UK Sanctions On Russia

The Brexit vote in June 2016 and subsequent decision by then-Prime Minister Theresa May to invoke Article 50 of the Treaty on European Union in March 2017, formally starting the process through which the UK left the EU, triggered a range of consequences for the UK. In the sanctions arena, this decision created the need for the UK to develop the necessary legislation to maintain existing sanctions regimes – and have the capacity to impose further sanctions – outside the laws and regulations of the EU. This work needed to be done rapidly to ensure the UK maintained its ability to implement and enforce sanctions once the exit process was complete. At the same time, the decision to leave the EU also created the opportunity for the UK to develop its own independent sanctions policy, acting unilaterally and at a different pace from its European neighbours.

Introduction

Reflecting the importance of the challenge and opportunity this presented, in May 2019, RUSI’s Centre for Finance and Security (CFS) created a taskforce on the “Future of UK Sanctions Policy”, which considered the post-Brexit design and coordination of sanctions, providing recommendations on how the UK should develop and implement its independent sanctions policy.

Any strategy the UK may have been developing for the use of sanctions following the completion of the Brexit process was upended by the Kremlin’s full-scale invasion of Ukraine in February 2022 and the subsequent imposition of sanctions on Russia.

Given the significant challenges posed by the need to design, implement and enforce sanctions on Russia and the recent publication of the UK government’s sanctions strategy, RUSI has established a new taskforce to consider how the UK has addressed these challenges and what its independent sanctions policy might be in this dramatically changed sanctions environment.

Understanding the progress made, the challenges encountered and the lessons learned is vital for defining an effective future sanctions strategy for the UK to ensure the country is in the best possible position to create the desired impact of sanctions in an evolving threat landscape. This new UK Sanctions Implementation and Strategy Taskforce (the Taskforce), comprising 50 former government officials from the UK and elsewhere, senior sanctions executives from the financial sector and industry, and academics aims to evaluate the UK’s current sanctions policy and propose enhancements to its strategy.

The Taskforce held its inaugural roundtable in June 2024 to discuss the evolution of the UK’s independent sanctions policies post-Brexit, the preparation and changes required and the early use of an independent sanctions strategy. It then discussed the challenges posed, and changes necessitated, by the sanctions regime imposed on Russia following its full-scale invasion of Ukraine. A second roundtable is scheduled for October 2024 to explore opportunities for strengthening existing frameworks and ensuring the UK’s sanctions strategy is fit for the geopolitical and emerging threat environment it faces today.

This report gathers the main findings from the June roundtable and assesses chronologically the establishment of the UK’s independent sanctions framework and the subsequent need to rapidly adapt in the face of Russia’s invasion of Ukraine. None of the comments made by the Taskforce members are attributable.

The UK’s Post-Brexit Sanctions Response (2016–22)

The roundtable discussion first sought to understand the overall impact of the transition from an EU-based sanctions regime to the post-Brexit era.

Establishing an Independent Sanctions Framework

Most Taskforce participants agreed that, while initially creating an atmosphere of uncertainty in the early stages of the process, Brexit had also given the UK government the flexibility and agility to shape its sanctions policy according to national priorities. After decades of implementing sanctions – apart from those relating to terrorism – as part of multi-country groupings within the UN and EU, the UK had the chance to introduce its own legal framework, leveraging the experience gathered while in the EU, as well as exploring the development of new sanctions regimes and accompanying narratives.

Taskforce members from major financial institutions reported that the early days of the transition process were characterised by a sense of urgency among civil servants to establish the necessary legislation for imposing and implementing the UK’s own sanctions, due to a lack of certainty on the official departure date from the EU. The need for independent sanctions legislation resulted in the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), which facilitated the roll-over of the existing EU sanctions regimes, their applicability in the UK and the future capacity of the UK to make new designations.

Once the urgency of the transition was over, the UK’s sanctions policy evolved beyond merely replicating EU sanctions. Former government officials at the roundtable noted that the UK had been a leading player in the development of the EU’s sanctions policies. With newfound independence, the government was able to leverage this experience, and introduce new sanctions regimes such as the Global Human Rights (GHR) Sanctions regime and the Global Anti-Corruption (GAC) Sanctions regime, and act with greater agility.

