PUBLIC INTERNATIONAL LAW: An Introduction to UK-wide

Chambers UK 2023: Practice Area Overview 

UK-wide: Sanctions 

Current economic conditions and level of activity

While the deployment of sanctions by states and executive bodies has grown steadily over the last few decades, there can be little doubt that the last year has seen a marked increase in their use as Western powers have grappled with how to respond to Russia’s activity in Ukraine. This is true of both targeted sanctions (ie, restrictive measures targeted at entities or legal or natural persons) and trade sanctions (for example sanctions on the purchase of oil or the provision of professional services), and of the UK as much as anywhere else.

This has created an unprecedented level of activity for almost all stakeholders in the sanctions industry, whether designated persons, regulators, governments, executives or advisers. On the latter, legal representatives in particular have been extraordinarily busy advising on administrative and legal challenges to sanctions designations, compliance advice, and regulatory enforcements and investigations. The levels of work in the UK have arisen not just from the unprecedented numbers of people and businesses affected by sanctions, but also from the constantly and rapidly evolving legal and regulatory landscape in which stakeholders have found themselves.

This has been exacerbated by the fact that the UK now has its own autonomous and relatively new sanctions regime, which has perhaps been tested much sooner than anyone could have expected in light of the West’s response to Russia’s actions. This autonomous regime presents new challenges where clients now have an additional layer of rules and compliance to consider. In the context of administrative and legal challenges to sanctions designations it is not unusual for clients to find themselves included on sanctions lists imposed by the US, the EU and now also the UK. This presents additional complexity and the need for additional strands of litigation; however it can also present opportunities for clients where many would say that the UK system of challenge is quicker and more reliable than others.

New developments 

There have been very many significant changes in the UK sanctions landscape over the last year which, while being brought in by the government and parliament largely in reaction to Russia’s activity in Europe, often have a far-reaching effect well beyond just the UK’s Russia and Belarus regimes. Some of the key changes are discussed below.

Legislative changes 

The most significant changes have been brought about by the Economic Crime (Transparency and Enforcement) Act 2022 (“ECTEA”) which came into force on 15 March 2022.

Amongst other things, ECTEA has provided the government with the power to make sanctions designations on the so-called “urgent basis”. This means essentially that persons or entities can be added to the UK’s sanctions list where the same designation has already been made by an ally of the UK. While there are shelf-lives applicable to designations made under the urgent procedure, the process nevertheless significantly lowers the hurdle the UK government must jump when adding to its sanctions lists.

ECTEA has also granted HM Treasury’s Office of Financial Sanctions Implementation (“OFSI”) the power to impose civil monetary penalties on a strict civil liability basis. Previously, in order to establish liability, OFSI had to prove that a person had knowledge or reasonable cause to suspect that they were in breach of financial sanctions. The introduction of strict liability has undoubtably produced a considerable increase in the regulatory burden and arguably lead to over-compliance with sanctions by stakeholders cautious of falling foul of the rules.

A third notable development introduced by ECTEA is a limitation of the government’s liability in the event of wrongful sanctions designations. The UK’s sanctions regime under the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) provides a mechanism whereby a person wrongly designated can bring an action for damages against the government. Initially such a claimant was required to establish that in imposing the designation the government had acted negligently or in bad faith. ECTEA has stripped this back, removing the negligence limb so that the government will now only be held liable where it has acted in bad faith – a high bar. A GBR10,000 cap on the amount of damages recoverable was also subsequently introduced under ECTEA, which can only be disapplied by the court in the event that its application would otherwise amount to a breach of the claimant’s human rights under the European Convention on Human Rights (as codified in the Human Rights Act 1998).

Regulatory changes 

For current purposes it is worth highlighting key developments in the field of licensing. Without a licence UK persons and businesses (including UK lawyers) are subject to the prohibitions contained in UK sanctions when it comes to dealing with designated persons.

One result of the unprecedented level of designations over the last year is that OFSI has been inundated with licence applications in general and in particular from lawyers wishing to represent (and receive payment from) designated persons.

In an effort to reduce the number of applications (and the subsequent delays in processing those applications), OFSI introduced during the course of last year a general licence for legal services. In theory this general licence means that lawyers who have provided legal advice to a person designated under either the Russia or Belarus regime will not have to wait for a specific licence before they can receive payment from that designated person. The terms of the general licence are relatively restrictive however, and in practice there are many situations which are not covered. There are also questions over why equivalent general licences cannot be rolled out across other UK sanctions regimes, given the delays in obtaining a specific licence are not particular only to the Russia and Belarus regimes. It may be that the coming year sees further developments in this area.

Looking forward 

Given the continuing geopolitical turbulence seen over the last year, and states’ ever-increasing reliance upon sanctions as a means of response and of pressing their foreign policy objectives, it seems unlikely that the rapid development in this area will abate over the course of this next year.

Stakeholders should be braced for further legislative and regulatory changes in this exciting and dynamic intersection between politics and law.