Newsletters Business Crime & Financial Services 18th Dec 2017

Brexit Select Committee Publishes Sanctions Report

On Sunday 17th December 2017, the House of Lords European Union Committee (‘the Select Committee’) published its report on ‘Brexit: Sanctions Policy’.

The Select Committee is appointed to “scrutinise documents deposited in the House by a Minister, and other matters relating to the European Union”. The report is published “for debate”.

There are two principal sources of sanctions implemented by, and in, the United Kingdom – those created by the United Nations Security Council (‘UNSC’) and those created by the Council of the European Union (‘CoEU’).

The Sanctions and Anti-Money Laundering Bill (‘the Bill’) is currently before parliament. The Government brought forward the Bill in order to:

  • Plug the gap – withdrawal from the automatic implementation of CoEU sanctions – soon to be created by Brexit; and,
  • Establish a legislative framework for the UK to implement UNSC regimes and use sanctions to meet national security and foreign policy objectives.

The progress of the Bill through the House of Lords since 18th October 2017 has been informed by lively debate between the Government (Lord Ahmad), and those highlighting problems associated with the draft legislation (principally Lord Judge and Lord Pannick) and has focused on two fundamental issues:

  1. A significant extension of executive power, an example being: the Government seeking to grant itself the power to create criminal offences with a maximum sentence of 10 years’ imprisonment through secondary legislation (the so-called ‘Henry VIII clauses’).
  2. A lack of due process rights for designated persons, examples being: the dilemma posed by the possibility that the UK High Court could find there to be no good reason for the designation of a person or entity but there being no possibility to ‘de-designate’ given our UN treaty obligations; and, the timeframe for judicial review of designations being frustrated by lack of ministerial engagement.

The Select Committee notes that the Bill does not give detailed consideration to the domestic legal framework for the implementation of sanctions and describes the benefits of the current, pre-Brexit regime as follows:

  • The UK is embedded within a formal structure for co-operation on sanctions with the 27 other Member States. This is further strengthened by informal opportunities to engage actively, in the margins of formal EU meetings and wider foreign policy discussions.
  • The UK is widely recognised as playing a leading role in developing the EU’s sanctions policy, and the listings for these regimes. In cases such as Russia and Iran, both UK foreign policy priorities, the collective imposition of restrictive measures by 28 Member States has magnified their economic impact and projected a strong message to the targeted entities.
  • The most effective sanctions regimes are designed and applied alongside international partners, to strengthen the signal to the target and deliver the maximum possible economic impact.
  • The EU’s sanctions regimes have a significant impact where agreement cannot be reached at the UN, or agreed UN measures are limited in scope. This reflects the significance of the EU as an economic bloc, and the signalling power of 28 Member States acting in concert.
  • Financial sanctions can be particularly effective in applying pressure to targeted entities. The role of the City of London as an international financial centre heightens the value of participation by the UK in collective sanctions regimes, at both UN and EU level.

In response to the wide-ranging evidence gathered over 2017, and perceived deficiencies in the Bill, the Select Committee makes the following observations and recommendations:

  • While the current draft Bill would allow the UK to implement unilateral sanctions regimes, such regimes will not be effective unless the UK continues to work in close partnership with the EU and other international partners after Brexit.
  • Although the UK will leave the common EU framework for designing and imposing sanctions, the common interests and threats facing the UK and the EU-27 will not change fundamentally.
  • The US and the EU already co-ordinate closely on the design of sanctions. It would be desirable for the UK, the US and the EU to maintain a broadly similar approach to sanctions policy after Brexit.
  • The UK could choose to align itself with EU sanctions after Brexit. This would preserve the current unity of approach by the 28 countries, but would require the UK to implement decisions taken by the EU-27, without having any influence over their design, or voting rights.
  • Informal engagement with the EU on sanctions – as undertaken by the US – can be very valuable, and should be pursued by the UK. Informal dialogue is, however, no substitute for the influence that can be exercised through formal inclusion in the EU meetings where the bloc’s sanctions policy is agreed.
  • It is not yet clear what the “tailored arrangement” proposed by the Minister for co-operation between the UK and EU on sanctions would involve. The Government’s ambition is for an “unprecedented” level of co-operation, which is an untested approach.
  • The UK’s new legal framework for sanctions, and position outside the Single Market and EU customs union, could limit the extent to which the UK is able to enter into such a partnership on sanctions with the EU.
  • If participation in the Common Foreign and Security Policy after Brexit is not possible – or not sought by the UK – then the Government should propose that a political forum be established between the UK and the EU, for regular discussion and co-ordination of sanctions policy.
  • The extent to which businesses operating in the UK are affected by the change to an independent sanctions regime will depend on how closely the UK continues to align with the EU’s restrictive measures. Should the UK choose to diverge from the EU-27’s measures, this could lead to additional administrative burdens for businesses.
  • The UK has the expertise and capacity to develop and implement sanctions outside the EU. The Foreign and Commonwealth Office is developing a dedicated sanctions unit, and depending on the UK’s sanctions policy decisions outside the EU, further resources might be needed.
  • Sanctions policy is one subset of wider foreign policy. The influence of the UK on the sanctions policy of its international partners will depend on the extent to which it is able to retain its authority and leadership on key foreign policy dossiers after Brexit. Further consideration of the impact of leaving the EU on the UK’s ability to pursue and achieve its foreign policy objectives will be urgently required.

The issues highlighted in the Report are certainly as fundamental as those raised in debate in the House of Lords. The tortuous progress of the Bill looks set to become more tortuous still.

Gavin Irwin

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