On 22 February 2024 the UK government published its first sanctions strategy.
The strategy, titled "Deter, Disrupt and Demonstrate", sets out the UK's approach to sanctions in today's turbulent geopolitical climate. It reflects on the UK's use of sanctions to date, considers the challenges faced, and provides an insight into the potential for future development.
While the strategy itself does not significantly move the needle as far as the UK sanctions regime is concerned, it does provide an insight into the areas being prioritised by the UK government. In particular, the strategy highlights the importance of international cooperation for effective sanctions enforcement and suggests a number of areas for development in the coming years.
Rebuilding Ukraine with sanctioned funds
Unsurprisingly, the strategy focuses heavily on the UK's sanctions against Russia. With the war in Ukraine having now entered its third year, the UK continues to levy an unprecedented package of sanctions against Russia in an attempt to encourage it to cease actions that destabilise Ukraine.
Against this backdrop, the strategy reveals that sanctioned individuals may soon be able to apply to have sanctioned funds released for the express purpose of rebuilding Ukraine. The strategy stops short of setting out exactly what this process will look like. However, it highlights an intent to repurpose frozen Russian assets for the benefit of Ukraine.
The strategy does go slightly further to note that the UK, in conjunction with its allies, continues to consider new ways to unlock the value of frozen Russian assets to support Ukraine. However, there is little evidence that any non-voluntary mechanism for the redistribution of assets is on the horizon.
Humanitarian exemptions
The strategy also sets out an intention to build a humanitarian exemption into the UK sanctions regime. Such a change would be welcomed by many as a marked improvement from the current position which requires humanitarian organisations and financial institutions to apply for targeted licences to provide humanitarian support.
While the UK has previously issued a small number of general licences to assist humanitarian efforts, this new mechanism would help to tackle the remaining barriers to legitimate humanitarian activity and would provide assurance to organisations that such activity will not result in breaches of the UK sanctions regime.
This reform would also provide a level of comfort to the financial sector that payments made in areas where sanctions operate will not be in breach of the UK sanctions regime provided that such payments relate to legitimate humanitarian efforts.
Circumvention
Alongside the proposed developments listed above, the strategy highlights the need to continue seeking to crack down on sanctions circumvention. Shining a particular light on Russia, the strategy notes that the UK is continuing to tackle attempts to circumvent sanctions by routing activity through neighbouring countries.
While the “whack a mole” challenge of sanctions circumvention is never likely to be fully addressed, the strategy notes that the UK has made progress in its attempts to curb offending practices. It lists the various steps taken by the UK to combat circumvention, which include:
UK officials travelling to countries in Central Asia, Eastern Europe, and the Gulf to share concerns and build relationships;
the publication of the "Common High Priority Items List" which lists those items critical to Russia's battlefield capabilities and is designed to allow companies and authorities to focus their efforts when monitoring supply chains; and
taking steps to designate military suppliers as well as individuals involved in obscuring the wealth of oligarchs.
Given the sharp rise in exports to countries in the Caucasus since the outbreak of the war in Ukraine, there is clearly still work to be done in this area. With the spotlight shining on these issues recently, we anticipate this continuing to be an area of focus in the next few years.
Collaboration
Sanctions cannot be effectively implemented or enforced by one country acting in isolation. As the strategy points out: "sanctions work best when multiple countries act together".
This theme of collaboration, which is evident in the approach taken by the UK against circumvention measures, is central throughout the strategy. This comes as no surprise given that international collaboration was a central theme in the Office of Financial Sanctions Implementation's most recent annual review.
The strategy highlights the UK's commitment to build coalitions with, and work alongside, other G7 countries and its Five Eyes and EU partners to ensure a robust and effective sanctions regime. This is particularly important in relation to Russia, where action through the UN Security Council has not been possible due to Russia's membership.
It is not only international collaboration which is highlighted – the importance of private sector cooperation is also recognised in the strategy. With the engagement of businesses essential to the day-to-day functioning of the UK's sanctions regime, the strategy points out that the input of industry remains a driving force behind improvements.
Conclusion
The UK sanctions regime has seen rapid development since the implementation of the Sanctions and Money Laundering Act in 2018.
The strategy suggests that these changes are likely to continue over the coming years, making it all the more important for UK businesses to take steps to monitor their own sanctions compliance. With imprisonment, fines, or a combination of the two, the penalty for those who fail to comply with the UK's sanctions regime and do not keep up with the UK's ever evolving sanctions environment may face significant consequences.
If you require any assistance with UK sanctions compliance, please get in touch with Alison Rochester or Andrew Buchan in our trade and commerce team, or your usual Shepherd and Wedderburn contact.