to trade sanctions are dealt with through a separate process. It should be remembered that some transactions may require licences in respect of applicable financial sanctions as well as applicable trade sanctions. The Department for International Trade maintains a web page containing links to a substantial body of guidance relating to the licensing regime for trade sanctions. Export control licence applications are processed through an online system called SPIRE. See Chapter 9 for further information about the UK export control regime.
Global Human Rights Sanctions Regime
As mentioned above, in July 2020, GHRS were the first stand-alone UK sanctions to come into force under SAMLA. This was the first time the UK diverged from the EU sanctions policy. While the EU eventually introduced its own Global Human Rights Regime in December 2020, the regimes are different in scope and have resulted in different designations. For example, the UK designated 20 Saudi nationals in connection with the unlawful killing of Jamal Khashoggi under the GHRS but the EU has not adopted any sanctions in relation to this matter. In addition, although the EU did follow the UK and Canada in imposing sanctions on Belarusian politicians, its response was not as quick due to disagreements between EU Member States. Conversely, the EU utilised its own Global Human Rights Regime in March 2021 to impose sanctions on four Russian individuals for their roles in the arbitrary arrest, prosecution and sentencing of Alexei Navalny, but the UK did not impose similar sanctions (albeit one individual was already sanctioned under the GHRS for his involvement in the mistreatment and death of auditor Sergei Magnitsky in Russia).
As of 31 March 2021, the UK has designated 72 individuals and five entities under the GHRS regime. Under the GHRS, if the Secretary of State has reasonable grounds to suspect that a person is an ‘involved person’, he or she can designate that person and impose financial sanctions in the form of an asset freeze and a prohibition on making funds or economic resources available, directly or indirectly, to or for the benefit of that person, as well as imposing a travel ban.
The definition of an ‘involved person’ is very broad and is defined as a person who the Secretary of State has reasonable grounds to suspect is or has been involved in an activity that, if carried out by or on behalf of a state within the territory of that state, would amount to a serious violation by that state of an individual’s (1) right to life; (2) right not to be subject to torture or cruel, inhuman or degrading treatment or punishment; or (3) right to be free from slavery, not to be held in servitude or required to perform forced or compulsory labour, whether or not the activity is carried out by or on behalf of a state.
The definition of an ‘involved person’ also includes a person (likely to be an entity) that is owned or controlled directly or indirectly by a person who is or has been involved in such an activity (namely activity relating to the human rights abuses set out above), is acting on behalf of or at the direction of a person who is or has been so involved, or is a member of, or associated with, a person who is or has been so involved. As set out above, the Secretary of State can designate any individual or entity fulfilling these criteria.
Another key feature of the GHRS is the ownership and control criteria set out in Schedule 1. The Schedule sets out the UK’s post-Brexit criteria for assessing ownership or control and marks a departure from the EU ownership and control test. These criteria mirror ownership and control provisions found in other regulations adopted under SAMLA (see below).
When the UK government first introduced the GHRS, the regime was criticised for its narrow scope. In particular, in contrast, to the equivalent Canadian and American regimes, which make sanctions available against those participating in human rights abuses and corruption, the GHRS only applies to individuals who are involved in a number of specified human rights abuses. However, the UK government has now passed similar legislation allowing the designation of individuals based on suspected involvement in serious corruption (the Global Anti-Corruption Sanctions Regulations 2021).
The first quarter of 2021 has been a busy period for sanctions developments globally and the UK is no exception to that. The UK is expected to continue to work on sanctions with the EU, but also with a wider range of partners. An example of the UK’s expanded approach to collaboration was demonstrated last September when the UK imposed sanctions against the President of Belarus and other senior members of the Belarusian government in a coordinated response with Canada.
The UK is also expected to continue to utilise its new-found flexibility and powers. By way of example, since the end of the Brexit transition period, OFSI has issued its first general licence under the autonomous regime (discussed above). In addition, as discussed above in the context of the GHRS, the UK has diverged from the EU in terms of specific designation.
The extent of the divergence between EU sanctions and UK sanctions is only likely to become apparent over time.
1 Paul Feldberg and Robert Dalling are partners at Jenner & Block London LLP.
2 UN Security Council Resolutions encompass a range of measures, from economic and trade embargoes, to the freezing of funds and travel bans on individuals. The Security Council has established 30 sanctions regimes since 1966, of which 14 are still operational (See http://www.un.org/securitycouncil/sanctions/information.