Taskforce members acknowledged some of strengths of the post-Brexit UK regime. A former US government official, for instance, praised the UK’s role in facilitating transatlantic coordination with the EU and commended the country’s “political bravery” in implementing sanctions regimes that had previously been hindered by disagreements among EU member states pre-Brexit.

Participants from the UK also acknowledged the relative strength of the UK’s post-Brexit legal framework. For example, one representative from the private sector noted that the legal framework is “broadly sensible” and functional, with statutory requirements for guidance enhancing its effectiveness, and an evidentiary threshold that is more consistently applied now that the UK is not in the EU – making listing decisions more robust. Another significant success singled out by the Taskforce was the introduction of the power to grant general licences, which greatly enhanced the flexibility and responsiveness of the sanctions regime, despite not being much used before February 2022.

While acknowledging the strength of the legal framework, some private sector representatives argued that the new independent regime created unease among businesses that now had to comply with yet another significant set of sanctions listings and implementation requirements and engage with new authorities such as the Office of Financial Sanctions Implementation (OFSI).

OFSI was established in March 2016 and became operational in April 2017. Some participants mentioned that its slow start disappointed the private sector, contrasting its performance with the decades-old Office of Foreign Assets Control (OFAC) in the US. Former US officials also stressed the differences in resourcing and behaviour between the US and the UK’s “sanctions machinery”, with the latter lacking the former’s size and “aggressiveness”.

Despite this, Taskforce members agreed that in the immediate period after Brexit, the UK had developed an effective sanctions framework based on the new SAMLA legislation and had gradually built its capacity to implement new regimes.

Introducing New Autonomous Sanctions Regimes

The Taskforce explored one particular benefit of the UK’s independent sanctions policy – the autonomy to design and adopt new regimes. Although the UK now has 36 thematic and country regimes, the Taskforce discussion focused on two regimes in particular – the GHR sanctions regime of 2020 and the GAC sanctions regime of 2021.

Most of the Taskforce participants agreed on the limited impact and scope of these two regimes. Overall, they described human rights and anti-corruption sanctions as “presentational”, with a strong messaging value at the international level, but limited impact on the targets or on UK businesses and their sanctions compliance obligations. Some recalled former Foreign Secretary Dominic Raab’s vision when establishing these regimes, as he sought to articulate the UK’s sanctions strategy as demonstrating “Global Britain’s commitment to acting as a force for good in the world”. However, they posited that these expectations have not been fully realised. The UK’s GAC and GHR sanctions have been underused, with only 42 and 123 designations respectively, in stark contrast to the proactive use by the US of its Global Magnitsky Sanctions, which includes 700 designations.

The limited application of GAC and GHR sanctions is not merely about numbers. Participants highlighted a lack of clarity and transparency regarding the criteria and purpose for which sanctions are deployed – or the strategy for their use – concluding that they are mainly used for signalling, with little expectation of behaviour change or justice being delivered. According to civil society representatives attending the roundtable, the inconsistency and perceived arbitrariness in the use of GAC sanctions undermine the legitimacy of the regime.

Participants also agreed that the deployment of thematic sanctions has been significantly hindered by the government’s focus on the Russia regime since February 2022. One Taskforce member suggested that without Russia’s invasion, the UK would have likely developed a clearer vision for its thematic regimes, citing the successful coordination with Canada and the US on Belarus’s GHR designations as an example of effective pre-2022 implementation.

The New Sanctions Reality After February 2022

All participants recognised that the full-scale invasion of Ukraine by Russia in February 2022 had fundamentally altered the sanctions landscape and had a dramatic impact on the operations of private sector compliance departments across the UK. The Taskforce recognised that the UK had found itself on a steep learning curve, rapidly scaling up efforts to match heightened global expectations, particularly from the US, to ensure the effectiveness of G7 coordinated sanctions efforts against Russia. Among the positive developments stemming from these efforts, participants highlighted the significant injection of funds and resources in key agencies such as OFSI, increased parliamentary scrutiny to monitor the government’s performance and ensure accountability, and a designation process with a more consistent application of the evidentiary threshold than before 2022.

