What does a no-deal Brexit mean for any future UK sanctions regime?

1. No immediate change 

Following Brexit, the UK will retain its existing sanctions regime. Sanctions currently in place before Exit Day will be implemented in the UK either by the EU (Withdrawal) Act 2018 (the Withdrawal Act) or under new regulations created by the Sanctions and Anti-Money Laundering Act 2018 (SAMLA).

The Withdrawal Act carries across EU law into UK law, and enables the Government to address any deficiencies by enacting new statutory instruments. In contrast, SAMLA creates a free standing and unilateral power for the UK to impose its own sanctions.

The combined purpose of these Acts is to ensure continuity between the existing EU and new UK sanctions regimes.

2. Sanctions powers come home 

As an EU member state, the UK’s power to impose domestic sanctions is limited to certain anti-terrorism related measures.

Except certain UN measures, all other sanctions currently in effect in the UK are imposed by EU law and have direct effect in the UK under the 1972 European Communities Act, which is set to be repealed by the Withdrawal Act on Exit Day.

Post-Brexit, the UK will be free to impose unilateral sanctions that are not in line with those of the EU. Only time will tell whether the Treasury Committee’s reference to “flexible” sanctions means a more onerous and extensive UK regime. If Brexit is delayed (or if the UK ends up staying in the EU) it remains to be seen how the UK’s powers under SAMLA will interact with the EU’s Common Foreign and Security Policy. 

3. Existing financial sanctions licences remain valid, for now 

The Office of Financial Sanctions Implementation (OFSI) has updated its “Post-EU” guidance to confirm that any existing financial sanctions licences issued by the Treasury will remain valid until they expire, are revoked or are replaced by a licence under the UK’s new, post-Brexit regime. This indicates that business can continue as usual immediately following Brexit.

Looking ahead, the UK will no longer have to follow the EU regime on sanctions authorisations and exemptions, and new authorisations will be granted under SAMLA. It will be important for businesses to continue to monitor changes to UK sanctions in case these impact on existing licences and to track any differences between the SAMLA and the EU retained law regimes.

Two steps businesses can take to prepare for a no-deal Brexit:

1. Broaden approach to sanctions law compliance:

Currently, the UK and EU sanctions regimes are aligned, so compliance with one typically equates to compliance with the other. Post-Brexit this will no longer be guaranteed.

In the future, the UK could be more stringent than its European counterparts, particularly regarding counter-terrorism-related asset freezes. For example, the recent proscription of Hezbollah (including its political wing) as a “Terrorist Organisation” could, in the weeks following Brexit, be bolstered by a corresponding asset-freeze measure under the UK’s new counter-terrorism sanctions powers.

2. Review existing UK financial sanctions licences used to carry out European activities:

The question remains of whether financial sanctions licences granted by UK authorities will continue to be recognised by the EU in a no-deal scenario. To date, there has been no official announcement from the EU clarifying this issue, or on more general cooperation between the UK and EU on sanctions alignment and enforcement post-Brexit.

As the final countdown to a potential no-deal Brexit continues, it is important for businesses to review any UK financial sanctions licences used to conduct European activities and ensure that such licences continue to be effective in the future.