3 HM Treasury, ‘New body to support financial sanctions implementation launched’ (http://www.gov.uk/government/news/new-body-to-support-financial-sanctions-implementation-launched).
4 See the OFSI guidance ‘UK Financial Sanctions – General Guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018’ (OFSI General Guidance) (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/862451/OFSI_general_guide_to_Financial_Sanctions.pdf).
5 OFSI, About Us (http://www.gov.uk/guidance/uk-sanctions).
6 Sanctions and Anti-Money Laundering Act 2018 [SAMLA], Section 1(9).
7 id., at Section 1, Paras. (1) and (2).
8 id., at Section 2(1).
9 id., at Section 2(a).
10 id., at Section 2(b).
11 id., at Section 2(4).
12 id., at Section 2(5).
13 For a full list of regimes under SAMLA that came into force on 31 December 2020, see OFSI’s consolidated List Change Notice dated 31 December 2020 (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/949055/Notice_Consolidated_List_Changes__31_December_2020.pdf).
14 OFSI, ‘Get ready for the end of the transition period’ (https://ofsi.blog.gov.uk/2020/12/01/get-ready-for-the-end-of-the-transition-period/).
15 See, for example, Russia (Sanctions) (EU Exit) Regulations 2019, Regulations 11 to 19.
16 See for example Regulation 17(1) of the Yemen (Sanctions) (EU Exit) (No. 2) Regulations 2020 (UKSI 2020/1278: the ‘Yemen Regulations’).
17 See the OFSI General Guidance (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/862451/OFSI_general_guide_to_Financial_Sanctions.pdf).
18 See the OFSI General Guidance (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/961516/General_Guidance_-_UK_Financial_Sanctions.pdf) at Section 3.2.
19 See the OFSI General Guidance at p.15.
20 See the OSFI General Guidance at p.15.
21 See the OSFI General Guidance at p.15.
22 See the OFSI General Guidance at p.15. This is consistent with interpretative provisions found in sanctions legislation, such as Regulation 11(4) of the Burma Regulations.
23 See for example Regulation 11(5) of the Burma Regulations.
24 See the OFSI General Guidance at p.16.
25 See for example Regulation 13(4)(a) of the Burma Regulations.
26 See for example Regulation 13(4)(b) of the Burma Regulations.
28 The UK government has published draft regulations relating to the exercise of these powers (the Immigration (Persons Designated under Sanctions Regulations) (EU Exit) Regulations 2020 (draft)).
29 SAMLA, Section 21(1)(a).
30 id., at Section 6(1).
31 id., at Section 19(1)(a).
32 id., at Section 19(1)(b).
33 id., at Section 19(1)(c).
34 id., at Section 19(11)(a).
35 id., at Section 19(11)(b), Para. (i) or (ii).
36 id., at Section 19(11)(b)(iii).
37 id., at Section 21(1)(b).
38 id., at Section 21(222)(b).
39 OFSI Monetary Penalties Guidance (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/968229/MP_guidance_April_2021.pdf) at section 3.7.
40 Although the substantive sanctions laws discussed in this chapter have effect throughout the UK (and in some cases have extra-territorial effect), issues of criminal liability are determined by reference to the law of the constituent parts of the UK (i.e., England and Wales, Scotland and Northern Ireland, depending on where criminal proceedings are brought). In this chapter we deal with liability under the laws of England and Wales, i.e. how issues of liability would be determined in the courts of England and Wales.
41 Under Part 2 of the Serious Crime Act 2007.
42 See for example Regulation 17(1)(b) of the Yemen Regulations.
43 Under Part 1 of the Criminal Law Act 1977.
44 See for example Regulation 50 of the Yemen Regulations.
45 See The Serious Fraud Office v Barclays PLC & ANR,  EWHC 3055 (QB) (http://www.judiciary.uk/wp-content/uploads/2020/02/sfo-v-barclays-judgment-12-11-18.pdf).
46 For a full list of changes to UK designations on 31 December 2020, see OFSI’s Consolidated List Change Notice dated 31 December 2020 (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/949055/Notice_Consolidated_List_Changes__31_December_2020.pdf).