The statutory requirement for the government to provide guidance was, according to participants, another major advance, ensuring greater clarity on implementation as well as accountability and transparency from the regulator.

Participants acknowledged the UK government’s efforts to engage with industry at different stages of the sanctions cycle, despite encountering a series of challenges. For instance, they argued that co-designing sanctions had proven to be difficult due to their national security nature, citing the oil price cap as a unique example of industry involvement in shaping specific measures. Meanwhile, in supporting sanctions implementation, sanctions had dominated public–private partnership meetings, almost matching the focus traditionally placed on anti-money laundering in these forums. However, after this positive initial public–private engagement, some industry representatives observed a shift from collaboration towards an enforcement-focused approach, prompting businesses to seek legal protection when engaging with authorities, which in the view of some participants has been a backwards step in terms of a cross-sector approach.

Participants welcomed the increased use by the government of the power to grant general licences. This greatly enhanced the flexibility and responsiveness of the sanctions regime by allowing multiple parties to conduct certain restricted activities without the bureaucracy of obtaining individual licences. Prior to the invasion, OFSI granted only two general licences, while since February 2022 the number of general licences has reached more than 50.

These features of the UK’s approach to sanctions post-February 2022, which were largely absent in the immediate post-Brexit period, have become central to the post-invasion sanctions landscape. Despite these advances, the Taskforce identified several deficiencies undermining the effectiveness and credibility of UK sanctions, which require government attention. These are set out in the following section.

Limited Resourcing and Expertise

Taskforce members discussed the shortage of resources and expertise in the relevant government sanctions departments. They described how the Russia regime required the hiring of new staff within government agencies, many of whom lacked the necessary sanctions knowledge. The urgency to address a backlog of licensing requests from businesses operating in the UK also led to a “conveyor belt” approach, which prioritised speed over development of expertise. This has prevented officials from developing a wider focus beyond UK domestic sanctions, resulting in many civil servants, who were working on sanctions, remaining too UK-centric in their approach, and consequently lacking in-depth knowledge about the regimes of G7 partners.

Rapid staff turnover also exacerbated these challenges. Government officials who have developed their expertise in sanctions have frequently transitioned to the private sector, attracted by better opportunities and remuneration. As reported by private sector representatives, even secondment initiatives intended to bolster expertise in the civil service often result in permanent moves away from public service, contributing to a persistent shortage of skilled personnel.

Lack of Maturity in the Non-Financial Sector

The long-running experience of financial institutions in implementing sanctions facilitated their readiness to confront the new obligations presented by the Russia regime and engage with competent authorities. However, most Taskforce members agreed that the non-financial sector continues to display varying degrees of readiness and capability to comply with the new sanctions regime. Deficiencies in the sector often relate to a lack of the necessary technical knowledge, skills and resources, including basic awareness of sanctions risks, rather than wilful neglect. The non-financial sector is increasingly participating in public–private collaboration efforts and enhancing their expertise and capabilities, but the gap demands greater attention from the government.

Quality of Guidance

Most Taskforce members welcomed OFSI’s recent decision to publish an FAQs document and found it useful for understanding OFSI’s expectations. Yet, one participant suggested that clearer and more comprehensive guidance might eliminate the burden for regulators to provide FAQs.

One participant highlighted that sanctions and related guidance still do not reflect the specific nuances of supply chains. This creates a substantial compliance burden for businesses to check whether listed small components or items are present in their supply chain. They gave as an example the requirements to comply with sanctions on materials such as titanium, which required businesses to trace the origins of small components, with uncertain benefits for the ultimate goals of sanctions. Despite the overall usefulness of guidance and complementary FAQs, a sanctions lawyer in the Taskforce also raised concerns about the legal standing of the guidance, highlighting recent UK court decisions which have emphasised the prioritisation of the statutory language of the sanctions regulations over any related guidance.

