UK's breakaway sanctions regime risks EU divergence through court challenges

28 March 2019 1:04pm

21 March 2019. By Matthew Holehouse.

A UK drive to replicate hundreds of EU sanctions listings on foreign states, warlords and terrorist groups ahead of Brexit will be fertile territory for judicial review in the British courts, opening the potential for divergence with the rest of the bloc.

Currently, the UK is part of the EU’s unified system of sanctions listings against individuals and states. Both UN sanctions covering states Al Qaeda, Somalia and North Korea, and the EU’s autonomous sanctions regime covering state actors in Russia, Egypt, Myanmar and Venezuela, are implemented via EU decisions into UK law.

The UK has laid the groundwork for a standalone system to come into force after it exits the EU — either under a no-deal exit next Friday, or a negotiated settlement at a later date.

The UK is a major contributor to the EU sanctions process, providing the intelligence and legal-preparatory work for an estimated 50-70 percent of the EU’s autonomous listings, as well as significant political clout in pushing for decisions.

While both sides have said they wish to maintain cooperation after Brexit — allowing the two sides to continue sharing intelligence and synchronizing moves — the establishment of London as a separate forum will nonetheless open an avenue to fresh challenges of historical EU decisions from individuals, banks and companies.

It’s an open question whether British judges will take a hands-on or a more deferential approach to the UK’s list. If it’s the former, it risks opening a divergence with the EU regime, complicating the task for businesses and banks seeking to remain in compliance.

Transition

The UK’s standalone regime will leave it free to impose measures where the EU opts not to act. But as a starting point, it intends to preserve in UK law as many as possible of the 1,080 EU listings currently in force. The UK will continue to have an international law obligation to implement a similar number of UN sanctions.

Two legal instruments will be used in this “transitioning” process.

Under a “snapshot” approach, all EU Council listings will be captured in domestic UK law under the EU Withdrawal Act. This provides a safety net in the event of a no-deal Brexit.

But as the basis for a long-term policy, listings are being reviewed and will be introduced into domestic law as secondary legislation under the Sanctions and Anti-Money Laundering Act 2018, the legislation which replicates the EU’s sanctions powers in domestic law.

So far, secondary legislation for 11 of 35 targets has been published, including EU sanctions on Venezuela and Iran, and UN sanctions on North Korea and the Islamic State group. Some, including the EU’s sanctions regimes on Russia and Zimbabwe, are pending publication.

But the UK accepts it can’t simply copy-and-paste existing measures into domestic law.

Instead, each of the 1,080 EU listings has undergone a review by the Foreign & Commonwealth Office over the past nine months, to ensure they meets the evidential thresholds of the Sanctions Act of “reasonable grounds to suspect.”

The UK already held significant volumes of evidential material on file, having either proposed listings or been party to early discussions within the EU. Where files were deemed insufficient, officials sought to build them up with material from EU databases or fresh research, primarily from open sources such as newspapers and company records. In many cases, the files are now significantly bulkier than when they were first signed off by the EU Council.

“It is an enormous undertaking,” said Guy Martin, a partner at Carter Ruck in London who represented Yassin Kadi, a Saudi Arabian businessman who successfully overturned the EU’s imposition of a post-9/11 asset freeze in a landmark case.

“I don’t envy the task of the FCO people who are doing this — we are talking about thousands of names, and thousands of files of underlying material having to be reviewed, and asked questions about.”

Listings that don’t meet the threshold will be dropped. No confirmation of the new UK lists will be made until the day the regime comes into force, to preserve the integrity of the EU’s regime.

Decisions

The EU court has seen a slew of high-profile challenges in the past decade against sanctions regimes imposed on the former Ukrainian government, on Iran and on Myanmar.

After Brexit, the UK courts will present a new and untested forum for sanctioned entities to seek to release their frozen assets.

Under the 2018 Sanctions Act, the UK’s autonomous sanctions, including those carried over from the EU, can be challenged and annulled in the High Court. The court cannot annul UN sanctions, but can order that the government petition for it be overturned.

The main grounds for challenge may center on whether the evidential threshold under the act has been met.

Here, it’s possible that the UK’s race to review files ahead of March 29 may come under the spotlight. 

“The UK court may have to decide some broad issues about how it will approach interpretation of the Act, and the question may then be, is each individual listing robust enough?” said Maya Lester, one of the UK’s leading sanctions barristers. “If it’s not robust enough, it’s possible that that’s because of this pre-Brexit process that has been gone through, or perhaps because the EU listing wasn’t robust enough.”

Lester added: “In theory, this could be a fertile ground for judicial review, but it’s very difficult to speculate as to whether there are going to be floods of cases or not.”

UK judges might be asked to look afresh at questions that have been addressed in the EU court.

The Sanctions Act introduces a proportionality test, obliging a minister to consider whether an asset freeze or travel ban is “appropriate” in light of, among other things, the “likely significant effects of the designation on that person.”

“The [EU] court in Luxembourg has never been very detailed in its scrutiny as to whether a particular listing is proportionate in individual cases,” Lester said. “It would be interesting to see what the [UK High Court] would make of that.”

The High Court will likely have to weigh what credence to give to listings based largely on evidence originally provided by other EU states, such as France or Germany; or that sourced from non-EU states, including those with poor human-rights records.

Unlike in the EU courts, the UK regime provides for closed procedures for the hearing of sensitive evidence.

The question how widely to cast the net will also arise. The Sanctions Act states that those “associated” with a person involved in proscribed activity can be hit by listings. The EU court has previously overturned measures that targeted the children of government officials.

The FCO has approached the review exercise on the assumption that the courts will scrutinize any listing under the Sanctions Act as a standalone UK decision taken on the day of exit. Still, British judges might still need to consider what credence, if any, should be given to the previous decisions of the EU Council and the bloc’s courts.

Unstitching

What happens in London will have knock-on consequences for the EU.

Successful challenges in London may well release judgments and evidence that can be used in subsequent challenges in Luxembourg, as well as the US.

“My clients — those who are interested in challenging EU sanctions and who issued applications in Luxembourg — will definitely be interested in challenging,” Martin said. “It’s important to apply, litigate, challenge in every jurisdiction where a client is listed.”

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