47 id, SAMLA., at Section 1.
48 An ‘involved person’ could include an individual, group or organisation involved in an activity, or a person controlled by them, someone acting on their behalf or an associated person.
49 See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/961516/General_Guidance_-_UK_Financial_Sanctions.pdf at Section. 4.1.
50 SAMLA, Section 11. Section 10(4) of the Act provides that regulations made under SAMLA may make provision as to notification and publicity.
51 Explanatory Notes to SAMLA, para. 58.
52 See, e.g., the Republic of Belarus (Sanctions) (EU Exit) Regulations 2019/600, at Regulation 7.
53 See the OFSI General Guidance (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/961516/General_Guidance_-_UK_Financial_Sanctions.pdf) at Section 4.1. Note that this is only guidance: the actual interpretation of sanctions legislation is a matter for the courts.
54 See id., at Section 4.1.
55 SAMLA, Section 23(1).
56 Explanatory Notes to SAMLA, para. 89.
57 See SAMLA, Section 11(2)(a) for designation by name, and see Section12(5)(a) for designation by description.
58 See SAMLA, Section 11(2)(b) for designation by name, and see Section 12(5)(b) for designation by description.
59 See Government Response to Public Consultation on the UK’s future legal framework for imposing and implementing sanctions (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/635101/consultation-uk-future-legal-framework-sanctions-government-response.pdf) at pp. 9 to 12.
61 Explanatory Notes to SAMLA, para. 89
62 SAMLA, Section 33(2)(a).
63 id., at Section 33(2)(b). The Sanction Review Procedure (EU Exit) Regulations 2018, which came into force in January 2019, make provision for the procedure applicable to these requests.
64 id., at Section 25.
65 For UN sanctions, see SAMLA, Section 25 and Explanatory Notes to SAMLA, para. 93. For UK designations, see SAMLA, Section 23 and Explanatory Notes to SAMLA, para. 90.
66 Explanatory Notes to SAMLA, para. 91.
67 SAMLA, Section 22(2).
68 Explanatory Notes to SAMLA, para. 87.
69 id, para 88.
70 SAMLA, Section 22 paras. (3) and (4).
71 id., at Section 38(2).
72 Explanatory Notes to SAMLA, para. 111.
73 SAMLA, Section 38(1), paras. (a) and (b).
74 id., at Section 38(1)(c) and Explanatory Notes to SAMLA, para. 110.
75 SAMLA, Section 39(2) and Explanatory Notes to SAMLA, para. 113.
76 Explanatory Notes to SAMLA, para. 113.
77 SAMLA, Section 39(1).
78 id., at Section 24(2).
79 id., at Section 24(4).
80 See id., at Section 6.5.
81 See id., at Section 6.6.
82 See id., at Section 6.11.
83 See id., at Section 6.8.
84 OFSI, General licence – INT/2020/059 (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/949118/General_licence_-_INT.2020.059_-_Publication_Notice.pdf).
85 SAMLA, Section 15(2)(c).
86 See the OFSI General Guidance (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/961516/General_Guidance_-_UK_Financial_Sanctions.pdf) at Section 6.18.
87 Council Regulation (EU) 2020/1998 of 7 December 2020 concerning restrictive measures against serious human rights violations and abuses.
88 See the UK Government’s ‘Global human rights sanctions: information note for non-government organisations and others interested in human rights’ (http://www.gov.uk/government/publications/global-human-rights-sanctions-information-note-for-non-government-organisations-and-others-interested-in-human-rights).
89 Council Regulation (EU) 2020/1998 of 7 December 2020 concerning restrictive measures against serious human rights violations and abuses.
90 See the UK Government’s ‘Global human rights sanctions: factors in designating people involved in human rights violations’ (http://www.gov.uk/government/publications/global-human-rights-sanctions-factors-in-designating-people-involved-in-human-rights-violations).
91 See OFSI Blog, ‘An introduction from new OFSI director Giles Thomson’ (https://ofsi.blog.gov.uk/2021/02/04/an-introduction-from-new-ofsi-director-giles-thomson/).
92 See OFSI Blog, ‘An introduction from new OFSI director Giles Thomson’ (https://ofsi.blog.gov.uk/2021/02/04/an-introduction-from-new-ofsi-director-giles-thomson/).