Listing and Delisting Criteria

Legal experts in the Taskforce criticised the current UK sanctions designation criteria for lacking clarity and rigorous standards, based on the low evidentiary threshold of “reasonable grounds to suspect”. Participants noted that UK courts have so far adopted an “arm’s length” approach when deliberating designation challenges, highlighting a prevailing trend in UK court rulings, viewing sanctions designations as a matter of government foreign policy with which they do not feel it is appropriate to engage, thus granting considerable leeway to the government in their sanctions decision-making.

Most legal experts in the Taskforce highlighted the absence of an established delisting policy, leaving those sanctioned without recourse or explanation, further eroding the legitimacy of the sanctions regime. Some advocated for the introduction of clear, transparent criteria and procedures for lifting sanctions; these could include conditions such as divestment from problematic assets, cessation of activities linked to the Russian government, undergoing periodic independent audits, publicly supporting Ukraine, or criticising where possible Russia’s leadership.

Combining Sanctions with Criminal Justice Tools

Participants raised significant concerns about due process and the rule of law when combining sanctions with criminal justice tools, due to sanctions’ low evidentiary threshold and their basis in ministerial decisions. They noted a lack of differentiation between assets of individuals or businesses of Russian heritage and/or who have divested their assets from Russia, and individuals involved in illicit activities such as corruption, money laundering or sanctions evasion. Only the latter should be subject to asset confiscation, yet discussions often fail to make this distinction. Despite these challenges, Taskforce members recommended combining sanctions with other enforcement tools, particularly criminal investigations resulting in civil and criminal forfeitures. They suggested that this approach, if carefully implemented, could enhance the UK’s independent sanctions policy and global influence. A member of the legal sector recommended looking at the activities of the US Task Force KleptoCapture as a successful example of this model to prosecute illicit conduct.

Alignment of Sanctions Regimes

While G7 countries aim for a unified approach to Russian sanctions, the Taskforce concurred that implementation varies between nations, leading to inconsistencies and challenges for international businesses. Private sector members reported that discrepancies in licensing and regulatory practices still existed between the US, the UK and the EU, causing operational disruptions. They emphasised the importance of alignment with international partners for the effectiveness of sanctions, the need to harmonise licences to simplify operations and mitigate diverging economic impacts, and the need for close coordination to minimise differences in sanctions regimes to avoid undermining collective efforts.

Lack of a Sustainable Vision

Multiple Taskforce members highlighted their perception of the lack of a long-term vision in the UK sanctions strategy beyond the Russia regime. Most concurred that the current sanctions regime imposes a significant burden on businesses and regulators without necessarily achieving – or clearly evidencing – its intended objectives. For instance, despite its aim to disrupt Russian military trade flows, sanctions have not effectively curtailed Russia’s global procurement activities, but simply redirected them. Members from the private sector noted the challenge for the UK government of balancing competing political aims – for example, on the one hand, restricting finance and resources to Russia while on the other trying to maintain global energy supplies. This created a tension between political messaging of standing against Russia and the practical implementation of sanctions and licensing.

Some participants suggested that the UK needs to reassess its strategy to ensure that sanctions are not only punitive but also effective and sustainable. They recommended the UK revisited or eliminated measures that create undue burdens without significant impact. This approach would allow the UK to focus on sanctions that genuinely hinder the targeted activities and adapt to a changing global landscape.

Conclusion

After its departure from the EU, the UK embarked on an intensive journey to develop its independent sanctions policy. The full-scale invasion of Ukraine ushered in a new era, characterised by a rapid expansion and heightening of efforts, significant resource allocation, and a steep learning curve for government agencies. Despite these efforts, the Taskforce identified several deficiencies that the UK government must address to ensure the effectiveness and credibility of UK sanctions.

In particular, the Taskforce highlighted as key issues: resources and expertise; engagement with industry; alignment with international partners; and a clear set of objectives for its sanctions policy. The Taskforce agreed that the UK will need to look beyond Russia sanctions to react to evolving geopolitical risks and emerging threats. The Taskforce will reconvene in October 2024 for an assessment of the future and vision of the UK and its sanctions regimes to ensure the effectiveness and sustainability of its sanctions strategy.

Jack Bell is the Media Relations Manager at RUSI.