June 26, 2017

Half Year Review of Key Sanctions Regimes

The first six months of 2017 have seen a number of changes to UK, EU and US sanctions regimes, some of which have greater impact than others. This article outlines several themes that can be seen from these changes, including greater consequences for a breach of UK and EU sanctions regimes, an increase in nuclear proliferation and ballistic missile related US sanctions, and the legislative changes required as a consequence of Brexit.

1. Greater consequences for a breach of sanctions regimes

The adverse consequences that may arise as a result of a breach of sanctions in the UK and the EU have significantly increased in 2017.

In the UK, the sanctions-related provisions of the Policing and Crime Act 2017 came into force on 1 April 2017. This represented a step change in the penalties that can be imposed on UK entities and individuals for breaches of trade and financial sanctions. In particular, the Act:

  • introduces a new monetary penalties regime which allows the Office of Financial Sanctions Implementation to impose a fine of up to £1 million, or 50% of the estimated value of the funds or resources the subject to the breach, whichever is higher;

  • increases the maximum criminal sentence for breach of financial sanctions, from 2 years to 7 years; and

  • makes available Deferred Prosecution Agreements and Serious Crime Prevention Orders as mechanisms for enforcement following sanctions breaches.

From an EU perspective, the European Union Financial Sanctions (Enhanced Penalties) Regulations 2007 (SI 2017/560) came into force on 2 May 2017. This Regulation increased the maximum criminal sentence for breach of EU financial sanctions regimes, from 2 years to 7 years on conviction on indictment, and from 3 months to 6 or 12 months on summary conviction.

How the enforcement bodies of the respective sanctions regimes will use these penalties remains to be seen, but it highlights that the consequences for failing to comply with sanctions regimes are becoming ever more severe.  

 2. Nuclear proliferation and ballistic missile sanctions

A number of sanctions regimes have swiftly responded to the threat posed by nuclear proliferation and the development of ballistic missiles in 2017. 

With North Korea recently conducting its ninth ballistic missile test of the year, the UN Security Council adopted a US-drafted sanctions resolution on 2 June 2017, which was imposed against 18 North Korean officials and entities. In May, the EU expanded its sanctions against North Korea by targeting the arms-related industry, metallurgy, aerospace sections, and banning the provision of certain services and entities and citizens inside North Korea. 

The US may go further in implementing new sanctions, with US Secretary of State Rex Tillerson recently suggesting that the US may place sanctions on third countries that have ties to North Korea. This would involve specifically targeting companies that are known to do business with Pyongyang.

The US has also led the way in imposing sanctions on Iran following its recent ballistic missile tests. These additional sanctions target people and entities supporting the Islamic Revolutionary Guard Corps. Their imposition is not a derogation from the terms of the Joint Comprehensive Plan of Action, which relaxed measures in respect of nuclear proliferation only.

3. US sanctions on Sudan

At the start of the year, prior to Donald Trump's inauguration as President, the US relaxed sanctions on Sudan. This represented a dramatic change in position, given that the US has maintained an extensive embargo on Sudan for several years.

The relaxation came as a consequence of the Government of Sudan having taken positive steps to address the concerns that led to the imposition of sanctions, which included reducing offensive military activity, and improving humanitarian access throughout Sudan.

The sanctions were relaxed by the issuance of an OFAC General License authorising all previously prohibited activities.  The sanctions will be lifted permanently on 12 July 2017, subject to the Government of Sudan meeting certain conditions agreed with the US Government.   

4. EU and US sanctions on Russia

While the EU's sanctions against Russia remain unchanged (and the sanctions in respect of Crimea have recently been extended to 23 June 2018), the US Senate recently passed new sanctions against Russia. If passed by the House of Representatives, the legislation would significantly increase US sanctions against Russian companies and individuals across a number of sectors.

While the exact contours of any legislation remains to be seen, it is likely that the sectoral approach previously adopted will be followed closely in the imposition of any restrictions.

5. Brexit

As with many other aspects of the UK's departure from the EU, it is difficult to predict with certainty the effect that Brexit will have on the UK's sanctions regime. As discussed in our recent article "Sanctions: The Brexit Effect", the UK Government consultation paper suggested that, at least initially, the UK Government will seek to maintain the status quo as regards its powers to administer and implement sanctions. The International Sanctions Bill, which will implement the required legislation, was included in this year's Queen's Speech as part of the Government's legislative agenda for the next two years.

The consultation paper noted that the UK will continue to work closely with its allies and partners to ensure that the application of sanctions is effective. Given that the EU and US sanction regimes can diverge at times, it will be interesting to see how the UK aligns its post-Brexit sanctions regime.

Research for this article was contributed by James Penfold, Trainee Solicitor