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The new UK sanctions regime: Key changes after Brexit

With the end of the Brexit transition period, the new UK sanctions framework came into effect on January 1, 2021. What are the impacts – now and in future?

EU sanctions no longer apply in the UK since 11pm GMT on December 31, 2020. The new UK sanctions framework is now in effect and it covers various regimes including those under the Sanctions and Anti-Money Laundering Act 2018 (“UK Sanctions Act”) – but also under other UK legislation such as the Export Control Order 2008 and the Anti-Terrorism, Crime and Security Act 2001.

If you are any of the following, you should carefully review the new UK regulations and related guidance to ensure compliance going forward:

  • Legal entities established in the United Kingdom as well as their non-UK branches
  • Individuals or businesses that undertake activities within the UK’s territory and territorial waters
  • International businesses with UK subsidiaries or those that sell to a UK customer base
  • International businesses that use UK shipping routes or engage business operations in the UK

UK and EU sanctions regime: Alignment and divergence

While the new UK sanctions framework still aligns with the EU sanctions regime, there are several notable differences already at this stage. It is important to note that since January 1, 2021, there is no framework in place between the UK and the EU to develop and coordinate joint responses to foreign policy challenges – including the imposition of sanctions on third-country nationals or economies.

This was a conscious decision and no framework for UK-EU collaboration on sanctions is included in either of the new UK-EU agreements that were released in December 2020 – the new Trade and Cooperation Agreement, the Agreement on Nuclear Cooperation, or the Agreement on Security Procedures for Exchanging and Protecting Classified Information.

So, while close collaboration and continued alignment is still expected to some extent, it is not underpinned by a framework. As a result, continued divergence between the regimes is to be expected going forward. In consequence, it is crucial not to assume that compliance with the EU sanctions regime assures compliance with the new UK sanctions regime – and vice versa.

This development means that one layer of complexity has been added to trade compliance programs. While previously many businesses had to consider EU, US, and possibly other national regulations, they now also need to separately consider the new and separate UK sanctions regimes.

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In light of new UK guidance published on January 4, 2021, the following areas are of particular relevance for AEB readers and affected traders. Click on each area for more information by the UK government and scroll down in this article to learn about some of the key changes and differences between the EU and the new UK sanctions regimes, and to get some best practice advise.

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Key changes and differences between UK and EU sanctions

UK sanctions lists

The UK sanctions list has been updated to include all designations made under the UK Sanctions Act. It is important to note that this covers all types of sanctions. The HM Treasury Office of Financial Sanctions Implementation (OFSI) Consolidated List no longer includes EU designations and only lists UK sanctions list designations that are financial in nature.

UK general licenses

Under the UK Sanctions Act, the OFSI can issue general licenses when other licensing derogations or exceptions are not available. However, such UK general licenses do not cover additional license requirements by EU member states. So, entities that are subject to both UK and EU jurisdiction still need to apply for the applicable, specific license in the relevant EU member state. Under the current EU sanctions regime, general licenses are not available.

Coverage of UK licenses

During the Brexit transition period, some UK licenses were still valid for activities in EU member states. This enabled a UK entity, for example, to export controlled goods from an EU member state to a sanctioned destination. This is no longer the case. Licenses granted in the UK are now only valid in the UK jurisdiction.

UK ownership and control provisions

The UK sanctions after Brexit continue to prohibit the provision of funds or economic resources to a person or entity that is owned or controlled directly or indirectly by a designated person. This concept is similar to that under EU sanctions. But the new UK sanctions regulations contain more detailed explanations on when the designated entity or person is considered to exercise indirect control over somebody for the benefit of the sanctioned persons.

Sanctions on Russia

The UK has replaced EU Russia-related sectoral sanctions with a single Russian sanctions regulation and updated the List of Russian entities subject to capital market restrictions accordingly. Persons exempt from these sanctions refer to UK-based subsidiaries (as opposed to EU-based subsidiaries under EU law). And non-restricted trade exemptions only apply when the trade in question has a UK nexus (rather than an EU nexus under EU law). 

For some businesses, this may result in requiring authorization from both the EU and the UK. Another difference: The UK’s new Russian sanctions regime uses the term “financial services” instead of the EU’s “financial assistance”. Under the EU sanctions regime, “financial assistance” does not currently include payment processing while under the new UK sanctions regime, “financial services” includes both payment and money transmission services.

Best strategy for compliance with EU, US, and UK sanctions

In this challenging environment, automation is key to ensure compliance across applicable regions. Contact us to discuss your compliance screening, export controls, and license management requirements. Or visit our website to learn how AEB solutions can support your business. And make sure to take a look at “SCO with Dow Jones” if you need help in the area of sanctioned ownership and control.

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