The international sanctions landscape has changed, significantly, over the past month as geo-political tensions increase.
President Trump has withdrawn from the Iran sanctions deal, the international community has responded to the attempted assassination of Sergei and Yulia Skripal; and the new UK Sanctions and Money Laundering Bill has gained Royal Assent. A round up of these topics is given below.
Following President Trump's announcement on 8 May 2018 to withdraw the US from the Joint Comprehensive Plan of Action ("JCPOA"), the remaining signatories have rallied and sought to reaffirm their commitment to the agreement.
The re-imposition of US sanctions will have financial consequences for Iran. Any EU businesses that have dealings with Iran, with contracts to fulfil over the coming years, will need to consider, from a commercial and legal / regulatory perspective, the implications of continuing to engage with the Iranian market.
Companies currently have a "grace period" of at least 90 days to limit their relationship with Iran before US sanctions take effect, although those involved in energy related activities have been afforded 6 months to withdraw.
EU businesses (with links to the US) will either have to consider withdrawing from Iran, and risk breaching any extant contracts, or maintaining their relationship with Iran and (possibly) being subject to punitive measures, which US Secretary of State Mike Pompeo has described as "the strongest sanctions in history". This is on account of some US sanctions having "extra-territorial" effect.
In response, the EU Commission has published a so-called "Blocking Regulation" which seeks to limit the "extra-territorial" effect of some US sanctions in an effort to protect EU businesses. Specifically, the Blocking Statute, according to a press release issued by the European Commission, "forbids EU companies from complying with the extraterritorial effects of US sanctions, allows companies to recover damages arising from such sanctions from the person causing them, and nullifies the effect in the EU of any foreign court judgements based on them".
The EU Parliament and Council now have 2 months to file any objections. Should none be made, the proposed measures will come into effect by the beginning of August 2018, at the latest.
On 8 June 2018, the EU signed a joint letter to the US Treasury Secretary and Mike Pompeo formally requesting exemptions from the US sanctions. These included; exemptions for EU companies that initiated or concluded contracts after 16 January 2016, exemptions from certain key sectors (such as energy and infrastructure,) exemptions to maintain banking and finance channels with Iran. The US has yet to respond to the joint letter,
Whilst the US wishes to renegotiate the current JCPOA to include restrictions on ballistic missile testing and limiting Iran's involvement in Syria, EU leaders' immediate focus has been on convening with their Iranian counterparts to preserve the current deal.
The EU have also considered a number of proposals to incentivise Iran to remain a member of the JCPOA, including European Investment Bank financing to off-set the potential financial consequences of US withdrawal.
The UK's position has not been finalised. Whilst the UK government has reaffirmed its commitment to the deal, and stated in Parliament that it will help protect British business dealings in Iran, it has yet to specify the mechanics by which that might be achieved.
The US response to the joint letter of the EU will be telling, but nevertheless, should any reply be unsatisfactory, the EU seemingly will proceed with introducing its own regulations to protect EU businesses from the effect of US sanctions. Given the current tensions between the US and the EU, it is impossible to rule out the US, in turn, responding to these protective steps.
The poisoning of former Russian military intelligence officer turned double-agent, Sergei Skripal and his daughter Yulia, on 4 March 2018, has led to action against Russia for its alleged involvement in the attempted assassinations.
On 23 March 2018, the UK Prime Minister Theresa May announced a series of measures, including expelling 23 of the 58 accredited Russian Diplomats based in the UK, the largest single expulsion in 30 years. Such expulsions were replicated across the world, with over 100 diplomats being expelled from 20 countries.
The UK Government has also imposed a number of sanctions, particularly targeting high net worth individuals and Russian companies. These include increased checks on private flights, customs and freight, restrictions on trade (such as on the export to Russia of technology required for oil exploration), and limitations on lending to certain Russian companies and banks.
The UK Government has also retracted a state invitation to Russia's foreign minister Sergei Lavrov and is currently reviewing the broadcasting licence provided to RT (formerly Russia Today), Russia's national television station, to consider if it should be revoked.
Chelsea FC owner, Roman Abramovich, experienced a delay as regards the reissuance of his UK visa. Whilst the Home Office stated that Mr Abramovich's visa application was still being considered, some viewed the delay as a move against supporters of President Putin. This issue (since superseded by Mr Abramovich withdrawing his application for a UK visa and acquiring Israeli citizenship) potentially points towards increasing tensions between UK and Russia, and particularly UK efforts to apply pressure on President Putin's inner circle.
The US has introduced sanctions against 38 individuals and entities by adding these to the US "Specially Designated Nationals List". All financial and proprietary assets of a person on the list located within the US are considered blocked and cannot be dealt with. The restrictions also prohibit any US individual from engaging directly or indirectly with any of the 38 individuals or entities. Non-US persons may be liable for knowingly facilitating "significant transactions" if working on behalf of the individuals or entities named on the "Specially Designated Nationals List".
In response, Russia has begun the process of launching its own counter-measures. Recently, Mr Putin's government has proposed legislation that would create criminal liability for Russian companies and their managers who comply with "western" sanctions.
Certain counter-sanctions passed through the Duma lower house on 22 May 2018, which included potential restrictions on the importation of products and materials originating in the US into Russia. On 5 June 2018, these measures were signed into law, providing President Putin with the power to choose the sectors and products that will be affected.
However, proposed legislation which provides criminal liability for Russian persons complying with foreign sanctions against Russia, has temporarily been shelved over fears in the Russian business community that the counter-sanctions may harm the Russian markets, if Russian companies cease to operate if sanctions on imports are imposed.
Given the impending World Cup in Russia, the Russian economy is expected to receive a substantial boost and it is hoped that the goodwill generated by the tournament will help to repair international relations. However, whilst tensions continue to be heightened, the UK and other western nations can be expected to continue to increase the pressure on those close to President Putin.
UK Sanctions and Money Laundering Act 2018
The UK Sanctions and Money Laundering Bill gained Royal assent on 23 May 2018, enabling a UK framework for imposing sanctions following the UK's exit from the European Union.
The new UK mechanism for sanctions will come into force when the UK official exits the EU (taking account of any transitional period which is implemented as part of ongoing political negotiations, rather than 'Brexit Day' in March 2019).
Under the Act, an appropriate Minister can direct that an individual or entity that is subject to sanctions under the current EU regime may be transferred to the new UK sanctions list, allowing for a smooth transition to the new framework.
As a consequence of the Act, the UK Government will be able to impose sanctions in order to comply with UN or international obligations, and for the prevention of terrorism, national security interests and/or ultimately furthering the UK's foreign policy.
Under the new regime, after the UK proposes sanctions, the FCO will coordinate with the relevant UK governmental department before these restrictions are implemented as a statutory instrument. In deciding whether to designate an individual or entity, the relevant UK Minister must have "reasonable grounds to suspect" that that individual or entity is involved in prohibited activities.
This test is broadly equivalent to the current standard applied by the EU Courts of having a "sufficiently solid factual basis".
Additionally, the new legislation will also allow for licences to be granted to organisations for humanitarian, peacebuilding, development and reconstruction activities in countries subject to the aforementioned sanctions.
Assets can also be unfrozen for humanitarian reasons should it become necessary. This change provides greater clarity for NGOs and charities seeking to assist civilians in countries subject to the sanctions regimes, who can continue their work without fear of breaching prohibitions.
Whilst the outcome of Brexit negotiations remains unknown, the UK is expected to replicate the existing regime in the short term. However, in due course, the UK Government may elect to diverge on a case by case basis (insofar as such divergence is permissible under international law).