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Sanctions post-Brexit – avoid traps for the unwary

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A new UK sanctions regime in a hard Brexit scenario is expected to broadly mirror that which is in place in the EU. However, there will be some key differences. Businesses should be alert to these differences in order not to breach any post-Brexit new UK sanctions or existing EU sanctions.  There are some real potential traps for the unwary. 

For example:

  • EU Russian sectoral sanctions may catch any UK businesses partially owned by certain Russian entities.  At present these sanctions only apply to businesses outside the EU. The UK will be outside the EU on a hard Brexit.
  • The risk analysis of dealing with subsidiaries of sanctions targets will need to change to reflect the principle, in the proposed UK sanctions, that providing funds or economic resources to a subsidiary is the same as providing them indirectly to a sanctions target.  Under current EU rules, there is a similar  presumption, but it is expressly rebuttable.
  • The new UK and existing EU sanctions licencing regime may not dovetail completely – leaving businesses vulnerable to breaching financial sanctions where they have a gap in coverage in their licencing.

Businesses should consider the potential applicability of the new UK sanctions regimes to their operations and:

  • reflect on whether their standard form contractual documentation needs to be updated to account for the new UK sanctions regimes;
  • assess whether any of their counterparties could become targeted as a consequence of a hard Brexit;
  • update their existing processes and procedures to account for the immediate divergence of the EU and UK sanctions regimes (e.g. checks on the UK’s sanctions lists may no longer pick up all of the persons who are on the EU’s sanctions lists and vice versa);
  • double-check their existing sanctions licences to ensure that the same will continue to provide the requisite cover following Brexit.

For more detail on these issues and key changes contained in the Sanctions and Anti-Money Laundering Act 2019 please see here.  It is worth noting that even if the UK leaves the EU with a 'deal', there could still be a hard Brexit at the end of the implementation period should the UK and EU fail to reach agreement on a future relationship.

This article appeared on the Allen & Overy Investigations Insight Blog – sign up to the blog to receive updates on important developments in business crime and financial services investigations  – email