OFSI issues update on no-deal Brexit financial sanctions

Out-Law News | 26 Mar 2019 | 10:26 am | 3 min. read

The Office of Financial Sanctions Implementation (OFSI) has issued an update on licence applications in the event of a no-deal Brexit.

The UK government has said that it wanted sanctions regimes to continue without interruption once the UK leaves the EU, regardless of whether a negotiated withdrawal agreement is put in place.

OFSI will continue to handle applications for and requests for amendments to licences allowing activity that would otherwise be prohibited by financial sanctions regimes. However, the legal framework for granting applications and amendments will change.

OFSI said that under the new framework, "any existing financial sanctions licence issued by [OFSI] will remain valid until: the date they are replaced by a licence under the new regime or until the expiry date stated on the licence or if they are revoked."

OFSI said that in the event of a no-deal Brexit it would receive applications and amendment requests as normal up to the date of EU exit.

After EU Exit it said: "If you apply for a new licence or an amendment to an existing licence and the regime is under the new SAMLA SI [a reference to new regulations published under the 2018 Sanctions and Anti-Money Laundering Act (SAMLA)], you will have to apply for a new licence under the SAMLA regime. The process for applying for a new licence under a SAMLA regime will follow the same format as the current application process. Further guidance will be provided in due course."

"If you apply for a new licence or an amendment to an existing licence, and the regime comes under EU retained law (i.e. there is not a SAMLA regime in place yet), amendments and licence applications will continue as they do currently," OFSI said.

Sanctions expert Stacy Keen of Pinsent Masons, the law firm behind Out-Law.com, said that much has been done to ensure the uninterrupted operation of sanctions regimes once the UK leaves the EU, including in the case of a no-deal exit.

"The government has published regulations, under SAMLA, that will come into force after the UK leaves the EU, carrying over several EU sanctions regimes into UK law. New regulations have been published for the sanctions regimes in place in respect of Burma, the Democratic People's Republic of Korea, the Democratic Republic of the Congo, the Republic of Belarus, the Republic of Guinea-Bissau, South Sudan, Venezuela, Zimbabwe and in relation to counter terrorist regimes. Any sanctions regimes that have not been addressed by way of new regulations will continue to apply as retained EU law under the terms of the EU (Withdrawal) Act."

These changes come at a time when a number of recommendations have been made to improve the effectiveness of the UK's sanctions, and anti-money laundering (AML), regimes and to strengthen OFSI's roles as both enforcer and deterrent. The House of Commons' Treasury Committee published a report earlier this month in which it said that Brexit could present an opportunity for the UK to have additional flexibility in its use of sanctions, although it emphasised that there will always be a need to ensure a multilateral approach.

The committee recommended that the government review the effectiveness of OFSI this year, two years after its formation, and seek to develop a centralised database of 'politically-exposed persons' (PEPs) to make it easier for those to whom AML regulations apply to conduct enhanced due diligence on these individuals. The committee was less convinced of the need for a new government power to block companies from listing on the London Stock Exchange on national security grounds, instead recommending a "full, wide and timely" consultation on any such new power before its introduction.

Keen said: "The UK government has indicated that its policy is to remain aligned with EU sanctions, although differences are emerging – for example on definitions, technical implementation and the ability to issue general, as well as specific, licences. Whilst in theory Brexit will give the UK additional controls on its sanctions policy, the reality is that an effective sanctions policy requires a coordinated and collaborative approach, particularly from those with maximum influence: the EU and the US. Although a major player in financial matters itself, the UK will have to ensure that it does not totally go it alone if its sanctions regime is to have maximum impact."